Judd Sneirson makes two claims about the law of corporate social responsibility that I think are incorrect:
The big, recurring debate in corporate social responsibility is between those who think that corporate decisionmakers must aim to maximize shareholder returns and those who think that corporate decisionmakers should act in the best interests of the entire firm—its shareholders, to be sure, but also its other, non-shareholder constituencies. When shareholder and non-shareholder interests diverge, the issue comes to a head. Where does corporate law stand?
In normal corporate governance (where the company is not undergoing a change in control governed by the Revlon lines of cases), the law is pretty clear: the business judgment rule will protect decisions meant to benefit the entire enterprise, even if shareholder profits are thereby sacrificed. Constituency statutes support this position, and, importantly, no corporate statute or case requires otherwise.
As I explain in Director Primacy: The Means and Ends of Corporate Governance, however, while the BJR may sometimes have the effect of insulating director decisions favoring stakeholders from judicial review, that is not the intent of the rule:
The case law, properly understood, does not stand for the proposition that directors have discretion to make trade-offs between nonshareholder and shareholder interests. Instead, the cases stand for the proposition that courts will abstain from reviewing the exercise of directorial discretion even when the complainant alleges that directors took nonshareholder interests into account in making their decision.
The business judgment rule prevents … a shift in the locus of decision-making authority from boards to judges. It does so by establishing a limited system for case-by-case oversight in which judicial review of the substantive merits of those decisions is avoided. The court begins with a presumption against review. It then reviews the facts to determine not the quality of the decision, but rather whether the decision-making process was tainted by self-dealing and the like. The questions asked are objective and straightforward: Did the board commit fraud? Did the board commit an illegal act? Did the board self-deal? Whether or not the board exercised reasonable care is irrelevant, as well it should be. The business judgment rule thus builds a prophylactic barrier by which courts pre-commit to resisting the temptation to review the merits of the board’s decision. This is precisely the rule for which shareholders would bargain, because they would conclude that the systemic costs of judicial review exceed the benefits of punishing director misfeasance and malfeasance.
Stakeholder interests simply don't come into the picture, as the case I discuss therein confirm. See also my essay The Bishops and the Corporate Stakeholder Debate
Sneirson also argues that:
What about Dodge v. Ford, you say? Recent articles suggest that case was more about close corporations than a duty to maximize shareholder wealth, and subsequent cases cite Dodge v. Ford for its close corporation proposition, not its famous dictum on the purpose of the corporation.
It's certainly true that those articles make that claim. But they're wrong. In Director Primacy: The Means and Ends of Corporate Governance, I explained that:
Dodge’s theory of shareholder wealth maximization has been widely accepted by courts over an extended period of time. Almost three quarters of a century after Dodge, the Delaware chancery court similarly opined: “It is the obligation for directors to attempt, within the law, to maximize the long-run interests of the corporation’s stockholders.” Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del. Ch. 1989). For an interesting interpretation of Dodge, which argues that the shareholder wealth maximization norm originated as a means for resolving disputes among majority and minority shareholders in closely held corporations, see D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277 (1998). I am skeptical of Smith’s interpretation. In the first instance, the court’s own analysis in Dodge is not limited to close corporations. Smith places considerable emphasis on the sentence immediately preceding the court’s statement of the shareholder wealth maximization norm. See id. at 319 (using italics for emphasis). In that sentence, the court draws a distinction between the duties Ford believed he and his fellow stockholders owed to the general public “and the duties which in law he and his codirectors owe to protesting, minority stockholders.” Dodge, 170 N.W. at 684 (emphasis supplied). On its face, the duty to which the court refers is that of a director rather than the duties of a majority shareholder. (Concedely, both the specific passage in question and the opinion in general are sufficiently ambiguous to permit Smith’s interpretation.) In the second instance, whatever Dodge originally meant, the evolutionary processes of the common law have led to Dodge being interpreted as establishing a basic rule for boards of directors; namely, that the board has a duty to maximize shareholder wealth. In Long v. Norwood Hills Corp., 380 S.W.2d 451 (Mo. Ct. App. 1964), for example, the court observed:Plaintiff cites many authorities [including Dodge] to show that the ultimate object of every ordinary trading corporation is the pecuniary gain of its stockholders and that it is for this purpose the capital has been advanced.... All of these cases involve either banking, commercial or manufacturing corporations and in most of them alleged misappropriation of the assets of the corporation or misconduct of the majority stockholders or boards of directors have been alleged.Id. at 476 (emphasis supplied). The court further stated that it had “no quarrel with plaintiff insofar as the rules of law stated therein govern the actions of majority stockholders and the boards of directors of corporations.” Id (emphasis supplied). As Smith himself concedes, moreover, his interpretation departs from the “consensus” of most corporate law scholars. Smith, supra, at 283.