David Millon responds to my post discussing his new article Radical Shareholder Primacy (July 28, 2014), which is available at SSRN http://ssrn.com/abstract=2473189:
Thanks very much for the publicity and the generous evaluation. A couple of thoughts.
First, on the 'semantic quibble' of director primacy versus what I call 'traditional' shareholder primacy, I agree with you that as between directors and shareholders, directors enjoy primacy. I use the term in a different sense. As between shareholders and the corporation's other stakeholders, shareholders enjoy primacy (voting rights and derivative suit monopolies, for example). But the 'horizontal' point implies nothing about the 'vertical' dimension, because as we both know the law accords very little power to shareholders vis-a-vis directors. I certainly agree with you about that. And I agree that it's a good thing.
Second point: I respectfully suggest that you don't take the director primacy idea as far as you should. I don't think the law requires of directors even the watered-down version of shareholder wealth maximization that you assert. I think Delaware law is actually agnostic on the question of corporate purpose. I think they really mean it when they say 'incorporation for any lawful purpose.' So directors (absent atypical direction in the corporate charter) end up deciding the extent to which the company pursues profit maximization versus various possible alternatives, and this includes selection of the relevant time horizon for pursuit of corporate objectives. (Hobby Lobby is right on the state law corporate purpose question. Lyman Johnson and I have a new paper about this.)
Third, please note that the view of Delaware law that I'm sketching here bears no resemblance to the idea that directors should be subject to specific fiduciary-like duties to corporate constituencies other than shareholders. If the law truly is agnostic about corporate purpose, it makes no more sense to talk about duties owed to nonshareholders than it does to assert a duty owed solely to shareholders. So the ideas about corporate law as a panacea for society's injustices that Gordon Smith criticizes in the article you quote (in your blog piece about Lyman's recent article) have nothing to do with the view of the law that Lyman and I espouse. Broad director discretion as to corporate purpose has been the law for a long time and does not threaten the health of the economy. The real threat comes from shareholder pressures to maximize short-term stock prices. Corporate law tolerates this approach to management but certainly does not require (because it's agnostic). The misguided insistence that the law requires of management that it act as the agent of the shareholders probably makes things worse, but that isn't the law's fault.
