The Modern Corporation Statement on Company Law is a short statement of claims about the content of corporate law, which concludes:
Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise pro ts for their shareholders. This is re ected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the la er goal, it is usually a product not of legal obligation, but of the pressures imposed on them by nancial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.
It is signed by:
Lynn A. Stout Cornell Law School - Jack G. Clarke Business Law Institute
Jean-Philippe Robé SciencesPo
Paddy Ireland Kent Law School
Simon Deakin University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law
Kent Greenfield Boston College Law School
Andrew Johnston University of Sheffield - Law School
Harm Schepel University of Kent, Canterbury - Kent Law School
Margaret M. Blair Vanderbilt University - Law School
Lorraine E. Talbot University of York - York Law School
Alan J. Dignam Queen Mary University of London - School of Law
Janet Dine Queen Mary, University of London, (CCLS)
David Millon Washington and Lee University - School of Law
Beate Sjåfjell University of Oslo - Faculty of Law - Department of Private Law
Charlotte Villiers University of Bristol
Cynthia A. Williams York University - Osgoode Hall Law School
Marios Koutsias University of Essex - School of Law
Andrew Pendleton University of York (UK)
Gerald F. Davis University of Michigan, Stephen M. Ross School of Business
Michael Galanis University of Manchester
David Chandler The Business School, University of Colorado Denver
Andrew R. Keay University of Leeds - School of Law
Marc T. Moore University of Cambridge, Faculty of Law
Jean Jacques Du Plessis Deakin University, Geelong, Australia - Deakin Law School
Andrea J Bather University of Waikato - Management School
Beau Linton Lefler The University of Hong Kong - School of Business
Carrie Bradshaw York Law School
Christopher M. Bruner Washington and Lee University School of Law
Thomas Wuil Joo University of California, Davis - School of Law
Daniel J.H. Greenwood Hofstra University College of Law
Thomas Clarke University of Technology, Sydney
Lyman Johnson Washington and Lee University - School of Law; University of St. Thomas, St. Paul/Minneapolis, MN - School of Law
Floriana Mulazzi University of Brescia
Martin Lipton Wachtell, Lipton, Rosen & Katz
Carol Liao University of Victoria - Faculty of Law
Rebecca Johnson University of Victoria - Faculty of Law
Anat Beck Dickinson College
Greg Markel Seyfarth Shaw LLP
Wendy Currie Audencia School of Management
Frank Partnoy University of San Diego School of Law
Leonardo F. Peklar INSEAD
Alexandre Di Miceli da Silveira University of São Paulo (FEA-USP) - School of Economics, Management and Accounting; Alvares Penteado School of Business (Fecap)
Ofer Sitbon Independent
Cesar González-Cantón Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF); Humanistic Management Network
Jean-Pierre Chanteau Université Grenoble Alpes
Angela Rita Franco Donaggio São Paulo Law School of Fundação Getulio Vargas FGV DIREITO SP
Irene-Marie Esser University of South Africa - School of Law
Gill North Deakin University, Geelong, Australia - Deakin Law School
Sergio Alberto Gramitto Ricci Cornell Law School
Roman Tomasic University of South Australia - School of Law; Durham University - Law School
Renginee G Pillay University of Surrey - School of Law
Ciarán O'Kelly Queen's University Belfast - School of Law
Con Keating Independent
Hugh Christopher Willmott City University London - Sir John Cass Business School; Cardiff Business School
Jeroen Veldman CASS Business School, City University, London
Paige Morrow
Frank Bold; University of Kent
That's a weighty list. Into the balance, I will throw just one: Chief Justice Leo Strine of the Delaware Supreme Court:
Despite attempts to muddy the doctrinal waters, a clear-eyed look at the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare.
Honorable Leo E. Strine, Jr., The Dangers of Denial: The Need for A Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware General Corporation Law, 50 Wake Forest L. Rev. 761 (2015).
I don't know how he could make it any clearer. But just to drive the point home he specifically wrote that:
In current corporate law scholarship, there is a tendency among those who believe that corporations should be more socially responsible to avoid the more difficult and important task of advocating for externality regulation of corporations in a globalizing economy and encouraging institutional investors to exercise their power as stockholders responsibly. Instead, these advocates for corporate social responsibility pretend that directors do not have to make stockholder welfare the sole end of corporate governance, within the limits of their legal discretion, under the law of the most important American jurisdiction--Delaware.7
7See, e.g., LYNN STOUT, THE SHAREHOLDER VALUE MYTH: HOW PUTTING SHAREHOLDERS FIRST HARMS INVESTORS, CORPORATIONS, AND THE PUBLIC 30-31 (2012) (arguing that Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. is the “exception that proves the rule” and “it is only when a public corporation is about to stop being a public corporation that directors lose the protection of the business judgment rule and must embrace shareholder wealth as their only goal”); Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247, 308 (1999) (arguing that Unocal Corp. v. Mesa Petroleum Co. espouses the general rule in Delaware that directors are permitted to consider how a threat to the corporate entity would impact creditors, customers, employees, and even the general community); Christopher M. Bruner, Corporate Governance Reform in a Time of Crisis, 36 J. CORP. L. 309, 324 (2011) (citing Delaware cases for the proposition that “U.S. boards generally...have explicit latitude to consider the interests of other stakeholders, such as employees and creditors, in deciding how to respond to a hostile bid”); Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. REV. 733, 763-69 (2005) (arguing that corporate managers have the discretion to sacrifice corporate profits in favor of the public interest under Delaware law); Lyman Johnson, Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose, 38 DEL. J. CORP. L. 405, 432-33 (2013) (arguing that Delaware law is unsettled on the question of whether corporations are required to advance the long-term interests of stockholders); Lynn A. Stout, Why We Should Stop Teaching Dodge v. Ford, 3 VA. L. & BUS. REV. 163, 165, 169-71 (2008) (arguing that the Michigan Supreme Court's statement that “[a] business corporation is organized and carried on primarily for the profit of the stockholders” is not a legal requirement under Delaware law nor is it normatively desirable) ....
Honorable Leo E. Strine, Jr., The Dangers of Denial: The Need for A Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware General Corporation Law, 50 Wake Forest L. Rev. 761 (2015).
"PRETEND." Let's savor that word just for a minute. "PRETEND," which means:
Boom. I win.
For more detail, see my articles:
Director Primacy: The Means and Ends of Corporate Governance (February 2002). Available at SSRN: http://ssrn.com/abstract=300860
In Defense of the Shareholder Wealth Maximization Norm. Washington & Lee Law Review, Vol. 50, 1993. Available at SSRN: http://ssrn.com/abstract=303780
The Bishops and the Corporate Stakeholder Debate (April 2002). Villanova Journal of Law and Investment Management. Available at SSRN: http://ssrn.com/abstract=308604
