In an earlier post, I mused on whether ChatGPT and coming AI systems will spell the end of traditional law school exams. Which got me to wondering how ChatGPT would do on an essay question near and dear to my heart.
I asked:
Explain the differences between the shareholder primacy and director primacy theories of corporate governance
ChatGPT answered:
Shareholder primacy theory holds that the primary goal of a corporation is to maximize shareholder wealth. Under this theory, the board of directors is primarily accountable to the shareholders and should make decisions that will increase the value of their investments.
Director primacy theory, on the other hand, holds that the primary goal of a corporation is to serve the best interests of the company as a whole, not just the shareholders. Under this theory, the board of directors has a fiduciary duty to act in the best interests of the company and all of its stakeholders, including employees, customers, and the community.
In summary, Shareholder primacy theory focuses on maximizing shareholder wealth, Director primacy theory focuses on serving the best interests of the company as a whole, This means that the board of directors has a fiduciary duty to act in the best interests of the company and all of its stakeholders, not just the shareholders.
The definition of shareholder primacy is only half right (shareholder primacy also speaks to who has ultimate control of the corporation). The definition of director primacy is completely wrong. Indeed, egregiously so. See my list of director primacy bullet points.
