4 ms·

Under DE law, my understanding is that you are slightly off on this. Boards do have a duty to maximize shareholder value. THAT SAID, the business judgement rul

Under DE law, my understanding is that you are slightly off on this. Boards do have a duty to maximize shareholder value. THAT SAID, the business judgement rule provides that judges will not second guess the board absent evidence of gross negligence or total disregard of duty. This is because the Delaware court has decided that judges are not better than boards at evaluating business decisions. BUT! Overcoming the BJR is very difficult unless management stupidly says the quiet part out loud. Dodge v. Ford is a celebrated case in this regard because Ford basically said at trial "Yeah my main consideration in taking [specific action] is not maximizing shareholder value" and the judge was like "Haha no, that's not how any of this works - you can't do [specific thing] now." But if Ford was like "Yeah [specific thing] would be GREAT for shareholders" under the BJR the judge would have been like "Okay, great, keep doing what you are doing. How could I possibly know better than you?" Also there is no "need to do right by the company" - squeezing value out of the company and all of its stakeholders is completely consistent with the duties of the board members. How else would the private equity industry exist? (jk!)

JumpCrisscross 4y ago
> have a duty to maximize shareholder value Not to maximize profits. Courts give companies a wide berth in defining shareholder value.
- friesfreeze 4y ago
  Right, though I don't think it is so vague as to be meaningless. The stakeholder / shareholder value debates in corporate governance play on the extremities of this distinction a lot, with the current koan being that what is good for stakeholders is good for shareholders.
  - JumpCrisscross 4y ago
    > don't think it is so vague as to be meaningless It's not, particularly in the context of takeover defenses. There were cases in the 80s where Delaware ruled that only shareholder interests--not all stakeholders'--can be considered when a Board uses its "business judgment" to deploy a poison pill. But shareholders can have aims other than maximizing profit, and companies are free to respond to them.
    - friesfreeze 4y ago
      Right, though it is an interesting question of whether those values either have to be (1) directly fiducial (2) couched in some theory of fiducial return or (3) can be entirely non-fiducial. Doesn't really mean much in practice because management can always just cover their ass by saying that the other aims are also good for the bottom line - even if it is nonsense.
tuckerman 4y ago
I said this below but I don't think Dodge v. Ford is particularly really plays much into modern case law outside of the judgement rule. To my knowledge, it's never been cited in Delaware (against the board at least). A case that stands out more to me (being both more modern as well as at the federal level) is Burwell v. Hobby Lobby: "While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so." in reference to furthering religious goals instead of profit. (https://supreme.justia.com/cases/federal/us/573/682/#tab-opinion-1970980 https://supreme.justia.com/cases/federal/us/573/682/#tab-opi...)
- friesfreeze 4y ago
  I hear what you are saying. Hobby Lobby is an important case but to me Hobby Lobby doesn't really implicate the same policy concerns. Hobby Lobby was a closely held (read family held) private corporation. I agree that the language is dramatic, but I don't really think it the case has much to say about the duty to maximize shareholder value in widely held or public companies. I read that quote from Hobby Lobby as saying "Sure, where you own the whole thing you can do what you want, whatever, it's not like you are hurting any other shareholders" but I would hesitate in relying on getting that type of language in other fact patterns. Note that the plaintiff in Hobby Lobby was the secretary health - not a disgruntled shareholder. Edit: a word
luckydata 4y ago
you're confused. It's not the law that said boards have duty to maximize shareholder value, it was Jack Welch, gone but not soon enough.

JumpCrisscross 4y ago

> have a duty to maximize shareholder value Not to maximize profits. Courts give companies a wide berth in defining shareholder value.

friesfreeze 4y ago
Right, though I don't think it is so vague as to be meaningless. The stakeholder / shareholder value debates in corporate governance play on the extremities of this distinction a lot, with the current koan being that what is good for stakeholders is good for shareholders.
- JumpCrisscross 4y ago
  > don't think it is so vague as to be meaningless It's not, particularly in the context of takeover defenses. There were cases in the 80s where Delaware ruled that only shareholder interests--not all stakeholders'--can be considered when a Board uses its "business judgment" to deploy a poison pill. But shareholders can have aims other than maximizing profit, and companies are free to respond to them.
  - friesfreeze 4y ago
    Right, though it is an interesting question of whether those values either have to be (1) directly fiducial (2) couched in some theory of fiducial return or (3) can be entirely non-fiducial. Doesn't really mean much in practice because management can always just cover their ass by saying that the other aims are also good for the bottom line - even if it is nonsense.

tuckerman 4y ago

I said this below but I don't think Dodge v. Ford is particularly really plays much into modern case law outside of the judgement rule. To my knowledge, it's never been cited in Delaware (against the board at least). A case that stands out more to me (being both more modern as well as at the federal level) is Burwell v. Hobby Lobby: "While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so." in reference to furthering religious goals instead of profit. (https://supreme.justia.com/cases/federal/us/573/682/#tab-opinion-1970980 https://supreme.justia.com/cases/federal/us/573/682/#tab-opi...)

friesfreeze 4y ago
I hear what you are saying. Hobby Lobby is an important case but to me Hobby Lobby doesn't really implicate the same policy concerns. Hobby Lobby was a closely held (read family held) private corporation. I agree that the language is dramatic, but I don't really think it the case has much to say about the duty to maximize shareholder value in widely held or public companies. I read that quote from Hobby Lobby as saying "Sure, where you own the whole thing you can do what you want, whatever, it's not like you are hurting any other shareholders" but I would hesitate in relying on getting that type of language in other fact patterns. Note that the plaintiff in Hobby Lobby was the secretary health - not a disgruntled shareholder. Edit: a word

luckydata 4y ago

you're confused. It's not the law that said boards have duty to maximize shareholder value, it was Jack Welch, gone but not soon enough.