October 15, 2013
Eric Rasmusen, [email protected]
Can a Corporate Director Try to Help Stakeholders?
This paper is not yet written. It would be aimed at law reviews. It might also become an amicus brief.
(1) In thinking about what “person” means, we must realize that the purpose of such legal person as trusts,
estates, and corporations is to advance the purposes of individuals, and so cannot be restricted to profit
maximization. They are just ways of organizing individual effort. (2) The individual purposes advanced by the
actions of a corporation whose owners are motivated solely by profit can include religious purposes, because the
well-being of even the most selfish shareholder depends on the beliefs of his company’s customers, workers,
executives, and directors. The law should not require a corporation to listen to its stakeholders, but it should
permit them to listen, and to act in their interests if it so desires. In short, civil rights law should follow the business
judgement rule.
Obamacare cases: Hobby Lobby and its owners wish to offer employee health insurance that for
religious reasons excludes coverage of certain birth control pills that they think cause abortions. They
seek a preliminary injunction to stop the government from imposing fines for noncompliance until the
case is decided on the merits. The circuits have split. Both sides have asked for cert on the question of
whether a corporation is a “person” under the federal religious freedom statute. Answering that
question is important, but just moves the litigation along a step.
How do different forms of organization differ from each other?
Normal Corporation Nonprofit corporation Trust, Partnership Sole Proprietorship
Hypothetical: The Government legalizes production of special-purpose chemicals that kill one-year-old babies and free companies
from all liability. Are the directors legally obliged to sell baby poison? In each case, suppose all the shareholders want to maximize
profits and think selling the baby poison will do so.
Please the Customers
Please the workers
Please the director
Please suppliers
Fiduciary-Not-Agent
Corporate Decency
Shareholder Virtue
Keep the CEO Happy
Godly Profits
(a) A director or officer has a duty to the corporation to perform the director's or officer's functions in good faith,
in a manner that he or she reasonably believes to be in the best interests of the corporation, and with the care that
an ordinarily prudent person would reasonably be expected to exercise in a like position and under similar
circumstances. This Subsection (a) is subject to the provisions of Subsection (c) (the business judgment rule)
where applicable….
(c) A director or officer who makes a business judgment in good faith fulfills the duty under this Section if the
director or officer:
(1) is not interested in the subject of the business judgment;
(2) is informed with respect to the subject of the business judgment to the extent the director or officer
reasonably believes to be appropriate under the circumstances; and
(3) rationally believes that the business judgment is in the best interests of the corporation.
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