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E-MailLeo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on Chief Justice Strine’s recent essay, Corporate Power is Corporate Purpose II: An Encouragement for Future Consideration from Professors Johnson and Millon, forthcoming in the Washington and Lee Law Review. Related research from the Program on Corporate Governance includes Corporate Power is Corporate Purpose I: Evidence from My Hometown (discussed on the Forum here), Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law (discussed on the Forum here), and Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance, all by Chief Justice Strine.
Leo E. Strine, Jr., Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, recently issued an article that is forthcoming in the Washington and Lee Law Review. The article, titled Corporate Power is Corporate Purpose II: An Encouragement for Future Consideration from Professors Johnson and Millon, is available here. The abstract of Chief Justice Strine’s essay summarizes it as follows:
This article is the second in a series considering the argument that corporate laws that give only rights to stockholders somehow implicitly empower directors to regard other constituencies as equal ends in governance. This piece was written as part of a symposium honoring the outstanding work of Professors Lyman Johnson and David Millon, and it seeks to encourage Professors Johnson and Millon, as proponents of the view that corporations have no duty to make stockholder welfare the end of corporate law, to focus on the reality that corporate power translates into corporate purpose.
Drawing on examples of controlled companies that pursue goals other than shareholder wealth maximization, which Professors Johnson and Millon, among others, often reference to support the proposition that there is no duty under corporate law to put stockholders first, this article makes the point that those with power, controlling stockholders in this case, dictate corporate purpose. In widely-held public companies, the power dynamics are identical, and in these companies too, boards tend to maximize the preferences of those with power, the equity holders. This article also points to the phenomenon of corporate inversions to highlight the fact that corporate boards are so responsive to shareholder interests that they will in fact undermine the tax base of the corporation’s home and chartering nation by redomiciling, solely to benefit the corporation’s equity holders. It is these equity holders who are the only “citizens” of the corporate republic and they have no ties of national allegiance or any shared interest other than in the return on their invested equity. If in reality corporate boards could consider other corporate constituencies as equal—such as the corporation’s workers or communities—why would so many corporations choose to redomicile to lower their tax bills, and in the process, divert funds away from the human beings who would ultimately benefit from their tax dollars, especially in states that permit boards to consider non-shareholder constituencies? It is not likely because these boards are comprised of unusually callous managers and directors. Rather, it is more likely the reality that corporate power matters and dictates corporate purpose. If we want a world where stockholders are not the sole end of corporate governance, then we cannot have a system where they are the only constituency with any power.
The complete article is available for download here.
