The American Law Institute (ALI) is currently working on a Restatement of the Law of Corporate Governance (“Restatement”). As with all Restatements, the purpose of the proposed Restatement is to clarify “the underlying principles of the common law” that have “become obscured by the ever-growing mass of decisions in the many different jurisdictions, state and federal, within the United States.” As I argued in my paper, Do We Need a Restatement of the Law of Corporate Governance?, corporate law is virtually unique in being dominated by the law of a single jurisdiction; namely, Delaware. Given the prominence of Delaware law in this field, the proposed Restatement is unlikely to be influential.

In my new paper, A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective, I turn to an assessment of a key provision of the proposed Restatement; namely, § 2.01, which purports to restate the objective of the corporation. Section 2.01 differentiates between what the drafters refer to as common law jurisdictions and stakeholder jurisdictions. The latter are those states that have adopted a constituency statute (a.k.a. a non-shareholder constituency statute).

The tentative draft of § 2.01 was approved by the ALI membership at the Institute’s annual meeting. My article is intentionally agnostic on the underlying normative issue of whether corporations should focus exclusively on shareholder interests or should also consider stakeholder interests. Instead, it offers a critique of § 2.01 and offers suggestions so as to clarify important open questions and better align § 2.01 with current law.

The drafters assert that, in common law jurisdictions, the corporate objective is to “enhance the economic value of the corporation, within the boundaries of the law . . . for the benefit of the corporation’s shareholders . . ..” In doing so, corporation is allowed to consider the impact of its actions on various stakeholders, provided doing so redounds to the benefit of shareholders.

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