Delaware Law Requires Directors to Manage the Corporation for the Benefit of its Stockholders and the Absurdity of Denying It
In a new article posted on SSRN and forthcoming in the Journal of Corporation Law, I address what I take to be a minor intellectual scandal. To wit, for decades, eminent law professors have been publishing scholarly articles claiming that Delaware law permits directors to promote the interests of non-stockholder constituencies even if doing so […]
Robert T. Miller is the F. Arnold Daum Chair in Corporate Finance and Law and the Associate Dean for Faculty Development at the University of Iowa College of Law. This post is based on his recent paper forthcoming in the Journal of Corporation Law and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine Jr.; and Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita.
In a new article posted on SSRN and forthcoming in the Journal of Corporation Law, I address what I take to be a minor intellectual scandal. To wit, for decades, eminent law professors have been publishing scholarly articles claiming that Delaware law permits directors to promote the interests of non-stockholder constituencies even if doing so harms stockholders in the long term (or, at least, that Delaware law is unclear on whether directors may do this). But as all competent Delaware lawyers know, and as numerous scholars have pointed out, this is clearly wrong. In Delaware, the standard of conduct requires that, in making a business decision, directors act for the purpose of promoting the value of the corporation for the benefit of the stockholders in the long term and for no other purpose. The Delaware Supreme Court and the Delaware Court of Chancery have said this so often, so consistently and so clearly (and leading treatises on Delaware law so plainly confirm the point) that any lawyer who advised a client otherwise would undoubtedly be committing legal malpractice.
