Shareholders v. Stakeholders: Evaluating Corporate Constituency Statutes Under the Takings Clause
Lynda J. Oswald
The Stephen M. Ross School of Business at the University of Michigan
Journal of Corporation Law, Vol, 24, No. 1, November 1998
Over one-half of the states have enacted corporate constituency statutes, which permit managers to consider the interest of non-shareholder "stakeholders" in the corporation -- parties such as employees, customers, suppliers, and/or the local community. These statutes set the usual corporate law norm of shareholder primacy on its head. If managers need no longer act in the best interests of the shareholders, the value of the shareholders' ownership interest in the corporation is reduced, for their claim to residual earnings is weakened. This paper considers whether constituency statutes work an unconstitutional taking of private property in violation of the Fifth and Fourteenth Amendments. I conclude that the constituency statutes as currently drafted cannot withstand a Takings Clause analysis, but that the result intended by these statutes could be achieved through careful drafting and/or the use of other constitutional tools.
JEL Classification: H7, K2
Date posted: August 25, 1998
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