The Role of Corporate Personality Theory in Opting Out of Shareholder Wealth Maximization

Abstract

In her article, Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents, Professor Joan Heminway notes that efforts to guide the decision-making of corporate directors away from shareholder wealth maximization are suspect, whether by way of charter, bylaw, shareholder agreement, or board policy. This is because when board decision-making serves the interests of non-shareholder constituencies, or pursues corporate objectives with no shareholder wealth benefits, directors run the risk of violating positive law or public policy that prioritizes shareholder wealth maximization. Meanwhile, in his article, The Origins of Corporate Social Responsibility, Professor Eric Chaffee presents what he calls a new “essentialist” theory of the corporation, which he labels “collaboration theory.” According to Professor Chaffee, this new theory explains why corporations have a duty to act in socially responsible ways, except when to do so would obviously destroy shareholder value.

In this Essay, I build on the aforementioned work of Professors Heminway and Chaffee in order to analyze to what extent corporate personality theory, including Professor Chaffee’s collaboration theory, has a role to play in determining the extent to which for-profit corporations may use private ordering to limit the constraints of any shareholder wealth maximization norm. Professor Heminway argues that there exists uncertainty about the ability of corporate stakeholders to use private ordering in this way, and the validity and enforceability of related bylaws, shareholder agreements, and board policies is therefore in doubt. At the same time, courts and legislatures often rely on theory and policy to resolve the existing uncertainty, and thus theory and policy may be decisive. In this Essay, I hope to show that corporate personality theory can be one of the relevant theoretical tools that may be used to bring additional clarity to this area.

Keywords: shareholder, corporations, corporate directors, corporate theory,

JEL Classification: K00