Shareholder Primacy and the Business Judgment Rule: Arguments for Expanded Corporate Democracy

25 Pages Posted: 23 Jul 2010

See all articles by Robert Sprague

Robert Sprague

University of Wyoming - College of Business

Aaron J. Lyttle

University of Wyoming - College of Law

Date Written: July 22, 2010

Abstract

There is a fundamental flaw in the law’s approach to corporate governance. While shareholder primacy is a well-established norm within U.S. corporate law, the business judgment rule essentially holds directors blameless when they fail to maximize shareholder wealth. During the past century, control of the corporation has passed from shareholders to managers. As a result, shareholders have little practical say in who runs the corporation, even though they cannot usually hold managers legally liable when those managers destroy shareholder wealth through incompetence. Despite a number of arguments asserting that shareholders do not deserve any additional management powers, this article concludes that this flaw in corporate governance compels greater shareholder democracy, primarily through access to the corporate proxy to nominate directors.

Keywords: Business Judgment Rule, Shareholder Primacy, Shareholder Democracy

Suggested Citation

Sprague, Robert and Lyttle, Aaron J., Shareholder Primacy and the Business Judgment Rule: Arguments for Expanded Corporate Democracy (July 22, 2010). Available at SSRN: https://ssrn.com/abstract=1647002 or http://dx.doi.org/10.2139/ssrn.1647002

Robert Sprague (Contact Author)

University of Wyoming - College of Business ( email )

1000 E. University Avenue
Dept. 3275
Laramie, WY 82071
United States

HOME PAGE: http://www.uwyo.edu/mgtmkt/faculty-staff/faculty-pages/sprague.html

Aaron J. Lyttle

University of Wyoming - College of Law ( email )

P.O. Box 3035
Laramie, WY 82071
United States

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