Corporate Conduct that Does Not Maximize Shareholder Gain: Legal Conduct, Ethical Conduct, the Penumbra Effect, Reciprocity, the Prisoner's Dilemma, Sheep's Clothing, Social Conduct, and Disclosure

Stetson Law Review, Vol. 28, No. 1, 1998

Posted: 22 Aug 1999

See all articles by Melvin A. Eisenberg

Melvin A. Eisenberg

University of California, Berkeley - School of Law

Abstract

A long-standing issue in corporate law is the extent to which corporations can properly engage in nonmaximizing conduct. The analysis of this issue has often been obscured by a tendency to treat nonmaximizing conduct as a single category. In fact, however, such conduct falls into a number of different categories, many of which are consistent with maximization. For example, obedience to legal and ethical principles is consistent with maximization, even if greater gains could have been achieved by acting unlawfully or unethically, because law and ethics are channels through which maximization must flow. Certain other kinds of nonmaximizing conduct may be justified either because the conduct falls within the penumbra of legal or ethical principles, reciprocates for benefits that the corporation has received, or is equivalent to ordinary business activity; or because the conduct, if engaged in by a sufficient number of corporations, is value-maximizing. Nonmaximizing conduct that does not fall within these categories may still be justified if it is reasonable, in terms of the nexus between the conduct and the corporation's business and the amount involved in light of customary practices. However, such conduct should be subject to the check of disclosure, especially in the case of contributions to a nonprofit entity that involve conflicts of interest.

Suggested Citation

Eisenberg, Melvin A., Corporate Conduct that Does Not Maximize Shareholder Gain: Legal Conduct, Ethical Conduct, the Penumbra Effect, Reciprocity, the Prisoner's Dilemma, Sheep's Clothing, Social Conduct, and Disclosure. Stetson Law Review, Vol. 28, No. 1, 1998, Available at SSRN: https://ssrn.com/abstract=165609

Melvin A. Eisenberg (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States
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510-643-2672 (Fax)

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