Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents

Abstract

In context, corporate law is often credited with creating, hewing to, or reinforcing a shareholder wealth maximization norm. The now infamous opinion in Dodge v. Ford Motor Co. describes the norm in a relatively bald and narrow way: "A business corporation is organized and carried on primarily for the profit of the stockholders." As a matter of theory and policy, commentators from the academy (law and business) and practice (lawyers and judges) have taken various views on this asserted norm — ranging from characterizing the norm as nonexistent or oversimplified to maintaining it as simple fact.

In an effort to broaden the conversation about the shareholder wealth maximization norm in an applied context, this essay describes shareholder wealth maximization under various state laws (in and outside Delaware) as a function of firm-level corporate governance — corporate law statutes, decisional law interpreting and filling gaps in that statutory law, and corporate charter and bylaw provisions — as applicable to both publicly held and privately held corporations in a variety of states. In this overall context, the essay considers the possibility that holders of shares in for-profit corporations may desire to maximize overall utility in their shareholdings of a particular firm, rather than merely the financial wealth arising from those holdings. To accomplish its purpose, the essay first briefly and generally addresses shareholder wealth maximization as a function of applicable statutory and decisional law and as a matter of private ordering (collecting, synthesizing, and characterizing, in each case, points made in the extant literature) before suggesting the broad implications of that analysis for corporate governance and shareholder wealth maximization and concluding. Ultimately, the essay makes a case for a more nuanced look at the shareholder wealth maximization norm. Given differences in doctrine and public policy among the states and variance in that doctrine and public policy among public, private, and statutory close or closely held corporations within individual states, answers to open questions are likely to (and should) depend on individualized facts assessed through the lens of specific statutory and decisional law and applicable public policy.

Keywords: shareholder wealth maximization, fiduciary duty, corporate law, director, Dodge, eBay

JEL Classification: G34, K22, M10, M12