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COMMENTS
CAN A FEMINIST APPROACH TO CORPORATE SOCIAL
RESPONSIBILITY BREAK DOWN THE BARRIERS OF
THE SHAREHOLDER PRIMACY DOCTRINE?
CheriA. Budzynski*

I. INTRODUCTION

NVISION the following scenario: a small town, once the center of a

multitude of manufacturing jobs, faces factory closings and hundreds of
laid-off workers.' Such closings have a long-term impact on workers and the
community after the initial newspaper headlines fade:
"They'll get unemployment for awhile, but they will cut back on expenses, gas,
groceries ... It hurts everybody, more the retail people. They can't buy what they

used to buy. What about the places everybody2 went to lunch? Or where they get a
cup of coffee in the morning. It's a big blow."
As Cynthia Williams points out, business managers do not wake up in the
morning with plans to close a plant and impact the lives of everyone in a small
community.3 Instead, business managers and directors must make the decision to
close a plant or factory because of rising costs that make the plant "unprofitable"
for the company. 4 In the current legal environment, corporate directors and
managers have a duty to make these decisions in order to maximize profits for the
* B.A. 1995, Lourdes College, M.A. 1998, Ph.D. 2001, Bowling Green State University, J.D.
Candidate 2007, University of Toledo. I would like to thank Professor Rebecca Zietlow for her
valuable input on this article. I would also like to thank Kelly Kszywienski-Editor in Chief, Peggy
Ery-Publications Editor, Kurt Wicklund-Managing Editor, and all those members on Board 38
who aided in the editing process.
1. This image is particularly vivid with the decision of GM to lay off more than 25,000
people at the time of writing this comment. See Tracey Boles, General Motors Set to Axe 25, 000
Employees, THE BuSINESS (London), Nov. 20, 2005, available at http://www.highbeam.com/doc/
IG1-13900642 l.html.
2. Deborah McQuaid, Closing Fuels Fearsfor Future of Lake City, Pa., ERIE TIMES-NEWS,
Aug. 7, 2005, at I (quoting a townsperson).
3. Cynthia A. Williams, Corporate Social Responsibility in an Era of Economic
Globalization,35 U.C. DAVIs L. REV. 705, 735 (2002).
4. Id.

UNIVERSITY OF TOLEDO LA W REVIEW

[Vol. 38

shareholders. 5 However, because of the long-term effects on a multitude of other

"stakeholder constituencies," many business and legal theorists question the
current view that corporations owe fiduciary duties only to the shareholders of
their company.
Although the classic debate regarding corporate social responsibility started in
the 1930s between E. Merrick Dodd and Adolf Berle,6 the doctrine of7
shareholder primacy is best illustrated in the case of Dodge v. Ford Motor Co.
In 1919, a minority shareholder challenged the decision of the board of directors
of Ford Motor Company to withhold dividends in an attempt to expand
production and lower the price of the Model T Ford.8 The testimony of Henry
Ford revealed his intentions: "[m]y ambition.., is to employ still more men, to
spread the benefits of this industrial system to the greatest possible number, to
help them build up their lives and their homes. To do this we are putting the
greatest share of our profits back in the business." 9
Despite Henry Ford's intentions, the court rejected his "ambition" and cited a
"well-recognized principle of law" that corporate directors have a duty only to
shareholders and the corporation.' 0 The court found that the directors' decision
to withhold dividends from the shareholders was a "breach of that good faith
which they are bound to exercise towards the stockholders."" This decision
embodies the current legal view of corporate duties in the United States.' 2 Even
when some courts and state legislatures indicate that directors and managers may
consider other stakeholder constituencies, such as employees or the community,
when makin3 business decisions, their responsibility is foremost to corporate
shareholders.
As noted above, the debate regarding corporate fiduciary duties began in the
1930s. The debate initially attracted little attention; over the last sevent years, it
has waxed and waned without much interest from the corporate world . 4 During
this time, theorists offered few practical solutions in regard to how corporations
could expand their fiduciary duties.' 5 However, with the rise of hostile takeovers

5. See, e.g., id. at 712.

6. For a brief discussion of the debate, see C.A. Harwell Wells, The Cycles of Corporate
Social Responsibility: An HistoricalRetrospective for the Twenty-first Century, 51 U. KAN. L. REV.

77 (2002).
7. 170 N.W. 668 (Mich. 1919).
8. Id. at 683-84.
9. Id. at 683.
10. Id. at 682.
11. Id.
12. See, e.g., Williams, supranote 3, at 712.
13. Jonathan D. Springer, CorporateLaw CorporateConstituency Statutes: Hollow Hopes and

False Fears, 1999 ANN. SURV. AM. L. 85, 87. See also Paramount Commc'n, Inc. v. Time, Inc.,
571 A.2d 1140 (Del. 1989). Currently, forty-one states have enacted Constituency Statutes that
allow corporations to consider other stakeholder constituencies when making business decisions.
Kathleen Hale, Note, CorporateLaw and Stakeholders: Moving Beyond Stakeholder Statutes, 45

ARIz. L. REV. 823, 833 (2003).

14. See generally Wells, supra note 6, at 99-126.

15. Id. at 108.

Fall 2006]

SHAREHOLDER PRIMACY DOCTRINE

437

in the 1980s, many legal theorists

began to reflect on practical ways to change
6
corporate fiduciary standards.1
Some legal theorists suggest that the duties of corporate directors should
expand and include duties to other stakeholder constituencies, such as employees,
creditors, and communities. 7 Despite the interest in academia, no wide
consensus on the treatment of stakeholder constituencies in the practicing legal
community exists. For example, the Delaware courts indicate that directors may,
but need not, consider stakeholder constituencies other than shareholders when
making decisions in response to hostile takeovers. 8 Other courts indicate that
directors do not have any duty to consider how their decisions could impact
employees and the local community. 19 In addition, forty-one state legislatures
codified the concept of stakeholder constituency duties through Constituency
Statutes, which provide protection in breach of duty claims to business directors
and managers who consider stakeholder constituencies when making business
decisions.
In most cases, these states indicate that directors may take
stakeholder constituencies into consideration when making business judgments.
However, few courts and legislatures have im osed a duty to stakeholder
constituencies on corporate directors or managers.
The concept of corporate social responsibility has many theoretical faces.
Nevertheless, a strong analysis of corporate social responsibility with a focus on
feminist legal theory is lacking.2 2 With the exception of only a few writers,
feminist legal theorists remain focused on more traditional realms of the law,
such as family law in regard to women's issues. 23 One exception is Leslie
Bender, who explores feminist theory in tort law and challenges the concept of
"the reasonable man" and negligence.2 4 Bender argues that abandoning
traditional "masculine" ideas that formulate the concept of "the reasonable man"
could benefit the area of tort law.2 5 Further, she argues that economic efficiency
16. Mark E. Van Der Weide, Against Fiduciary Duties to CorporateStakeholders, 21 DEL. J.
CORP. L. 27,30 (1996); Wells, supra note 6, at 128.
17. See, e.g., Williams, supra note 3.
18. ParamountCommc'ns, Inc., 571 A.2d at 1140.
19. Local 1330, United Steel Workers of Am. v. U.S. Steel Corp., 631 F.2d 1264, 1279-83 (6th
Cir. 1980).
20. Hale, supra note 13, at 833.
21. See Springer, supra note 13, at 101.
22. Several authors suggest that a feminist approach to corporate social responsibility should
be articulated. See, e.g., Theresa A. Gabaldon, Feminism, Fairness, and Fiduciary Duty in
Corporateand SecuritiesLaw, 5 TEX. J. WOMEN & LAW 1 (1995); Kellye Y. Testy, Capitalismand
Freedom-for Whom? Feminist Legal Theory and Progressive Corporate Law, 67 LAW &
CONTEMP. PROBS. 87 (2004). See generally Kellye Y. Testy, Adding Value(s) to CorporateLaw: An
Agenda for Reform, 34 GA. L. REV. 1025, 1039 (2000).
23. Leslie Bender indicates that these areas have been a traditional hotbed of feminist legal
scholarship because feminist theorists have focused on areas in which women have experienced
discrimination and inequality through the court and legislature. See Leslie Bender, An Overview of
Feminist Torts Scholarship,78 CORNELL L. REV. 575, 575 (1993).
24. Leslie Bender, A Lawyer's Primer on Feminist Theory and Tort, 38 J. LEGAL EDUC. 3
(1988).
25. Id. at 20-25.

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

permeates the standard of care in negligence and the standard of care is devoid of
any concern for the quality of human experience.26 Instead, she suggests
abandoning these concepts and replacing them with a tort theory that emphasizes
a duty to neighbors and the community.

This comment applies Bender's theory of "an ethic of care 28 to corporate

decision-making and fiduciary duties. Section II describes the historical debate
on corporate social responsibility. Section III outlines the current corporate
fiduciary duties, which include the duty of loyalty and the duty of care. In
addition, section III discusses the consequences of a breach of these duties and
the general protection provided under the business judgment rule. Section IV
discusses current approaches to expanding fiduciary duties in case law and
legislation. Although there is a trend to recognize constituencies other than
shareholders, this recognition has had little impact on corporate fiduciary law.
Section V introduces Bender's feminist theory of tort and discusses her theory in
the context of corporate social responsibility. This section also explores whether
the purpose of structuring current fiduciary duties in "masculine" terms was to
minimize and economize the standard of care. I contend that requiring directors
and managers to view their actions with an "ethic of care" would compel them to
consider constituencies other than shareholders. However, this requirement
would lead to several consequences: (1) this standard of care would shield
directors and managers from liability in actions brought by shareholders, which
would decrease director and manager accountability to shareholders and (2) there
would be an increase in litigation for claims against directors and managers for
breach of their fiduciary duties if other constituencies had standing to bring
claims.
Applying Bender's framework to corporate fiduciary duty law would require a
reorganization of attitude and radical changes in the current legislation and case
law. Even prior to the decision of Dodge v. Ford,courts unambiguously limited
the duties of corporate directors to the owners of the corporation. A feminist
theory of an "ethic of care" in the corporate world would replace these limited
duties with a widened responsibility to shareholders, employees, creditors, and
the community. As the history of corporate social responsibility indicates, there
is much discussion of the topic with few results within the legal system.
II. A BRIEF HISTORICAL OVERVIEW OF THE
CORPORATE SOCIAL RESPONSIBILITY DEBATE

The concept of the corporation did not always emphasize the shareholder
primacy doctrine. 29 As discussed in the Introduction, Henry Ford envisioned the
26. Id.at30-31.
27. Id. at31.
28. This terminology can be attributed to Carol Gilligan, a developmental psychologist, to
whom Bender attributes her theory. Id. at 28-30.
29. Tara J. Radin, 700 Families to Feed: The Challenge of Corporate Citizenship, 36 VAND. J.
TRANSNAT'L L. 619, 626 (2003); Springer, supra note 13, at 103 (noting the initial purpose of the
corporation was to support public interests such as transportation, water, or insurance).

Fall 2006)

SHAREHOLDER PRIMACY DOCTRINE

possibility of employing as many men as possible with the hope of spreading the
wealth of industrialization. 30 His ideas exemplified the concept of corporate
welfare in which companies provided employees with healthcare, a retirement
plan, and other amenities, in addition to their income, in an attempt to create a
system in which workers remained with the employer their entire lives.
Proponents believed that corporate welfare was a solution to labor unions and
governmental programs.3
However, as the United States entered the Great
Depression, many companies laid off workers and cut corporate welfare
programs. In addition, workers began to unionize and these "new unions
achieved . . . the extension, codification, and joint administration of welfare
capitalist initiatives. 3 3
As C.A. Harwell Wells notes, A.A. Berle first introduced the debate over
corporate social responsibility at a time when corporate welfare was disappearing
from the corporate landscape.34 Corporations, previously closely-held, were
increasingly owned by a large number of shareholders.35 As this shift occurred,
managers replaced the role of owners in terms of decision-making. 36 Further,
managers were free of legal constraints to acquire power and wealth from the
corporation.37
Concerned with this shift in power from shareholders to management, Berle
published an article in which he discussed the importance of protecting the
shareholders' powers through equitable court decisions. 38 Berle argued that the
role of management was similar to a trustee charged with the administration of
the property of the shareholders or cestui que trust. Thus, the powers granted to
management were not absolute but qualified powers used only to benefit the
shareholders. 0 Berle concluded that (1) these powers could only be exercised
"with a view toward discovering whether under all the circumstances the result
fairly protect[ed] the interests of the shareholders"; (2) most of the statutory and
common law rules created to protect shareholders were not rigid rights but

30. Dodge v. Ford Motor Co., 170 N.W. 668, 683 (Mich. 1919).
31. Wells, supra note 6, at 86; Sanford M. Jacoby, Kenneth M. Piper Lectures: Melting into
Air? Downsizing, Job Stability, and the Future of Work, 76 C.-KENT L. REv. 1195, 1198 (2000).

Many theorists criticize the corporate welfare model as a concept of a modem day manor that
allowed management to exert high levels of control over their employees. Id.
32. Jacoby, supra note 31, at 1198-99.
33. Id.
34. Wells, supra note 6, at 83.
35. Id. at 84.
36. Id.
37. Id.
38. A.A. Berle, Jr., CorporatePowers as Powers in Trust, 44 HARV. L. REv. 1049 (1931). See
also Wells, supra note 6, at 88 (noting that Berle's approach to protecting shareholders through
judicial equity was counter to mainstream beliefs); Springer, supra note 13, at 87 (noting that
Berle's approach to protecting shareholders has evolved into the stakeholder theory and has since
been addressed by many scholars).
39. Berle, supra note 38, at 1057. A cestui que trust is defined as a person having equitable
rights in property. BLACK'S LAW DICTIONARY 221 (7th ed. 1999).
40. Berle, supra note 38, at 1049.

440

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

equitable remedies with flexibility depending on the facts of the case; (3) courts
should have wide latitude in creating new remedies to protect all classes of
shareholders; and (4) words in the corporate charter should not be allowed to
limit these equitable remedies. 4' Therefore, Berle believed that courts should be
involved in corporate decision-making to ensure the protection of the
shareholders.
However, the article had little impact until Dodd published a response one year
later.42 In contrast to Berle's article, Dodd argued that the trend of managementrun corporations, permitted corporations to take on responsibility to other
constituencies.4 3 Dodd believed that public opinion would demand protection of
these constituencies, especially for employees who lacked bargaining power.44
Contrary to Berle, Dodd argued against government interference of management
decisions and believed that managers should be given greater freedom in their
positions. 45 Further, he suggested that once freed from the profit-making focus
possessed by owners, managers could develop programs that would aid the
community and the employees.46
Wells notes that over time, both Berle and Dodd realized the weaknesses of
their proposals.4 7 Berle recognized that while shareholders should be protected48
from managers, managers also had a duty to other stakeholder constituencies.
Dodd recognized that managers would not necessarily shift the focus of their
efforts to constituency programs; rather, he believed that that the government
would have to impose these duties on corporations. 9
"The debate over corporate social responsibility [was] dormant" until the
1950s.5 With the growth of the corporation, the debate reemerged.Si One of the
voices that reemerged was that of Berle; however, this time he advocated Dodd's
ideas. Berle suggested that under the leadership of corporate managers, there
could be "social harmony., 52 Berle's optimism may have been partially based on
the 1950s corporate environment in which leaders expressed a commitment to
corporate social responsibility: "the old concept that the owner of a business had
a right to use his property as he pleased to maximize profits, has evolved into the

41. Id.at 1074.

42. E. Merrick Dodd, For Whom Are CorporateManagers Trustees, 45 HARv. L. REv. 1145

(1932). See also Wells, supra note 6, at 90 (noting that all commentators, other than Dodd, ignored

his article).
43. Wells, supra note 6, at 92; Springer, supra note 13, at 87. Dodd's argument was a
reflection of the concept of corporate welfare. Wells, supra note 6, at 92.
44. Dodd, supra note 42, at 1151.

45. Id. at 1161.

46.
47.
48.
49.
50.
51.
52.

Id. at 1155-56; Wells, supra note 6, at 92.

Wells, supra note 6, at 96.
Id. at 97.
Id.at 98.
Id. at 99.
Id.
Id. at 103.

Fall 2006]

SHAREHOLDER PRIMACY DOCTRINE

belief that ownership carries certain binding social obligations. 53 Cases such as
A.P. Smith Manufacturing Co. v. Barlow, in which the New Jersey Supreme
Court indicated that a charitable donation of a corporation superseded the rights
of the stockholder, reaffirmed his optimism.

54

However, despite this renewed

discussion of corporate social responsibility, few writers, including Berle, had

any concrete proposals.55
By the 1970s, the belief that corporate social responsibility would evolve from
the ethical decisions of unrestrained managers was all but forgotten. Instead,
theorists believed that director or shareholder oversight of a restricted
management would increase corporate social responsibility.56 The faith in
corporate management to impose duties on the corporation to include other
constituencies shifted to a movement in which shareholder activists could impose
these duties on the board of directors via shareholder proposals.5 7
With limited exceptions, a company must include shareholder proposals or
recommendations in the company's proxy statement if the company is holding a
shareholders' meeting.5 8 A proposal is a request for the board to take action on a
particular issue via a shareholder vote. Only individuals who have continuously
held securities valued at a minimum of $2,000 or who have held at least one
percent of the company's securities for at least one year may submit a proposal.59
During the 1960s, social activists utilized the shareholder proposal in order to
encourage corporate social responsibility. As Wells notes, "Rule 14a-8 was in
existence well before 1968. But in the hands of social activists shareholders
proposals became a way to voice social disapproval of a corporation's actions.
Through their proposals, social activists hoped to mobilize shareholders into
insisting there were more important things than profits. 6 Many social activists
used the shareholder proposal to voice anti-war concerns, but many activists also
believed that they could use these proposals to make corporations change their

53. Id. at 100 (quoting David Rockefeller in HERMAN E. KROOs, EXECUTIVE OPINION: WHAT
BUSINESS LEADERS SAID AND THOUGHT ON ECONOMIC ISSUES, 1920s-1960s, at 50-53 (1970)).

54. Id. at 103-04; Springer, supranote 13, at 87-88. InA.P.Smith Mfg. Co. v. Barlow, the New
Jersey Supreme Court held that "[c]orporations have come to recognize [the importance of nongovernmental institutions of learning] and with their enlightenment have sought in varying
measures, as has the plaintiff by its contribution, to insure and strengthen the society which gives
them existence and the means of aiding themselves and their fellow citizens." 98 A.2d 581, 590
(N.J. 1953). It is interesting to note that Dodd indicated in his 1932 article that corporate charitable
gifts were an example of management decisions that benefit the community and not necessarily the
shareholders. Dodd, supra note 42, at 1158.
55. Wells, supra note 6, at 111.
56. Id.
57. Id.at 115.
58. 17 C.F.R. 240.14a-8 (2006) (including in section 240.14a-8(i) instances where a
company may legally exclude shareholder proposals).
59. Id.
60. Wells, supra note 6, at 113-14. This movement was so strong that one activist, Saul
Alinsky, formed an organization called Proxies for the People. Id.at 114.

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

profit-oriented approach. 6' According to Wells, "Campaign GM" was the most
successful shareholder proposal during the 1970s.62
Ralph Nader, a new voice in the corporate social responsibility debate, led the
campaign and hoped it would compel corporations to "benefit diverse
constituencies. 63 The campaign consisted of nine proposals, including a
proposal to change the corporation's charter "so that none of its corporate
purposes 'be implemented in a manner which [was] detriment[al] to the public
health, safety, or welfare.' 64 GM attempted to block inclusion of the proposals.
However, the Securities and Exchange Commission ("SEC") ruled in favor of the
shareholders and GM included (1) a proposal to elect directors that would
consider public interests and (2) a proposal that would create a committee to
consider corporate responsibility issues.65
Although initially optimistic,
Campaign GM ended in the same way as most shareholder proposals; a majority
of shareholders rejected it due to extensive yublic-relation campaigns by the
board of directors that criticized the proposals.
In addition to Campaign GM, Nader also provided concrete proposals for
increasing corporate social responsibility in the 1970s. He proposed that
corporations should be federally chartered.6 7 Under this plan, the board of
directors would be responsible for constituencies when making business
decisions.6 8 Nader also suggested that if a number of board members believed
that a decision could result in a public hazard, a voter referendum within the
affected jurisdiction should consider the decision.69 Unfortunately, like other
70
debates regarding corporate social responsibility, the public soon lost interest.
In addition, there was also a notable backlash against these ideas; the most
prominent was by Milton Friedman in The New York Times Magazine.]
Friedman, a Nobel laureate in economics, 72 argued that corporations, as fictional
entities, were not capable of possessing responsibility; rather, only corporate
management had the capability to be responsible: "In an ideal free market resting
on private property, no individual can coerce any other, all cooperation is
voluntary, all parties to such cooperation benefit or they need not participate.
There are no values, no 'social' responsibilities in any sense other than the shared

61. Id. at 115.

62. Id.
63. Id.
64. Id. at ll6.
65. Id.

66. Id. at 116-17.

67. Id. at 118; Springer, supranote 13, at 91.
68. Wells, supra note 6, at 118; Springer, supranote 13, at 105.

69. Springer, supra note 13, at 91.

70. Wells, supranote 6, at 122-23.

71. Id. at 123; Springer, supra note 13, at 91; Lynn A. Stout, Bad and Not-So-Bad Arguments
for ShareholderPrimacy, 75 S. CAL. L. REv. 1189, 1191(2002).
72. Stout points out that despite his achievements in economics, Friedman's argument lacks
the understanding of the corporation under our legal system. Stout, supra note 71, at 1191.

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SHAREHOLDER PRIMACY DOCTRINE

values and responsibilities of individuals. 7 3

As agents of the owners,
management could only act as instructed by the owners. Friedman argued that
this "generally will be to make as much money as possible while conforming to
the basic rules of the society, both those embodied in law and those embodied in
ethical custom. '75 Moreover, Friedman suggested that individual proprietors
were free to conduct business in a socially responsible manner because they
would be spending their own money.76 In contrast, corporate managers were
responsible for the money of others; thus, it would be inappropriate to decide
which social agenda the corporation should endorse.7 7 After years of growing
discussion of concrete solutions to the theory of corporate social responsibility,
Friedman returned the discussion to the early proposal of Berle that corporate
managers have a duty only to their shareholders.
The first real movement toward addressing the concerns raised by proponents
of corporate social responsibility occurred in the 1980s at a time when there was
an increase in corporate hostile takeovers.78 Although shareholders often profited
in these takeovers, it was frequently at the expense of employees and the
surrounding communities. 79 To counteract this movement and prevent hostile
takeovers, corporate directors could either amend the by-laws of the corporation
to make hostile takeovers more difficult, or they could lobby the state legislature
to enact Constituency Statutes that allowed corporate managers to consider
80
factors outside of shareholder interests when confronted with a hostile takeover.
Consequently, the power of the legislature prevailed and many states enacted
Constituency Statutes. Pennsylvania enacted the first statute in 1983. 8' In 1999,
twenty-nine states had Constituency Statutes; 82 by 2003, forty-one states had
passed some form of a Constituency Statute. 83 Of the states that still do not have
a Constituency Statute, Delaware is the most notable.84 However, despite this
first concrete action to address corporate social responsibility, these statutes have

73. Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y.
TIMES MAG., Sept. 13, 1970, 29, availableat http://www.colorado.edu/studentgroups/libertarians/
issues/friedman-soc-resp-business.html.
74. Id. 4.
75. Id.This concept has been heavily criticized by advocates of corporate social responsibility
who focus on the globalization movement. They argue that corporations should not simply follow
the laws of developing countries, which can often be harmful to employees and the environment;
rather they should impose stricter standards, such as those found in the United States and Europe.
See Williams, supra note 3, at 735-36.
76. Friedman, supra note 73, 23.
77. Id.
78. Wells, supranote 6, at 126; Springer, supra note 13, at 92.
79. Springer, supra note 13, at 92.
80. Id. at 92-93.
81. Id. at 94-95; Hale, supra note 13, at 833.
82. Springer, supra note 13, at 95.
83. Id. at 95; Hale, supranote 13, at 833.
84. Hale, supra note 13, at 833. It should be noted that although Delaware does not have a
Constituency Statute, Delaware has case law that allows directors to consider constituencies in
certain circumstances. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985).

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

had little impact. As Jonathan Springer notes, by 1999, there were only eleven
published opinions concerning these statutes.85
Williams suggests that "'for centuries legal, political, social, and economic
86
commentators have debated corporate social responsibility ad nauseam.''
Despite this view, the recent wave of corporate scandals, such as those of Enron,
Tyco, and Worldcom, and the economic movement toward globalization impact
both shareholders and stakeholder constituencies alike.87 As a result, the debate
has reemerged in the last few years. The current view of corporate social
responsibility is that "managers' underlying social obligations are more extensive
than maximizing shareholders' wealth within the confines of the law."88 Thus,
under this view, a director or manager may consider other stakeholder
constituencies, such as employees, creditors, the community, and the
environment, when making decisions that will ultimately affect the corporation.
Further, many theorists focus on laws in other countries that require directors and
managers to consider a multitude of stakeholder constituencies. 9
Perhaps theorists have discussed the debate ad nauseam with little impact on
current law. But as Lynn A. Stout notes, the debate has spread beyond academia:
"[i]t appears that when forced to choose, managers and shareholders alike-as
well as most judges and legislators-generally opt for rules that favor director
primacy over rules that favor shareholder primacy." 90 Thus, there appears to be a
movement toward recognizing that directors should broaden the shareholder
fiduciary duties that are discussed below to encompass both shareholders and
other stakeholder constituencies equally.
III. DUTIES TO SHAREHOLDERS

Because of the structure of corporations, in which it would be impracticable

for shareholders to manage every aspect of the business, 91 the law requires that
boards of directors manage corporations. 92 Two duties of corporate directors are

85. Springer, supra note 13, at 108.

86. Williams, supra note 3, at 706 (quoting Henry Butler & Fred McChesney, Why They Give
at the Office: Shareholder Welfare and CorporatePhilanthropy in the Contractual Theory of the
Corporation,84 CORNELL L. REv. 1195, 1195 (1999)).
87. See, e.g., Ed Vos, Do Ethics Mean Earnings? Corporate Social Responsibility, 52 N.Z.
MGMT., Aug. 1, 2005, at 16.
88. Williams, supra note 3, at 716.
89. Id.at 716-17.
90. Stout, supra note 71, at 1202. Director primacy is a rule of corporate governance which
"require[s] corporate directors to maximize the sum of all ...
of the groups that participate in firms.
These groups include not only shareholders but also executives, employees, debtholders, and
possibly even suppliers, consumers, and the broader community." Id. at 1198.
91. This is especially true of large publicly held corporations.
92. MODEL Bus. CORP. ACT 8.01 (1984). This section requires:
(a) Except as provided in section 7.32, each corporation must have a board of directors.
(b) All corporate powers shall be exercised by or under the authority of, and the business and
affairs of the corporation managed by or under the direction of its board of directors, subject

Fall 2006]

SHAREHOLDER PRIMA CY DOCTRINE

the duty of loyalty and the duty of care.93 As set forth by the courts and state
legislatures, these duties highlight the attitude that those charged with managing

the corporation must actively and affirmatively ensure that their actions and
decisions are in the best interests of the corporation and the shareholders. These
94

duties apply not only to directors, but also to the managers of the corporation
and controlling or majority-interest shareholders.9 5 If shareholders believe that
any director or manager has breached these duties, they have the power to bring a
suit on behalf of the corporation or themselves (depending on the nature of the
injury) against
those individuals that the shareholders believe have wronged the
96
corporation.
A.

Duty of Loyalty

The duty of loyalty demands that neither corporate directors nor managers use
their positions to advance their own personal interests. 97 A director or manager
may take advantage of any opportunity which "is not essential to his corporation,
and is one in which it has no interest or expectancy." 98 Further, a director or
manager owes no duty to the corporation when profiting from any decision made

to any limitation set forth in the articles of incorporation or in an agreement authorized under
section 7.32.
Id. See also DEL. CODE ANN. tit. 8, 141(a) (2005) (outlining the requirement that a corporation
must be managed by a board of directors).
93. Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939) (finding that directors and managers have a
duty of loyalty to the corporation and may not use their positions to make private gains); Cede &
Co. v. Technicolor, Inc., 634 A.2d 345, 360 (Del. 1993) (noting that directors and managers have a
duty to make sure their decisions are in the best interests of the corporation and the shareholders).
94. See generally Bates v. Dresser, 251 U.S. 524, 531 (1920) (finding the president liable for
the bank's monetary losses because he had reason to suspect that an employee was stealing money
from the bank). The Court noted that when Dresser accepted the position of president, he should
have "contemplated responsibility for losses to the bank, whatever they were, if chargeable to his
fault." Id.
95. Treadway Cos., Inc. v. Care Corp., 638 F.2d 357, 376-77 (2d Cir. 1980) (finding that a
director who was also the largest shareholder did not have a duty to protect other shareholders in
his capacity as a shareholder because he was not a controlling shareholder); Kahn v. Lynch
Commc'n Sys., Inc., 638 A.2d 1110, 1113-14 (Del. 1994) (reasoning that even though Alcatel was
not a majority shareholder with 43.3% of the shares, it exercised control over the business
decisions; therefore, it owed a duty to the minority shareholders).
96. See generally Aronson v. Lewis, 473 A.2d 805 (Del. 1984), overruled in part by Brehm v.
Eisner, 276 A.2d 244, 254 (Del. 2000). Plaintiff filed suit alleging that the board breached its duty
of care when it approved a consulting package for a former chief executive officer. Id.at 808-09.
Plaintiff asserted that an initial demand to the board to file suit on behalf of the corporation would
have been futile because of the lack of independence of the board. Id. at 809. The court granted
leave to the plaintiff to amend his complaint because the plaintiff failed to allege sufficient facts
indicating that it would have been futile to make the demand. Id. at 808.
97. Guth, 5 A.2d at 510.
98. Id.

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[Vol. 38

in his or her capacity as an individual, non-controlling shareholder. 99 However, a

director or manager may not make any decision that is personally beneficial and
which could be potentially harmful to the corporation.10 As noted in Guth v.
Loft, Inc.:
A public policy, existing through the years, and derived from a profound knowledge
of human characteristics and motives, has established a rule that demands of a
corporate officer or director, peremptorily and inexorably, the most scrupulous
observance of his duty, not only affirmatively to protect the interests of the
corporation committed to his charge, but also to refrain from doing anything that
would work injury to the corporation, or to deprive it of profit or advantage which
his skill and ability might properly bring to it, or to enable it to make in the
reasonable and lawful exercise of its powers.10
In addition, the Delaware Supreme Court in Guth indicated that this duty of
loyalty went beyond corporate opportunities.10 2 Moreover, in Miller v. U.S.
Foodservice,Inc., the Maryland District Court ruled that directors and managers
must behave in such a way that their actions would not impact the profitability or
success of the corporation.10 3 "[T]he occasions for the determination of honesty,
good faith and loy'al conduct are many and varied, and no hard and fast rule can
Thus, the court noted that the duty of loyalty was flexible and
be formulated."
a director or manager could be in breach of the duty of loyalty outside the
corporate opportunity doctrine.10 5
If a director or manager breaches this duty and benefits from this breach, the
court will deny the director or manager this benefit and grant it to the
corporation. 10 6 Directors and managers are also not afforded the defense of the

99. Treadway Cos., 638 F.2d at 375 (finding that "a director does not owe a fiduciary duty
directly to the shareholders with respect to the shares of stock they own"). The court indicated that

so long as the director was not a controlling shareholder, he was free to profit from the sale of his
stock because his stock was not the property of the company. Id. at 375-77.
100. In Weinberger v. UOP, Inc., the court noted that when individuals hold more than one
directorship in a parent-subsidiary situation, those individuals must show a duty of loyalty to both
corporations and must make decisions that are best for both businesses. 457 A.2d 701, 710-11
(Del. 1983). The court indicated that a merger was unfair to the minority shareholders because they
lacked relevant information to make an informed decision. Id. at 712.
101. Guth, 5 A.2d at 510.
102. The corporate opportunity doctrine states that the duty of loyalty applies in situations

where the director's or manager's interest is in direct economic conflict with those of the
corporation. See generally Miller v. U.S. Foodservice, Inc., 361 F. Supp. 2d 470, 480-81 (D. Md.

2005).
103. Id. at 481. The court denied Miller's motion to dismiss, in part, and noted that whether
Miller breached the duty of loyalty by failing to address accounting deficiencies was a question of
fact. Id. By failing to address the accounting deficiencies, U.S. Foodservice's income was
overstated by approximately $900 million and Miller received incentive-based compensation based

on the overstated income. Id.

104. Guth, 5 A.2d 503, 510 (Del. 1939).
105. U.S. Foodservice, Inc., 361 F. Supp. 2d at 480-81.
106. Guth, 5 A.2d at 510.

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SHAREHOLDER PRIMACY DOCTRINE

business judgment rule, discussed below, for a breach of loyalty, 7 nor may the
corporation shield them from personal liability.'0 8
However, in some
circumstances, a board may make a decision that benefits another member or
manager as
long as a majority of the disinterested board members approve the
09
decision. 1
B.

The Duty of Care and the Business Judgment Rule

The duty of care is the duty to act in an informed manner, in good faith, and
with the belief that the action is best for the company. 10 This requires directors
and managers to "discharge their duties with the care that a person in a like
position would reasonably believe appropriate under similar circumstances.''''
As noted below, although shareholders may bring suit against directors and
managers for a breach of the duty of care, the court gives considerable deference
12
to the directors' and managers' decisions under the business judgment rule."
1.

Informed Decisions

What steps constitute an informed decision? In Smith v. Van Gorkom,

shareholders brought a class action lawsuit when the board of directors approved
a merger agreement." 3 The shareholders sought to rescind the agreement for the
merger between Trans Union Corporation and New T Company and alleged that
the directors' breached their duty of care by agreeing to the merger agreement

107. See generally Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled in part by
Brehm v. Eisner, 276 A.2d 244, 254 (Del. 2000).
108. See, e.g., DEL. CODE ANN. tit. 8, 102(b)(7) (2001 & Supp. 2004).

A provision eliminating or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director: (i) For any breach of the
director'sduty of loyalty to the corporationor its stockholders.
Id. (emphasis added).
109. Aronson, 473 A.2d at 812. A director is considered disinterested if the director "neither
appear[s] on both sides of a transaction nor expect[s] to derive any personal financial benefit from
it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all
stockholders generally." Id.
110. Perrine v. Pennroad Corp., 47 A.2d 479, 487 (Del. 1946); Aronson, 473 A.2d at 812. See
also MODEL Bus. CORP. ACT 8.30(a) (1984).
111. MODEL Bus. CORP. ACT 8.30(b). The official comments note that the standard of conduct
is based on how the directors perform their duties and not "the correctness of the decisions made."
Id.at official cmt.
112. See Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 360 (Del. 1993) (noting that while the
directors and managers owe certain duties to the shareholders, a court will not unreasonably
interfere with the business of a corporation).
113. 488 A.2d 858, 863 (Del. 1985).

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

after only two hours of reviewing the proposal. 14 Thus, the shareholders alleged
that the directors should be liable for failing to make an informed decision
regarding the merger agreement.' 15 The trial court found for the defendants and
stated that the actions of the board's decision fell within the business judgment
rule. 116 However, the Supreme Court of Delaware found the board of directors
grossly negligent in their actions and found the board members, including outside
members, personally liable.' 17
The Delaware Supreme Court, citing Aronson v. Lewis, noted that directors
must be disinterested individuals to assert the business judgment rule1 18 and they
"have a duty to inform themselves, prior to making a business decision, of all
material information reasonably available to them."' '9 The court in Van Gorkom
found that because the directors approved the agreement within two hours, and
failed to inform themselves in regard to the value of company and the adequacy
of the per share purchase price prior
to approving the agreement, they were
12
grossly negligent in their decision.
Many criticized the Van Gorkom decision and argued that the decision would
have a detrimental impact on the ability of directors to make decisions in the
interest of the corporation.' 21 In response to this decision, the Delaware
legislature enacted DEL. CODE ANN. title 8 section 102(b)(7), which permits
corporations to protect directors from personal liability when directors violate the
duty of care. 22 This swift response indicates that there is a strong policy toward

114. Id.at 863, 869. The shareholders also sought monetary damages from the board of
directors, individually. Id.at 863-64.
115. Id.at 871.
116. Id. at 864.
117. Id.at 864,873.
118. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) ("[T]his means that directors can neither
appear on both sides of a transaction nor expect to derive any personal financial benefit from it in
the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all
stockholders generally."), overruled in part by Brehm v. Eisner, 276 A.2d 244, 254 (Del. 2000).
119. Id.
120. Van Gorkom, 488 A.2d at 874.
121.

ROBERT W. HAMILTON & JONATHAN R. MACEY, CORPORATIONS INCLUDING PARTNERSHIPS

AND LIMITED LIABILITY COMPANIES 830-31 (8th ed. 2003).

122. DEL. CODE ANN. tit. 8, 102(b)(7) (2001 & Supp. 2004) permits certificates of
incorporation to include:
A provision eliminating or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director: (i) For any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law; (iii) under
174 of this title; or (iv) for any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision becomes effective. All
references in this paragraph to a director shall also be deemed to refer (x) to a member of the
governing body of a corporation which is not authorized to issue capital stock, and (y) to such
other person or persons, if any, who, pursuant to a provision of the certificate of incorporation

Fall 2006]

SHAREHOLDER PRIMACY DOCTRINE

protecting directors and managers from personal liability in order to ensure that
business decisions are not based on fears of personal liability.
2.

Good Faith

In In re Caremark Int'l, Inc., shareholders brought a suit on behalf of the

corporation for losses suffered due to a criminal proceeding in which Caremark
pled guilty to a felony of mail fraud.1 23 In this derivative suit, shareholders
alleged that the directors breached the duty of care because they failed to
adequately "supervise the conduct of Caremark employees," which ultimately led
to liability incurred by the corporation.12 4 In analyzing the actions of the
company, the court noted that "so long as the court determines that the process
employed was either rational or employed in a good faith effort to advance
corporate interests," the court must find in favor of the defendant and may not
make a decision in regard to whether the decision was sound. 25
In addition, the court noted that the directors had "a duty to attempt in good
faith to assure that a corporate information and reporting system, which the board
concludes is adequate, exists, and that failure to do so under some circumstances
may render a director liable ... for losses."' 126 To establish this breach of care, a
plaintiff must prove that (1) the directors knew or should have known violations
of law were occurring, (2) there were no good faith attempts to remedy the
27
decision, and (3) this lack of action proximately caused a loss to the plaintiff.

While the Chancellor eventually found for the defendant, his approach was
interpreted as broadening
the duties of the directors to include monitoring
28
business activities.

3.

Belief that an Action is Best for the Company

In some instances, the board of directors makes decisions that are not
necessarily in the best interest of all shareholders but are in the best interest of
the corporation. In these instances, directors and managers have not breached the
duty of care even though the decision may be to the detriment of some
shareholders. In Unocal Corp. v. Mesa Petroleum Co., the board of directors
faced a hostile takeover from Mesa Petroleum Company (Mesa) who owned

in accordance with 141(a) of this title, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by this title.
Id.
123. 698 A.2d 959, 965 (Del. Ch. 1996).
124. Id. at 964.
125. Id.at 967-68.
126. Id. at 970.
127. Id.at 971.
128. See, e.g., Thomas Rivers, Note, How to Be Good: The Emphasis on CorporateDirectors'
GoodFaithin the Post-Enron Era, 58 VAND. L. REV.631,643-44 (2005).

UNIVERSITY OF TOLEDO LA WREVIEW

[Vol. 38

approximately thirteen percent of Unocal Corp.'s stock. 129 In its attempt to take
control of the corporation, Mesa proposed a two-tiered approach. First, Mesa
would make an initial tender offer of fifty-four dollars per share for sixty-four
million shares.130 The second tier involved exchanging the remaining publicly31
held shares for securities supposedly worth fifty-four dollars per share.
However, the supplemental proxy statement indicated that these securities were,
in effect, "junk bonds.' ' 132 In an attempt to protect the approximately forty-nine
percent of the shareholders that would have to accept the second tier offer, the
board considered a defensive action in which Unocal would offer "a self-tender
for its own stock ...

with a reasonable price range of $70 to $75 per share.' 33

After consideration of the options, the outside members of the board

unanimously advised the board to accept the self-tender. 134 Based on this advice,
self-tender offer, which included an
the board unanimously voted to approve the
"exclusion of Mesa from the proposal."135 Consequently, Mesa filed suit to
36
challenge this decision. 1
Though the Chancery Court enjoined the corporation from proceeding with the
exchange, the Supreme Court of Delaware vacated the injunction and indicated
that the decision of the board was appropriate because the Mesa offer was
coercive and the board had a "fundamental duty and obligation to protect the
corporate enterprise, which includes stockholders, from harm reasonably
perceived, irrespective of its source."' 137 However,the court also noted that when
the decision to act in a hostile takeover may be perceived as an attempt of the
board to remain in power, the court has "an enhanced duty which calls for
judicial examination at the threshold before the protections of the business
judgment rule may be conferred." 138 Thus, in such cases, the directors have the
burden to show that there is a reasonable belief that the takeover would be
detrimental to the corporation. 39 They meet this burden "'by showing [a] good
faith and reasonable investigation.""' 140 The court also noted that when a majority
of the board consists of outside members, the burden of proof is not as great as
when the majority consists of inside members. In this case, the court found that
the board did not breach the duty of care to Mesa and that the board "had a

129.
130.
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.

493 A.2d 946, 949 (Del. 1985).

Id.
Id.
Id. at 949-50.
Id. at 950.
Id.
Id. at 951.
Id.
Id. at 954.
Id.
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985).
Id.(quoting Cheffv. Mathes, 199 A.2d 548, 554-55 (Del. 1964)).

Fall 2006)

SHAREHOLDER PRIMACY DOCTRINE

supervening duty to protect the cororate enterprise, which includes the other
shareholders, from threatened harm."' 1
4.

The Business Judgment Rule

Although directors and managers have a duty to ensure that their decisions are
in the best interest of the shareholders, the wide protection of the business
judgment rule indicates that the courts will give latitude to the directors and
managers in their decision-making process. 142 The policy behind this deferential
stance is that courts should "give recognition and deference to directors' business
expertise when exercising their managerial power."'' 43 This suggests that any
attempt to widen the duties of directors or managers to consider other stakeholder
constituencies would be extremely difficult.
When a shareholder challenges the decisions of the directors or managers, the
burden is on the shareholder to rebut the presumption that the directors or
managers acted in good faith and with due care.1 44 The shareholder must show
that there is a reasonable doubt that "(1) the directors [were] disinterested and
independent and (2) the challenged transaction was otherwise the product of a
valid exercise of business judgment."145 A directors' or managers' decision is "a
valid exercise of business judgment"'146 if the decision is "reasonably
informed.' ' 147 To fulfill this requirement, the directors and managers need not
consider every relevant fact; rather, they must only consider "material facts that
are reasonably available.'148 In addition, the court will only find in favor of the
shareholders if they can prove that the directors and managers acted with gross

141. Id.at 958. This decision was limited by Revlon Inc. v. MacAndrews & Forbes Holdings,
Inc., in which the court noted that when a hostile takeover and the break-up of the corporation
becomes inevitable, the board no longer has a duty to preserve the corporation. Instead, the board's
duty shifts "to the maximization of the company's value at a sale for the stockholder's benefit."
506 A.2d 173, 181-82 (Del. 1986).
142. Perrine v. Pennroad Corp., 47 A.2d 479, 487-88 (Del. 1946).
143. Zapata Corp. v. Maldonado, 430 A.2d 779, 782 (Del. 1980) (noting that an independent
investigation committee created by a board has the power to dismiss a derivative law suit so long as
the committee's actions were made independently and in good faith.). The court in Perrine v.
PennroadCorp. also noted that if deference was not granted, courts would be required to step in
and settle every dispute between the stockholders. 47 A.2d at 487-88.
144. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984). In Cede & Co. v. Technicolor,Inc., the
court noted that a plaintiff did not have to show injury to rebut the presumption of care and
overcome the business judgment rule. 634 A.2d 345, 371 (Del. 1993).
145. Aronson, 473 A.2d at 814.
146. Id.
147. Brehem v. Eisner, 746 A.2d 244, 259 (Del. 1984) (affirming the Chancery Court decision
that dismissed a derivative lawsuit against the directors and managers of the Walt Disney
Company). The shareholders claimed that there was a breach of the duty of care when the board
approved the employment agreement of the president of Disney. The court did reverse the decision
of the Chancery Court to dismiss the suit with prejudice. Id.
148. Id.

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

negligence 149 and the court will not interfere

'1 50 with any decisions "if they can be
attributed to any rational business purpose."
As the number of hostile takeovers increased in the 1970s and 1980s, courts
appeared to give even more deference to the business decisions of directors and
managers. 15' As noted below, directors and managers were given greater latitude
to protect the corporation. In some instances, this latitude was to the detriment of
some shareholders.1 52 Thus, the movement away from the shareholder primacy
doctrine in the 1980s may have had less to do with a new recognition of
constituency rights but rather an attempt to stave off extensive litigation by
shareholders seeking to maximize profits in takeover situations.
IV. DUTIES TO OTHER STAKEHOLDER CONSTITUENCIES
Prior to the enactment of Constituency Statutes, there was limited indication
that corporations owed any duty to stakeholder constituencies. For example, the
court in Local 1330, United Steel Workers v. U.S. Steel Corp. summarized the
duty of directors and managers to other shareholders when it refused to enjoin the
corporation from closing two plants in northeast Ohio.153 In the trial court
decision, the district judge noted the relationship between the corporation and the
surrounding community:
Everything that has happened in the Mahoning Valley has been happening for many
years because of steel. Schools have been built, roads have been built. Expansion
that has taken place is because of steel. And to accommodate that industry, lives
and destinies of the inhabitants54 of that community were based and planned on the
basis of that institution: Steel.'

149. Miller v. U.S. Foodservice, Inc., 361 F. Supp. 2d 470, 477 (D. Md. 2005) ("While
generally courts do not second-guess corporate decision-making and directors and officers enjoy
the presumption of the business judgment rule, the rule can be overcome by allegations of gross
negligence."); Perrine, 47 A.2d at 489 ("Good faith may always be brought in question where it
appears that the settlement of a dispute between stockholders of a corporation is so grossly
inadequate that one is required to reach the decision that the directors were reckless and indifferent
as to the rights of the stockholders and did not exercise reasonable business judgment."); Brehem,
746 A.2d at 259; Aronson, 473 A.2d at 812.
150. Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971) (emphasis added) (noting that
the directors of a parent company did not breach a duty to its subsidiary by paying out dividends
because they were paid to all shareholders).
151. Eric W. Orts, Beyond Shareholders:InterpretingCorporate Constituency Statutes, 61 GEO.
WASH. L. REv. 14, 45 (1992).
152. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 958 (Del. 1985). See also Moran v.
Household Int'l, Inc., 500 A.2d 1346, 1350 (Del. 1985) (noting that a board met the standards of
the business judgment rule when it created a pre-emptive defensive mechanism to avoid the
possibility of any future hostile takeover).
153. Local 1330, United Steel Workers of Am. v. U.S. Steel Corp., 492 F. Supp. 1, 9 (N.D.
Ohio 1980).
154. Id.

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SHAREHOLDER PRIMA CY DOCTRINE

However, the court declined to intervene, stating that the problems of plant
closings and relocations are not new and both the courts and state legislatures
have been reluctant to impose any duty on these businesses. 55 Moreover, on
appeal, the Sixth Circuit chose not to impose any duty to the employees and the
surrounding community 15and
6 further suggested it was not within the court's power
to interpret such a duty.
As the business community experienced more hostile takeovers in the 1980s,
many courts began to soften their view regarding stakeholder constituencies other
than shareholders. For example, in Unocal, the court noted that when a
corporation was faced with a hostile takeover, directors may consider the
"inadequacy of the price offered, nature and timing of the offer, questions of
illegality, the impact on 'constituencies' other than shareholders (i.e., creditors,
customers, employees, and perhaps even the community generally), the risk of
57
nonconsummation, and the quality of securities being offered in the exchange."'
However, the court quickly indicated that the consideration of stakeholder
constituencies was within certain limitations. In Revlon, Inc. v. MacAndrews &
Forbes Holdings, Inc., the court noted that boards may only consider stakeholder
constituencies when "there are rationally related benefits accruing to the
stockholders."' 58 Thus, according to Delaware law, consideration of stakeholder
constituencies is only concurrent with consideration of shareholders.' 59
In addition to Delaware case law, many states enacted "other constituency"
statutes that recognized a widening circle of corporate social responsibility in the
1980s.160 For example, New York law indicates that
155. Id. at 10.
156. Local 1330, United Steel Workers of Am. v. U.S. Steel Corp., 631 F.2d 1264, 1282 (6th
Cir. 1980) ("In the view of this court, formulation of public policy on the great issues involved in
plant closings and removals is clearly the responsibility of the legislatures of the states or of the
Congress of the United States.").
157. Unocal Corp., 493 A.2d at 955 (emphasis added). See also Paramount Commc'ns, Inc. v.
Time, Inc., 571 A.2d 1140, 1153 (Del. 1989) (citing Unocal Corp., 493 A.2d at 955) (noting that in
cases of hostile takeovers, directors have wide latitude in evaluating the extent of the threat and
may consider factors other than the shareholders); Citron v. Fairchild Camera & Instrument Corp.,
569 A.2d 53, 63, 68 (Del. 1989) (holding directors did not breach the duty of care when agreeing to
a merger with a company at a price lower than another offer). The court found that in making the
consideration, the board was free to consider other factors than just the price per share in the
merger agreement. The directors feared, among other things, that the uncertainty of the other offer
would have an effect on hiring and retention of personnel. Id. However, it should be noted that
this ability to consider other constituencies under Delaware law actually widens the protection of
the business judgment rule. Thus, this ability to consider other constituencies makes the rebuttal
more difficult.
158. 506 A.2d 173, 182 (Del. 1986).
159. In response to this decision, the Indiana legislature amended its Constituency Statute to
clearly indicate that Indiana does not follow the Revlon rule. See Am. Union Ins. Co. v. Meridian
Ins. Group, Inc., 137 F. Supp. 2d 1096, 1113 (S.D. Ind. 2001) (dismissing plaintiffs request for a
preliminary injunction to stop a merger because, under Indiana law, plaintiff could only bring suit
for damages after the merger). The court also noted in such a case, the plaintiffs likelihood of
success was not great given Indiana's business judgment rule. Id.
160. Williams, supra note 3, at 716-17. See also Murray v. Conseco, Inc., 766 N.E.2d 38, 44
(Ind. Ct. App. 2002) (noting that even though Indiana's Constituency Statute broadens directors'

UNIVERSITY OF TOLEDO LA W REVIEW

[Vol. 38

a director shall be entitled to consider without limitation, (I) both the long-term and
the short-term interests of the corporation and its shareholders and (2) the effects
that the corporation's actions may have upon . . . the corporation's current
employees; the corporation's retired employees and other beneficiaries .... [and]
the corporation's customers and creditors.161
However, a search of the case law in all jurisdictions indicates that these statutes
have had little effect on imposing additional duties.' 62 Further, in most of these
statutes, the ability to consider other stakeholder constituencies when making
business decisions appears to provide an additional safety net against
shareholders' allegations of a breach 63of the duty of care-not a separate cause of
action to stakeholder constituencies.'
As noted above, there have been very few cases in which the courts have
interpreted the Constituency Statutes. Like Unocal Corp., most of the cases
brought under these statutes involved hostile takeovers. 164
In Baron v.
Strawbridge & Clothier, the plaintiff had formed a corporation for the sole
purpose of instituting a hostile takeover.' 65 In response, the defendant board
instituted several measures as a defense against the takeover.' 66 Not only did the
court indicate that the directors did not violate their duty of loyalty, the court also
noted that the company could consider "the effects the Berry tender offer would
have, if successful, on the Company's employees, customers and community"
under the Pennsylvania Constituency Statute. 16 However, the court's decision to
consider the Constituency Statute was only secondary to the finding that there
was no breach of fiduciary duties by the directors. 168 Consequently, the lack of
case law may simply be due to the fact that most directors and managers are not
liable under the business judgment rule. Thus, directors need not cite the
Constituency Statutes as a defense for their actions. 169
In Hilton Hotels Corp. v. ITT Corp., the court discounted the importance of
other stakeholder constituencies when it granted a preliminary injunction to the

powers to consider other constituencies, shareholders still possess some power and directors did not
have the power to remove a director from the board after he was voted into that position by the
shareholders), superseded on other grounds by Murray v. Conseco, Inc., 795 N.E.2d 454 (Ind.
2003); Lawrence E. Mitchell, A Theoretical and Practical Frameworkfor Enforcing Corporate
Statutes, 70 TEx. L. REv. 579, 587-88 (1992).
161. N.Y. Bus. CoRP.LAW 717(b) (McKinney 2005).

162. A search on LexisNexis revealed two cases that discussed these constituency laws.
Further, as noted above, Jonathan Springer indicated that by 1999, only eleven cases had been
adjudicated in regard to Constituency Statutes. See Springer, supra note 13, at 108.
163. See, e.g., FLA. STAT. ANN. 607.0830(3) (West 2005); 805 ILL. COMP. STAT. ANN. 5/8.85
(West 2005).
164. Orts, supra note 151, at 32.
165. 646 F. Supp. 690, 692 (E.D. Penn. 1986).
166. Id. at 693.
167. Id.
at 697.
168. Id.
at 696.
169. See Orts, supra note 151, at 32-33.

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SHAREHOLDER PRIMACY DOCTRINE

plaintiffs in a hostile takeover bid. 170 Defendants, in an attempt to stop the

takeover, refused to conduct their annual meeting and instituted a plan of defense
against the merger.' 7' The directors suggested that they had the right to make
this decision based on the Constituency Statute of Nevada. 172 Despite this
argument, the court ruled that the rights of the shareholders could not be
173
outweighed by other stakeholder constituencies listed in Nevada's statute.
This decision is indicative of the hesitancy of many courts to completely abandon
the shareholder primacy doctrine in favor of director primacy doctrine. 174
In terms of corporate social responsibility, the statutes and case law do not
impose an affirmative duty on directors and managers.' 75 Thus, while a
community may benefit from a board's decision to consider the impact on the
community when a corporation faces a hostile takeover, the benefit is only
secondary. 176 Serious advocates of corporate social responsibility suggest that
even though some decisions may sacrifice shareholder profits, the corporation
should expand beyond77 a model of profit making and become a model of
communitarian ethics. 1
Additionally, most stakeholder constituencies lack standing to bring suit
against a company, which many advocates of corporate social responsibility see
as a serious problem with current laws. 178 Despite this problem, many
stakeholder constituencies can still bring either contractual claims or claims
under many of the federal and state statutes designed to protect stakeholder
constituencies such as employees.179 For example, Tara Radin notes that statutes
such as the Foreign Corrupt Practices Act, 80 the Family and Medical Leave Act
of 1993,181 and the Americans with Disabilities Act182 "trump shareholder

170. 978 F. Supp. 1342, 1351 (D. Nev. 1997).

171. Id. at 1344.
172. Id. at 1346-47.
173. Id. at 1351.
174. This is in spite of Stout's empirical data that indicate the contrary. See Stout, supra note
71, at 1202.
175. Orts, supra note 151, at 81.
176. The exception to this is Connecticut's Constituency Statute, which imposes a duty on the
board to consider other constituencies. See CONN. GEN. STAT. ANN. 33-756(d) (West 2006).
A director of a corporation ...
shall consider, in determining what he reasonably believes to
be in the best interests of the corporation ...the interests of the corporation's employees,
customers, creditors and suppliers, and community and societal considerations including those
of any community in which any office or other facility of the corporation is located.
Id.
177. Don Mayer, Community, Business Ethics, and Global Capitalism, 38 AM. Bus. L.J. 215,
217-18 (2001).
178. Orts, supra note 152, at 83.
179. See generally Van Der Weide, supra note 16, at 40, 52.
180. 15 U.S.C. 78a-78ff (2000).
181. 29 U.S.C. 2601-54 (2000).
182. 42 U.S.C. 12101-177 (2000).

UNIVERSITY OF TOLEDO LA WREVIEW

[Vol. 38

concerns."'' 8 3 Further, under these laws, these stakeholder constituencies do not

have to be concerned with the issues that they would face with constituency
statutes, such as the business judgment rule or standing.
One interesting movement that has spun off from economic globalization is
that foreign stakeholder constituencies may be able to enforce corporate social
responsibility before their domestic counterparts.184 In recent years, foreign
stakeholder constituencies have brought suit against many corporations through
the Alien Tort Claims Act, which provides foreign nationals the ability to file
suits in United States federal courts for violations of international law. 185 Most of

the suits filed either focused on environmental claims or unfair labor practices.
To date, most of these claims have been dropped or remain in limbo in the legal
system. 8 6 Thus, while there is currently a new front in addressing corporate
social responsibility, there are still many187barriers in our current legal system and
these changes have not been welcomed.
V.

TOWARD A FEMINIST MODEL OF CORPORATE SOCIAL RESPONSIBILITY

As noted in the Introduction, no theorist has applied an extensive feminist

voice to the concept of corporate social responsibility. In the following sections,
I discuss corporate social responsibility in terms of an "ethic of care." First, I
discuss the concept of the "ethic of care." I then discuss Bender's application of
an "ethic of care" to tort law. Based on Bender's idea, I apply the "ethic of care"
to corporate fiduciary duties. I argue that requiring directors and managers to
view their actions with an ethic of care would compel them to consider
stakeholder constituencies other than shareholders. However, this requirement
would also lead to several consequences: (1) this standard of care would shield
directors and managers from liability in actions brought by shareholders, which
could decrease director and manager accountability, and (2) there would be an
increase in litigation for claims against directors and managers for breach of their
fiduciary duties should stakeholder constituencies other than shareholders have
standing. In addition, I briefly discuss the "ethic of care" in relationship to other
theorists' ideas on increasing corporate social responsibility. Last, I discuss how
shareholder advocacy may be the most powerful avenue for imposing an "ethic
of care" on directors and managers.

183. Radin, supra note 29, at 624-25 & n.27.

184. See generally Williams, supra note 3.
185. Alien Tort Claims Act, 28 U.S.C. 1350 (2000). See also Williams, supra note 3, at 750-

51. For example, several lawsuits were brought by Chinese garment workers in Saipan for unfair
labor practices. The trial court initially dismissed the cases because the workers had requested to
remain anonymous due to fear of repercussion by employers. The Ninth Circuit reversed the lower
court's decision and indicated that in the initial stages of the suit, anonymity was allowed. Doe v.
Advanced Textile Corp., 214 F.3d 1058, 1068 (9th Cir. 2000). There is no further history on this
case.
186. Williams, supra note 3, at 764.
187. The American Bar Association Committee on Corporate Laws has extensively criticized
Constituency Statutes. See Orts, supra note 151, at 17.

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A.

SHAREHOLDER PRIMACY DOCTRINE

A Foundationfor Feminist Legal Theory.: Carol Gilligan's "Ethic of Care "

In the 1970s, legal theorists began to examine if feminist theory had a place
within the American legal system.1 88 To date, feminist legal theorists most
frequently address areas of law where the unequal status of women in society has
been most pronounced. 89 While it is impossible to classify feminist legal theory
as one unified theory with a single hypothesis, 190 a frequently cited premise is
that men created the standards of law. 19' Thus, when one examines court
decisions and legislation, these standards of law tend to favor men over
women.192 This examination of "masculine" 93
standards of law led some theorists
to propose a reassessment of these standards.'
The work of Carol Gilligan, a developmental psychologist, has influenced the
development of feminist legal theory. 94 In her research during the 1970s and
1980s, she challenged developmental psychologist Lawrence Kohlberg's analysis
95
that men are more likely to achieve a higher level of moral development.
Gilligan specifically examined gender differences in moral development; she
suggested that women analyze moral issues in a radically different way than
men. 196
Further, she proposed that traditional theories of psychological
development favor the type of thought processes more typically used by men. 97
Gilligan suggested that women progress through three perspectives in the
development of "the ethic of care."' 98 During the first perspective, a woman
focuses on "caring for the self in order to ensure survival." 1 Gilligan noted that
the transition from this perspective to the second perspective was evident through
descriptions of this perspective as selfish.20 In the second perspective, women
elaborate on this newly recognized responsibility and frequently discuss the
importance of a maternal care for others. 20 ' Gilligan argues that this stage2
focuses on the care of others while the woman disregards the care of herself. 0
The second transition, which ultimately leads to the third perspective, occurs
188. Testy, Capitalism and Freedom, supra note 22, at 96.
189. See Gabaldon, supra note 22, at 4. There have been extensive feminist writings in the
areas of family law, reproductive rights, and to some extent, employment law. See id. at 14.
190. See Testy, Capitalismand Freedom, supra note 22, at 94.
191. Bender, supra note 24, at 7.
192. Id. See also Testy, Capitalism and Freedom, supra note 22, at 94.
193. See generally Bender, supra note 24 (discussing how men's creation of legal standards
contribute to men's power).
194. See Testy, Capitalism and Freedom, supra note 22, at 94-95; Bender, supra note 24, at 1820.
195.

CAROL GILLIGAN,

DEVELOPMENT 18 (1982).

196. ld. at69.

197. Id.
198. Id. at 74.
199. Id.
200. Id.
201. Id.

202. Id.

IN A DIFFERENT

VOICE: PSYCHOLOGICAL THEORY AND WOMEN'S

UNIVERSITY OF TOLEDO LAW REVIEW

[Vol. 38

when a woman recognizes and begins to feel angst over this sacrifice of self for
others.2 3 In response to this angst, "[t]he third perspective focuses on the
dynamics of relationships and dissipates the tension between selfishness and
responsibility
through a new understanding of the interconnection between other
20 4
and self.,

Gilligan suggested that because of cultural influences, women are frequently

confronted during their moral development with "two modes of judging, two
different constructions of the moral domain-one traditionally associated with
masculinity and the public world of social power, the other with femininity and
the privacy of domestic interchange. 2 s Because psychologists consider the
masculine mode of judging as more conventional, Gilligan argued that women
felt they needed to abandon their femininity to achieve this conventional standard
of moral judgment. 20 6 Thus, Gilligan suggested that developmental psychologists
should instead recognize that people interpret moral2 problems and legal issues
from either a justice orientation or a care orientation. O
She further suggested that much like Gestalt pictures, individuals cannot
simultaneously interpret a moral issue from both orientations; rather, the
orientations complement each other.20 8 In her interviews with women and men,
women tended to be more concerned with "a responsibility to discern and
alleviate the 'real and recognizable trouble' of this world"; in contrast men
tended to be more concerned with the rights of individuals. 20 9 However, Gilligan
noted that as men's and women's development neared the postconventional
stage, they began to discover the "complementarity of these disparate views" and
began to understand the limitations of their mode of ethical reasoning.2 10
B.

An "Ethic of Care" in Tort Law

Legal theorists have elaborated this concept of a dichotomy between

"masculine" legal standards and "feminine" legal standards since Carol Gilligan
published her work. These theorists have proposed that the standards of law that
encourage self-reliance and rugged individualism should be replaced by
standards of empathy and concern for other people. 21 1 An example of this

203. Id.

204.
205.
206.
207.

Id.
Id. at 69.
Id.
See Owen Flanagan & Kathryn Jackson, Justice, Care, and Gender, in AN ETfC OF CARE:

FEMINIST AND INTERDISCIPLINARY PERSPECTIVES 69 (Mary Jeanne Larrabee ed., 1993).

208. GILLIGAN, supra note 195, at 100.
209. Id.
210. Id. It should be noted that according to Gilligan's description of moral development in
men and women, legal standards of law are characterized by a masculine preconventional stage of
thought, which is characterized by rugged individualism and the protection of self from
interference.
211. Bender, supra note 24, at 31. One problem with this premise is that it would lead to a
disadvantage toward men in the legal system.

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SHAREHOLDER PRIMACY DOCTRINE

concept can be found in Bender's theory of tort law. 212 In her article, Bender
highlights that the "reasonable person" in tort theory is a concept that is oriented
towards "maleness., 213 As noted in comment b of the Restatement (Second) of
Torts, a reasonable person may be described as
a person exercising those qualities of attention, knowledge, intelligence, and
judgment which society requires of its members for the protection of their own
interests and the interests of others. It enables those who are to determine whether
the actor's conduct is such as to subject him to liability for harm caused thereby, to
express their judgment in terms of the conduct of a human being. The fact that this
judgment is personified in a "man" calls
214 attention to the necessity of taking into
account the fallibility of human beings.
But what qualities does society actually require of its members? If Carol
Gilligan is correct that women and men engage in different cognitive processes,
should courts take into consideration whether a defendant is a man or a woman?
Most would argue that this should not be taken into consideration because 21it5
would remove the objectivity of the standard and create a subjective standard.
Thus, one is left to decide what qualities are expected from societal members.
Here, Bender216argues that masculine qualities are expected within the American
legal system.

Further, Bender argues that the use of "reasonable" itself has dominant male
characteristics.2 17 As she notes, psychologists typically dichotomize men and
women as rational and emotional, respectively. 2 8 Thus, she argues that a
concept of a "reasonable woman" no more removes the masculine attributes as
the use of "reasonable person." Instead, she suggests that tort law would be
better by changing the standard of "reasonableness" to a standard of "caring and
concern for others. 2 19
212. Id.
213. Id. at 20-21. As she notes, the term "reasonable person" has only been recently used to
eradicate overt sexist language; originally courts did refer to the "reasonable man." Id. at 21-22.
Further, the Restatement (Second) of Torts still uses the term "reasonable man." RESTATEMENT
(SECOND) OF TORTS 283 cmt. b (1965).
214. RESTATEMENT (SECOND) OF TORTS 283 cmt. b.

215. If we were to consider different standards for men and women because they have different
cognitive processes, one would then have to argue, for example, that there would have to be
different standards that recognize that people have different cognitive processes as they age or for
left and right handed individuals.
216. Bender, supra note 24, at 22.
217. Id. at25.
218. Id. at 23. For an example of how the differences between men and women were perceived
in the early 1900s, G. Stanley Hall noted, "[s]he works by intuition and feeling; fear, anger, pity,
love, and most of the emotions have a wider range and greater intensity." G. Stanley Hall,
Adolescent Girls and their Education, in 2 ADOLESCENCE: ITS PSYCHOLOGY AND ITS RELATIONS TO
PHYSIOLOGY, ANTHROPOLOGY, SOCIOLOGY, SEX, CRIME, RELIGION AND EDUCATION 562 (1904).

219. Bender, supra note 24, at 25. One critique that I have of her argument is that she spends a
lot of time suggesting that these proposed differences between reason and emotion in men and
women arose because men dominated all areas of education. However, in her proposal to change

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[Vol. 38

If women possess an "ethic of care," why not impose this ethic on tort law?
Bender suggests that the standard of the "reasonable person" is grounded in
economic efficiency, which removes the concept of care and concern for others
that she believes should be present.220 As a result, "[t]he standard of care is
converted into a floor of unprofitability or inefficiency. People are abstracted
from their suffering; they are dehumanized., 221
Therefore, she suggests
converting "the present standard of 'care of a reasonable person under the same
or similar circumstances' to a standard of 'conscious care and concern of a
responsible neighbor or social acquaintance for another under the same or similar
circumstances. ,, 222 By doing so, she eradicates the concept of what would a
reasonableperson do in a similarsituation and replaces it with the concept that if
someone is in need of aid, one has the duty to provide that aid.
Bender's concept is not without criticism. For example, the legal system
would still need an objective standard for "a responsible neighbor or social
acquaintance." If developmental psychologists have found gender differences in
cognitive processing, it is possible that there are also gender differences in the
understanding of what constitutes a responsible neighbor. Thus, if there were
such a difference, on which standard should the legal system rely?
Bender's proposal is, at the very least, intellectually stimulating. Of course,
this radical change would be met with resistance and an attempt to preserve the
status quo. However, her suggestion begs the question: why not apply this
standard to other areas of law? Why not impose a standard, based not in
economic efficiency, but based on "'conscious care and concern"' of a
responsible person for employees, creditors, the community,
and other
223
stakeholder constituencies on corporate directors and managers?
C.

An "Ethic of Care" in CorporateFiduciaryDuties

As noted above, the business judgment rule and the protections afforded to
directors and managers are grounded in economic efficiency much like
negligence law in torts. As highlighted by the court in Perrine v. Pennroad
Corp., deference is granted to directors and managers because it would be
inefficient for the courts to step in and settle every dispute between the
stockholders.2 24 Therefore, as noted by Bender in her analysis of tort law, the

the standard of care, she, too, dichotomizes men and women based on this idea. Thus, her theory
falls to the same criticism because it is premised on the same concept that men created this image
of women.
220. Id. at 31.
221. Id.
222. Id.
223. Gabaldon has recognized this proposal but it has yet to be sufficiently analyzed. See
Gabaldon, supra note 22, at 20.
224. 47 A.2d 479, 487-88 (1946).

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SHAREHOLDER PRIMA CY DOCTRINE

area of corporate law 225

may be criticized for taking a masculine approach by
encouraging efficiency.
Additionally, the duty of care can be criticized for its emphasis on
reasonableness. Under the Model Business Corporation Act ("MBCA") section
8.30, the duty of care is the duty to act in an informed manner, in good faith, and
with the belief that the action is best for the company.2 26 This requires board
members to "discharge their duties with the care that a person in a like position
would reasonably believe appropriate under similar circumstances."' 227 In the
official comments of the MBCA, reasonableness refers
[t]o the array of possible options that a person possessing the basic director
attributes of common sense, practical wisdom and informed judgment would
recognize to be available. However, a decision that is so removed from the realm of
reason or so unreasonable as to fall outside the permissible bounds
228 of sound
discretion, and thus an abuse of discretion, will not satisfy the standard.
This poses an interesting dilemma in terms of Gilligan's insight that women often
reason in terms of care and consideration of themselves or others rather than
reason in terms of justice and fairness when solving moral dilemmas. Further, if
one relies on an "ethic of care" that presumably involves consideration (perhaps
even emotional consideration)of others within the community, would a decision
based on this "ethic of care" fall "outside the permissible bounds of sound
discretion"?
Because of the lack of case law recognizing stakeholder
constituency duties, one can only guess whether an "ethic of care" would be
considered appropriate. However, it is interesting to note that while both the trial
court and the appellate court expressed emotional concern for the community in
Local 1330, United Steel Workers v. U.S. Steel Corp., both courts stated that the
corporation still had no duty to consider the community when making the
decision to close the two plants.22 9
In addition, Bender's idea that the concept of the "reasonable person" should
be replaced with a "conscious care and concern of a responsible neighbor 23or0
social acquaintance for another under the same or similar circumstances
would radically change the standard when considering director liability. If this
standard was placed on corporate directors and managers, the effects could either
(1) increase protection from liability of directors and managers under the
business judgment rule or (2) create grounds for a new cause of action for

225. Because efficiency is almost always a goal of our legal system, most areas of law could be
criticized under this feminist theory. However, Stout has suggested that shareholder primacy is not
the most efficient rule because it may "discourage nonshareholder constituencies from making the
types of firm-specific investments that can be essential to a company's success." Stout, supra note
71, at 1198.
226. MODEL Bus. CORP. ACT 8.30(a) (1984).

227.
228.
229.
230.

Id. 8.30(b) (emphasis added).

Id. at cmts.
631 F.2d 1264, 1282 (6th Cir. 1980); 492 F. Supp. 1, 9 (N.D. Ohio 1980).
Bender, supra note 24, at 31.

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[Vol. 38

stakeholder constituencies and, therefore, increase the number of suits directed

against directors or managers for a breach in the duty of care.
1. IncreasedProtection of Liability
As noted above, state legislatures developed Constituency Statutes in the
1980s in response to a flurry of hostile takeovers.2 31 The state legislatures
designed these statutes to provide additional protection to directors that faced
shareholder suits because the directors made decisions to stop a takeover without
input from the shareholders.2 32 These statutes allowed directors to consider a
wide array of factors including the impact of the takeover on stakeholder
constituencies when making a business decision. 233 This raised the presumption
that the directors acted in an informed manner when making the decision and
made it additionally difficult for a shareholder to rebut. Thus, if directors had an
affirmative duty to make a business decision with care and social concern, it
would be practically impossible for a shareholder to win a suit so long as the
directors could demonstrate that their decision was based upon the duty of care
towards some stakeholder constituencies.
Because there are a variety of
stakeholder constituencies, it is likely that the directors could demonstrate a
consideration for at least one group of stakeholder constituencies in their
business decision. Essentially, a duty of care and social concern would
effectively diminish the duty of care to shareholders.
Unlike Bender's proposal of an affirmative duty in tort law, the problem with
applying this standard of care to directors is that constituency statutes further
protect the directors from liability and it is the shareholders that incur the loss.
Further, other than filing a suit in which the presumption is almost impossible to
rebut, shareholders' only recourse to a breach of the duty of care is to sell their
shares and divest ownership from the corporation.
With an absence of
shareholder investments, the directors would most likely have to make decisions
which, in the long-term, would have a negative net effect on stakeholder
constituencies such as creditors, employees, or the community.
Additionally, Stout notes that shareholder primacy, while not the best rule,
allows a corporation to measure the performance of their directors and managers
via the price of stock.234 Stout argues that if their accountability was not
measured through such a direct and observable measurement as the stock market,
management may be left with no accountability. 235 The result may be that
directors and managers will make decisions which are bad for all stakeholder
constituencies involved. Thus, shareholder primacy may be good for all
stakeholder constituencies because "it limits what might otherwise be the

231. Wells, supra note 6, at 126-27; Springer, supranote 13, at 92.

232. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985). See also Paramount
Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1153 (Del. 1989).
233. Orts, supra note 151, at 26-27.
234. Stout, supra note 71, at 1200.
235. Id,

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SHAREHOLDER PRIMA CY DOCTRINE

runaway agency costs that might be incurred by all if directors were not held to a
'
clear and easily observed metric of good corporate governance."236
2.

A Cause ofAction for Stakeholder Constituencies

Another possibility of applying Bender's concept from tort to director's duties

is to impose a standard of care and social responsibility on directors by creating a
cause of action for stakeholder constituencies. In this hypothetical, director
liability increases because a stakeholder constituency would be able to recover
from the corporation if it could demonstrate that a business decision was a breach
of the duty of care and social responsibility. As noted previously in regard to the
business judgment rule, courts have been deferential to director decision-making
in order to ensure efficiency in the court system.237 Thus, this proposal would be
in conflict with this policy and would likely encourage a plethora of litigation.
In addition, this proposal faces the same dilemma as increased director
protection under the business judgment rule. Shareholders who invest in a
corporation for profit will not wish their investments to be used to either defend
stakeholder constituency suits or to pay judgments to stakeholder constituencies.
Thus, they will choose not to invest in the corporation and the consequences of a
lack of shareholders would ultimately have a negative impact on other stakeholder constituencies.
3.

ComparingFeminist Social Responsibility with Other Views of Corporate

Social Responsibility

As noted in the Introduction, corporate social responsibility has been

extensively discussed in a multitude of contexts. Thus, it would be very difficult
to discuss the ideas of every proponent of corporate social responsibility.
However, recently there has been a renewed interest in corporate social
responsibility in terms of global capitalism. 23 8 As conducting business at a global
level becomes easier and cheaper, theorists question the effects of this practice on
stakeholder constituencies other than the shareholder. If a company can decrease
its costs by sending its production to facilities in countries that have lower
minimum wages and fewer labor laws, shareholders may see an increase in
profit. However, there are also a wide range of ramifications to other stakeholder
constituencies. Within the United States, employees may be laid off and supplier
contracts may not be renewed in favor of cheaper suppliers overseas. In addition,
if companies export production to countries with fewer regulations, there may
also be other consequences, such as environmental detriment to the local
community or unfair labor practices. One must ask if these financial gains by
shareholders are worth the losses to the other stakeholder constituencies.
236. Id.
237. Perrine v. Pennroad Corp., 47 A.2d 479, 487-88 (Del. 1946).
238. See generally Jacoby, supra note 31; Mayer, supra note 177; Williams, supra note 3;
Theresa A. Gabaldon, CorporateConscience and the White Man's Burden, 70 GEO. WASH. L. REV.
944(2002).

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Williams notes that the major problem in terms of global capitalism is that
protections to stakeholder constituencies found in the United States, such as
contract law or state and federal statutes, are not available in a global setting.
Stakeholder constituencies, such as foreign factory workers, may have little or no
protection so the need for increased corporate social responsibility is even more
critical under global capitalism. 239 Further, Williams suggests that because the
term "social responsibility" is ambiguous and has not been adequately defined, it
Instead, Williams focuses on
hinders creation of practical solutions.24
accountability. Williams suggests that the current view of shareholder primacy
requires that directors and managers be accountable as measured by gains and
losses. She suggests, like Stout, that widening corporate duties to include
stakeholder constituencies may decrease accountability. Thus, she argues that
companies should be required to be "socially accountable" by "producing more
information to be publicly disseminated about the social, political, economic, and
environmental consequences of managers' and directors' exercise of their
fiduciary responsibilities. 24 1
In some ways, Williams' "social accountability" is similar to the proposed
"ethic of care." In both instances, there is an argument that the current
terminology is insufficient in itself. In the proposed feminist model, the
performance of duties is no longer based on that of a "reasonable person" and is
replaced with the behavior of a responsible neighbor. However, Williams' goes
further and suggests that "responsibility" as a term is ambiguous; instead, she
suggests a concrete term such as "accountability" and she advances the idea that
any change
in our current view of corporate duties must be objectively
2 42
measured.

Other advocates of corporate social responsibility have stressed the notion of

community and are fearful that globalization reduces the ability to think in terms
of communities. For example, Don Mayer argues that business ethics need to
change to include an awareness of the community. 4 3 He argues that if business
leaders are exposed to ideas of community, they are more likely to see greater
This concept
responsibilities inherent in their rights as directors and managers.
is consistent with the proposed feminist model in which directors' and managers'
actions are judged in terms of the "responsible neighbor or social acquaintance."
However, unlike the feminist model, which offers a legal solution, Mayer
suggests that increasing corporate social responsibility may lie in changing
current views of business ethics.
The proposed feminist model is consistent with the current views of corporate
social responsibility. In the articles cited, the authors recognize that corporate
social responsibility may be induced by changing how business leaders think

239.
240.
241.
242.

Williams, supra note 3, at 724-25.

Id.
at 775.
at 777.
Id.
Id.

243. Mayer, supra note 177, at 257.

244. Id.at 254.

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about their corporate duties, whether imposed via legislation or encouraged

through business ethics. The proposed feminist model also requires a change in
thought processes. Before making a decision, business directors and managers
would have to view their actions in terms of a responsible neighbor instead of the
current view of a reasonable person.
D.

ShareholderAdvancement of an Ethic of Care and CorporateSocial

Responsibility

If the directors, managers, and the legal system are slow to change their
concept of corporate social responsibility, perhaps shareholders are best suited to
hasten a change to an "ethic of care" within the corporate world. Because
shareholders still possess the power to invest or divest in a company, the
shareholder proposal movement may be one of the most significant ways to
increase corporate social responsibility. 245 Because courts still give deference to
the shareholder primacy doctrine and because shareholders have the power to
invest or pull their investments, shareholders may be able to use their voice
through proxy contests to influence corporate social responsibility.
Moreover, the current movement of socially responsible investment funds may
be paving the way toward a duty of care and social concern. For example, many
financial institutions provide screening tools that allow individuals to invest only
in corporations that have a record of social or environmental concern. 246

In

addition, Hall and Hale note that socially responsible funds perform at the same
rate as other funds.247 Thus, perhaps funds, such as the Women's Equity Fund
that invests in "public companies that advance the social and economic status of
women in the workplace" are the most24appropriate way to advance a corporate
environment of care and social concern.
VI. CONCLUSION

Bender's feminist theory of tort law could be readily applied to the area of
corporate law and could serve as a model in regard to corporate social
responsibility. However, this model would require states to abandon the concept
that corporate directors have a sole duty to the shareholders and the corporation.
Further, it would require courts to impose a radically different view of negligence
that calls for the abandonment of a standard of care that is measured by economic
efficiency. If this standard was placed on corporate directors and managers, the
effects would (1) most likely increase directors' and managers' protection from
liability under the business judgment rule or (2) require a new cause of action for
245. See Theresa A. Gabaldon, The Lemonade Stand: Feminist and Other Reflections on the
Limited Liability of CorporateShareholders,45 VAND. L. REv. 1387, 1448-49 (1992) (noting that

shareholder empowerment would fit within a feminist concept of corporate responsibility).

246. Emily Hall & Jon Hale, How do Socially Responsible Funds Stack Up?, Momingstar.com
(Sept. 17, 1999), availableat http://news.morningstar.com/article/article.asp?id=584&_QSBPA=Y.
247. Id.
248. Women's Equity Fund, http://www.womens-equity.com (last visited Aug. 28, 2006).

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stakeholder constituencies, which would likely increase the number of suits for a
breach in the duty of care. In both instances, frustrated shareholders would opt to
divest interest in the corporation, which may ultimately lead to long-term losses
to stakeholder constituencies.
Despite the growing interest in the effects of corporate decisions on
stakeholder constituencies, most courts and legislatures continue to take the
current approach to corporate fiduciary duties and consider duties to stakeholder
constituencies when they deem it necessary. Furthermore, in order for the legal
community to accept this theory, there would have to be sweeping changes in
corporate law, which would most likely have to be imposed on the corporate
community at the level of the legislature. Thus, while shareholder primacy
continues to be the status quo, it may be the duty of shareholders to impose a
duty of care and social responsibility on corporate directors and management.