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The Rhetoric of Corporate Law:
Lisa M. Fairfax*
Associate Professor of Law, University of Maryland School of Law. I would like to thank Hillary Sale for
inviting me to participate in such a wonderful event as well as all of the other panelists and participants in the
symposium, particularly Robert Clark, for their helpful comments and suggestions on earlier versions of this
draft. In addition, I would like to thank Danielle Citron, Roger A. Fairfax, Jr., Sarah Barringer Gordon, Michael
Knoll, Kristen Madison, David Skeel, Amy Wax, R. Polk Wagner, and Cynthia Williams for their insights and
suggestions. Special thanks to Sarah Kotula for her invaluable research assistance.
The Journalof CorporationLaw [Spring
Ta ble 1 .................................................................................................................. 7 13
Ta ble 2 .................................................................................................................. 7 16
I. INTRODUCTION
A long-running debate exists in corporate law between those who believe the
corporation's sole or primary purpose is to maximize shareholder profit, the "shareholder
primacy" theory, and those who believe a corporation must honor all of its constituents'
interests, including the concerns of employees, creditors, customers, and society at large,
the "stakeholder" theory.1 This debate has received prominent attention since 1932 when
Professors Berle and Dodd debated the merits of these contrasting theoretical approaches
in the HarvardLaw Review. 2 One of the themes of Professor Robert Clark's treatise,
Corporate Law, centers on the powers and purpose of the corporation, 3 and Professor
Clark concludes, like most others, that the shareholder primacy norm dominates
corporate law. 4 In an effort to shed light on the continuing viability of that conclusion,
this Article examines the debate through the prism of recent corporate scandals, which
have precipitated an increase in rhetoric, particularly within corporate documents, that
embraces the stakeholder theory.
For the past few decades, corporate scholars have agreed almost universally that the
shareholder primacy norm most accurately captures the corporation's personality and
purpose. 5 Even proponents of the stakeholder theory grudgingly agree. 6 Interestingly,
legal doctrine seemingly has retreated from a strict requirement that corporations
1. William T. Allen, Our Schizophrenic Conception of the Business Corporation, 14 CARDOZO L. REV.
261, 264 (1992) (explaining the competing conceptions of corporate law that have dominated our society). See,
e.g., Henry N. Butler & Fred S. McChesney, Why They Give at the Office: Shareholder Welfare and Corporate
Philanthropy in the Contractual Theory of the Corporation, 84 CORNELL L. REV. 1195, 1195 (1999) (noting
that the issues have been debated ad nauseam).
2. See Adolf A. Berle, Jr., For Whom Corporate Managers are Trustees: A Note, 45 HARV. L. REV.
1365, 1367 (1932) (arguing that corporations exist to enhance shareholder profit); E. Merrick Dodd, Jr., For
Whom Are Corporate Managers Trustees?, 45 HARv. L. REV. 1145, 1147-48 (1932) (pinpointing a
corporation's responsibilities to all corporate constituents and broader society). See also A.A. Sommer, Jr.,
Whom Should the CorporationServe? The Berle-Dodd Debate Revisited Sixty Years Later, 16 DEL. J. CORP. L.
33 (1991) (same); Joseph L. Weiner, The Berle-Dodd Dialogue on the Concept of the Corporation, 64 COLUM.
L. REV. 1458 (1964) (same <- As what?); C.A. Harwell Wells, The Cycles of CorporateSocial Responsibility:
An HistoricalRetrospective for the Twenty-First Century, 51 U. KAN. L. REV. 77, 82-96 (2002) (debating the
purpose issue). This debate has its roots in the 1920s. See Sommer, supra, at 36-37; Wells, supra, at 83-87.
3. See ROBERT C. CLARK, CORPORATE LAW 33 (1986) (discussing the competing shareholder and
stakeholder theories); Id. at 675-703 (discussing the meaning of corporate personality).
4. See id. at 682 (noting courts have not retreated from the assumption that the primary or residual
purpose of a business corporation is to make profits for its shareholders).
5. CLARK, supra note 3, at 282; Stephen Bainbridge, Director Primacy: The Means and Ends of
CorporateGovernance, 97 Nw. U. L. REv. 547, 563 (2003) (noting that most scholars embrace some variant of
shareholder primacy); See Ronald Chen & Jon Hanson, The Illusion of Law: The Legitimating Schemas of
Modern Policy and Corporate Law, 103 MICH. L. REV. 1, 37 (2004) (noting the resurgence of shareholder
primacy since the 1970s).
6. See Kent Greenfield, New Principlesfor CorporateLaw, I HASTINGS BUS. L. J. 89, 89 (2005) (noting
the dominance of the shareholder primacy model); Jill Fisch, Measuring Efficiency in CorporateLaw: The Role
of ShareholderPrimacy 10 (Univ. of Cal., Berkeley Law & Econ. Workshop Paper No. 5, 2004), available at
http://repositories.edlib.org/berkeleyjaw-econ/Spring/2005/5 (finding resounding support for shareholder
primacy).
2006] Rhetoric of CorporateLaw
maximize shareholder wealth in all settings. In response, some corporate scholars have
concluded that the shareholder primacy theory may no longer be a normatively nor
descriptively accurate assessment of the current state of corporate law. 7 Despite this
seeming shift in positive doctrine, scholars on both sides of the debate continue to
proclaim the dominance of the shareholder primacy norm.
Recently, however, some traditional corporate scholars, along with many corporate
directors and officers, have adopted rhetoric that suggests the stakeholder model has
gained broader acceptance. For example, in January 2005 The Economist featured a series
of articles acknowledging that stakeholder rhetoric had begun to eclipse the rhetoric
involving the shareholder primacy norm. 8 It has done so not only through the permeation
of such rhetoric in corporate documents, such as annual reports and mission statements,
but also through a proliferation of officers, board committees, and even entire
departments dedicated to overseeing and implementing policies that address stakeholder
issues. 9 Business school curricula also emulate this trend, integrating such concepts in
core and extracurricular courses, and in the increasing desire by MBA students to fuse
social endeavors with profit-making ones. 10 Then too, some traditional scholars have
embraced some aspects of stakeholder rhetoric, 11 while some business organizations now
include stakeholder concepts in their model principles of good corporate governance. 12
Nonetheless, because the embrace of stakeholder rhetoric appears inconsistent with
the reality of corporate practices, both critics and proponents of the stakeholder theory
tend to dismiss this shift to stakeholder rhetoric as relatively insignificant. Pointing out
that many corporations ultimately devote very little time and resources to issues
involving constituents other than shareholders, commentators agree that the stakeholder
rhetoric appears to be mere "window dressing" for the real goal of maximizing
13
shareholder profit.
The surge in stakeholder rhetoric does indeed appear to reflect a desire by
corporations to present the image of good citizens as a counter to the negative images
created by corporate misconduct reflected in Enron and other recent corporate scandals.
Given these factors, critics and proponents agree that the stakeholder rhetoric represents
an insignificant distraction, and conclude that the shareholder primacy norm remains safe
from encroachment.
This Article argues that the recent corporate embrace of stakeholder rhetoric has
normative implications that both critics and proponents have overlooked. Leaving aside
the possibility of any behavioral impact, 14 this Article asserts that corporate adoption of
7. Margaret M. Blair & Lynn A. Stout, DirectorAccountability and the Mediating Role of the Corporate
Board, 79 WASH. U. L.Q. 403,406 (2001).
8. The Ethics of Business, ECONOMIST, Jan. 22, 2005, at 20; The Good Company, ECONOMIST, Jan. 22,
2005, at 3; The Good Company: Capitalism and Ethics, ECONOMIST, Jan. 22, 2005, at 11; The World According
to CSR, ECONOMIST, Jan. 22, 2005, at 10; Profitand the Public Good, ECONOMIST, Jan. 22, 2005, at 15.
9. See Part III.A.
10. SeePart II.D.
11. See infra notes 154-55 and accompanying text (discussing among others, Ira Millstein and Sir Adrian
Cadbury).
12. See id.
13. See infra note 170.
14. Although beyond the scope of this Article, the author plans to explore the behavioral impact of
corporate rhetoric in future scholarship.
The Journalof CorporationLaw [Spring
such rhetoric may signal a growing dissatisfaction with the shareholder primacy norm,
particularly in its absolute form.
Indeed, the fact that stakeholder concepts have received some prominence within
corporate documents begs the following question: Why do corporate agents feel obliged
to advance rhetoric at odds with both their own actions and the "prevailing" corporate
norm of shareholder primacy and profit maximization? This Article responds to that
question, arguing that society, including investors, may find the stakeholder norm more
palatable, particularly during times of corporate misbehavior when society perceives the
profit maximization norm as having generated that behavior.
In doing so, this Article articulates a definition of corporate rhetoric that not only
relies on the Aristotelian understanding of rhetoric as persuasive discourse, but also
illuminates the expressive function of such rhetoric Within judicial opinions regarding
corporate conduct. Although some scholars have emphasized the expressive function of
rhetoric within judicial opinions and its importance in shaping corporate norms of
behavior, 15 those scholars have not assessed the normative impact this rhetoric has on
corporations and the business community.
This Article fills that void by extending the scholarly discussion of corporate
rhetoric to include rhetoric advanced by the corporate community itself.16 This Article
asserts that, like judicial opinions, rhetoric espoused by the business community has an
intrinsic value irrespective of its behavioral impact, and, in part, can be viewed as a direct
response to judicial decisions. 17 Such rhetoric represents an expression of the discourse
corporations believe audiences, such as the judiciary and federal regulators, find most
palatable. Given that expression, this Article concludes that even if shareholder primacy
reflects the positive reality of corporate practices, the rhetorical embrace of stakeholder
principles suggests corporate perception that audiences do not fully endorse the
normative claim that shareholder primacy ought to govern corporate conduct.
Part 1I of this Article sets forth the principles animating the stakeholder theory. It
then reveals the dominance of the shareholder primacy rhetoric in corporate law,
illustrating its persistence in the face of legal doctrines that erode the normative weight of
the shareholder primacy theory. Part III pinpoints the manner in which corporations have
increasingly adopted stakeholder rhetoric, demonstrating how that rhetoric has permeated
the corporate environment from corporate documents and infrastructures to business
15. See SANFORD LEVINSON, The Rhetoric of the Judicial Opinion, in LAW'S STORIES 18 (Peter Brooks &
Paul Gewirtz, eds. 1996) (describing opinions as rhetorical performances); Sean J. Griffith, Good Faith
Business Judgment: A Theory of Rhetoric in CorporateJurisprudence,55 DuKE L.J. 1, 8 (noting that rhetoric is
a speech act); Edward B. Rock, Saints & Sinners: How Does Delaware CorporateLaw Work?, 44 UCLA L.
REv. 1009, 1016 (1997) (noting that Delaware courts generate standards of legal conduct through "corporate
law sermons" that influence the development of social norms).
16. By analyzing rhetoric within judicial opinions, Professor Griffith advances a theory of corporate
rhetoric that relies on the rhetoric within judicial opinions. See Griffith, supra note 15, at 8. Under his theory,
judges use rhetoric to respond to the corporate environment, and hence the rhetoric is not static, but rather shifts
as the environment shifts. See id. at 56. Professor Griffith refers to this shift as a thamathrope. See id. By
examining corporate rhetoric from the perspective of the rhetoric within corporate documents and espoused by
the business community, and emphasizing the responsive nature of that rhetoric, this Article's conception of
corporate rhetoric compliments and expands upon Professor Griffith's theory.
17. Professor Rock notes that rhetoric within shareholder litigation plays a role in elaborating norms,
separate from the deterrence role of such litigation. See Rock, supra note 15, at 1089-90.
20061 Rhetoric of CorporateLaw
school curricula and related activity. That demonstration is based in part on empirical
research the author conducted on the presence of stakeholder rhetoric within Fortune 500
corporations. Part IV defines corporate rhetoric as corporate expression of the most
persuasive and acceptable normative model for corporate conduct. In this regard,
although that rhetoric may not reflect corporations' actual behavior, it sheds light on
corporate understanding of the kind of behavior in which they should engage. Part IV
concludes that because corporate rhetoric relies heavily on stakeholder themes, it
ultimately reveals its dissatisfaction with the shareholder primacy norm.
II. THE BATTLE OF NORMS: THE EVOLUTION OF THE SHAREHOLDER PRIMACY AND
STAKEHOLDER THEORIES
This Part explores the relative strength of the shareholder primacy norm. Section A
defines this Article's understanding of the stakeholder theory. Section B reveals the
historical dominance of the shareholder primacy theory, while illustrating the persistence
of shareholder primacy rhetoric despite legal doctrine that appears to undermine the
shareholder primacy norm.
18. Indeed, some refer to the notion of obligations to constituents as corporate social responsibility. See
Wells, supra note 2, at 78. Others refer to the theory as the "social entity" concept. See Allen, supra note 1, at
264; Lisa M. Fairfax, Doing Well While Doing Good: Reassessing the Scope of Directors' Fiduciary
Obligations in For-Profit Corporationswith Non-Shareholder Beneficiaries, 59 WASH. & LEE L. REv. 409,
411-12 (2002).
19. See Wells, supra note 2, at 99-134 (discussing cycles of stakeholder concept). Reflective of this
difference are constituency statutes, some of which only embrace a responsibility to specific groups like
employees, suppliers, and creditors, while others focus on a responsibility to the economy of the state and
nation. See Fairfax, supra note 18, at 460-61.
20. More fundamentally, when its proponents cannot succinctly define its content, it becomes difficult to
enforce a coherent obligation for directors. Even if such an obligation could be sustained, allowing directors to
focus on a variety of different groups' interests also makes it relatively easy for directors to avoid all liability
since they can always convincingly claim that their actions advance some group's interest. See, e.g., Stephen M.
Bainbridge, In Defense of the Shareholder Wealth Maximization Norm: A Reply to Professor Green, 50 WASH.
& LEE L. REv. 1423, 1435-42 (1993) (referring to the difficulty of serving a variety of constituents as the "two
masters" problem); Lawrence E. Mitchell, A Theoretical and PracticalFrameworkfor Enforcing Constituency
Statutes, 70 TEx. L. REv. 579, 589 (1992) (noting concern that stakeholder theory creates difficulty with
enforcing obligations and measuring success).
21. See Bainbridge, supra note 20, at 1435-38 (pinpointing the difficulties with adopting the stakeholder
model which requires a balancing of various interests). See also CLARK, supra note 3, at 680 (noting that there
is "no truly persuasive critique" of the "view that strict profit maximization promotes better monitoring and
The Journalof CorporationLaw [Spring
racial harassment claims filed with the Equal Employment Opportunity Commission (EEOC) increased five-
fold from the 1980s to the 1990s. See The U.S. Equal Employment Opportunity Commission, Trends in
Harassment Charges Filed with the EEOC, http://www.eeoc.gov/stats/harassment.html (last visited March 26,
2006). In this regard, the promotion of genuine racial diversity may entail significant costs that appear
antithetical to profit maximization. However, that promotion would be encouraged under the stakeholder theory
because that theory recognizes the need to subordinate financial considerations in order to advance important
societal objectives. This example highlights the fact that the stakeholder theory and long-term profit
maximization are not always compatible.
25. See Allen, supra note 1, at 264 (explaining the two conceptions of corporate law that have dominated
our society). Professor Clark actually pinpoints "five major clusters of views concerning the corporation's" role.
See CLARK, supra note 3, at 677. This Article would consider the two principal conceptions of the corporation
to be attributed to what Professor Clark refers to as dualism (the residual obligation of profit maximization) and
high idealism (interest group accommodation). See id at 677-81, 688-94.
26. See Berle, supra note 2, at 1367 (emphasizing that corporations exist to enhance shareholder profit);
Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y. TIMES, Sept. 13, 1970, §
6 (Magazine), at 33.
27. See William W. Bratton, The Economic Structure of the Post-ContractualCorporation,87 Nw. U.L.
REv. 180, 208-15 (1992) (discussing stakeholder theory); Timothy L. Fort, The Corporation as Mediating
Institution: An Efficacious Synthesis of Stakeholder Theory and Corporate Constituency Statutes, 73 NOTRE
DAME L. REV. 173, 184-86 (1997).
28. See Berle, supra note 2, at 1367; Dodd, supra note 2, at 1147. For a discussion of the debates see
supra note 2.
29. See William W. Bratton, Berle and Means Reconsidered at the Century's Turn, 26 J. CORP. L. 737,
762-65 (2001) (explaining Berle's trust theory); Berle, supra note 2, at 1367.
30. Berle, supra note 2, at 1367.
31. Dodd, supra note 2, at 1160.
32. Id. at 1161.
33. Indeed, scholars in the 1980s, relying on a neoclassical economic mode of analysis, utilized a "nexus
of contracts" theory to justify the corporate focus on shareholders. See, e.g., FRANK H. EASTERBROOK &
DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF THE FIRM 12 (1991); Lucian A. Bebchuck, The Debate on
ContractualFreedom in Corporate Law, 89 COLUM. L. REv. 1395, 1397, 1408-09 (1989); Daniel R. Fischel,
The CorporateGovernance Movement, 35 VAND. L. REV. 1259, 1262 (1982) (noting that the firm is a "legal
fiction" serving as a nexus for the contracting process); Michael Jenson & William Meckling, Theory of The
Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. FIN. ECON. 305, 312 (1976). The
The Journalof Corporation Law [Spring
theory views the corporation as a web of contractual relationships, pursuant to which directors have a
contractual obligation to pay heed to the interests of shareholders and favor those interests over other groups
who have other avenues for protecting their rights. Id. See also Bainbridge, supra note 5,at 547 (advancing the
director primacy theory, which contends that boards control corporations, and that shareholders are the
appropriate beneficiaries of boards' fiduciary duties). Recently Professors Lynn Stout and Margaret Blair have
relied on a "team production" theory of the corporation to justify a focus on all corporate constituents. See
Margaret M. Blair & Lynn A. Stout, A Team Production Theory of CorporateLaw, 85 VA. L. REV. 247 (1999).
This theory views the corporation as a team production and recognizes the efforts of all corporate constituents
who contribute to corporate production. See id. at 249. In order to operate effectively, these constituents cede
authority to the board, which seeks to balance their competing interests. See id. at 320. In this regard the board,
as mediator of the various interests, has an obligation to all corporate stakeholders. See id. at 281.
34. See Stephen M. Bainbridge, Community and Statism: A Conservative ContractarianCritique of
Progressive Corporate Law Scholarship, 82 CORNELL L. REV. 857, 902-03 (1997) (noting that the corporate
responsibility debate comes in cycles, with new terminology and new ideas, but is essentially the same); Wells,
supra note 2, at 78 (noting that each new debate largely recapitulates the earlier debate in a slightly altered
form).
35. Interestingly, in the 1950s and 1960s it appeared that the stakeholder theory held sway, with even
Professor Berle agreeing that the debate had been settled "at least for the time being" in favor of Professor
Dodd's stakeholder theory. See ADOLF A. BERLE, JR., THE 20TH CENTURY CAPITALIST REVOLUTION 169
(1954). However, Dodd's conception was ultimately eclipsed, see David Millon, Redefining CorporateLaw, 24
IND. L. REV. 223, 230 (1991), and at least since the 1970s, clear support for the shareholder primacy norm
surfaced and has remained. See Bainbridge, supra note 5, at 563; Wells, supra note 2, at 125.
36. Fisch, supra note 6, at 10-11.
37. See CLARK, supra note 3 at 30.
38. 170N.W. 668 (Mich. 1919).
39. Id.at 684.
40. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).
41. Id.at182.
2006] Rhetoric of CorporateLaw
2. The Rebuttal
Scholars who contend that the shareholder primacy theory is not the norm, point to
areas where courts have allowed corporations to focus on non-shareholder concerns, and
even favor them over shareholder issues. One particular area to note is the legislative and
judicial allowance of charitable contributions. Every state corporation statute allows
corporations to donate money to charitable endeavors. 48 Certainly the notion of giving
49
away corporate funds appears inconsistent with maximizing shareholder profit.
Corporations collectively give over $10 billion to charity in a single year "even though
such giving has only the most tenuous connection to shareholder interests." 50 Scholars
42. In fact, the Dodge court viewed as problematic the management's desire to do good for the
community. See Dodge, 170 N.W. at 684.
43. Milton Friedman, A Friedman Doctrine-The Social Responsibility of Business is to Increase its
Profits, N.Y. TIMES, Sept. 13, 1970, § 6 (Magazine), at 33. For a more in-depth discussion of Friedman's
argument see Chen and Hanson, supra note 5, at 42-52.
44. See, e.g., Simons v. Cogan, 549 A.2d 300, 304 (Del. 1988) (holding that directors owe no duty to
debenture holders); Harff v. Kerkorian, 324 A.2d 215 (Del. Ch. 1974) (holding that directors owe no duty to
holders of convertible subordinate debating).
45. See Katz v. Oak Indus. Inc., 508 A.2d 873, 879 (Del. Ch. 1986).
46. Revlon, 506 A.2d at 182.
47. See Dodge, 170 N.W. at 684 (suggesting that the notion that corporate directors owed duties to the
general public reflected confusion).
48. See, e.g., DEL. CODE ANN. tit. 8, § 122(9) (2001) (granting corporations the power to make donations
for the public welfare or for charitable purposes); REV. MODEL Bus. CORP. ACT § 3.02(13) (2004) (enabling
corporations to make donations for the public welfare). See also Elhauge, supra note 24, at 738, 767-68.
49. See Jill E. Fisch, Questioning Philanthropyfrom a Corporate Governance Perspective, 41 N.Y.L.
SCH. L. REV. 1091, 1094 (1997) (noting that from a law and economics perspective corporate charitable giving
appears irrational).
50. Elhauge, supra note 24, at 738 (noting that corporate managers have always had the legal discretion to
sacrifice corporate profits in the public interest); Adam Winkler, Corporate Law or the Law of Business?:
Stakeholders and Corporate Governance at the End of History, 67 LAW & CONTEMP. PROBS. 109, 116-17
(2004) (same).
The Journalof CorporationLaw [Spring
51
concur that little connects charitable giving to a corporation's financial bottom line.
Despite this seeming disconnect between charitable giving and shareholders' profits,
52
courts uniformly uphold the practice.
Tellingly, courts sanction charitable donations over the objections of shareholders
who complain that such donations diminish their profits. 53 The law involving charitable
contributions thus reflects a judicial willingness to allow corporate actors not only to
forgo shareholder profit, but also to subordinate profit-making concerns in favor of
community interest. Such willingness contradicts shareholder primacy as a normative
principle.
Legal doctrines involving ordinary business decisions also undercut the shareholder
primacy theory. Courts have allowed directors to forgo shareholder profit in
consideration of a community's interests. For example, in Shlensky v. Wrigley, 54 the
directors of the Chicago Cubs baseball team refused to install lights at the Wrigley Field
stadium, and hence enable the team to play night games, because of their concern that
night games would have deteriorating effects on the surrounding community. 55 The
directors admitted that, in making that decision, they were not interested in whether their
actions would decrease shareholder profit. 56 The shareholders sued the directors, arguing
57
that their decision contravened the shareholder primacy norm articulated in Dodge.
The court, however, upheld the directors' decision, reasoning that corporate
directors have the discretion to forgo shareholder profit to advance other interests. In so
holding, the court implicitly recognized that corporate directors could serve parties other
than shareholders, for example, the community at large, and could further those parties'
interests at the expense of shareholder profit. Professor Clark asserts that, while it should
not be overstated, Wrigley "suggests that in practice courts will allow directors to temper
58
business decision making with their perceptions of social values."
The American Law Institute (ALl) reflects this allowance by defining a
corporation's objectives to include an ability to devote reasonable resources to public
welfare, humanitarian, educational, and philanthropic purposes, even when corporate
profit and shareholder gain are not enhanced. 59 The ALl recognizes that the modem
corporation establishes interdependencies with a variety of groups from customers to
51. See Faith Stevelman Kahn, Pandora's Box: ManagerialDiscretion and the Problem of Corporate
Philanthropy,44 UCLA L. REV. 579, 581 (1997); Nancy J. Knauer, The Paradox of Corporate Giving: Tax
Expenditures, the Nature of the Corporation, and the Social Construction of Charity, 44 DEPAUL L. REV. 1, 56
(1994).
52. See, e.g., Theodora Holding Corp. v. Henderson, 257 A.2d 398, 405 (Del. Ch. 1969) (holding that a
charitable gift for a worthy purpose not exceeding five percent of total income was proper); A.P. Smith Mfg.
Co. v. Barlow, 98 A.2d 581, 586 (N.J. 1953) (refusing to declare a charitable contribution to a privately
supported educational institution a misappropriation of corporate funds).
53. See Theodora Holding Corp., 257 A.2d at 398.
54. Shlensky v. Wrigley, 237 N.E.2d 776 (Il. App. Ct. 1968).
55. Id.
56. Id.at 778.
57. Id. at 779.
58. See CLARK, supra note 3, at 139-40 (noting the flexibility to attend to other issues, but cautioning not
to overstate the point because "Wrigley is a decision of one lower court in one state; and similar holdings
elsewhere appear nonexistent").
59. See The Objective and Conduct of the Corporation:Analysis and Recommendation, I A.L.I. CORP. §
2.01(b) (1994).
2006] Rhetoric of CorporateLaw
members of the community, and hence 60the corporation has a legitimate concern with
meeting the expectations of such groups.
An inevitable result of these interdependencies appears to be that the corporation's
profit-making goals "must be constrained by social imperatives and may be qualified by
social needs." 6 1 Like the legal doctrine regarding charitable contributions, the
recognition of these constraints and qualifications on business decisions both by the ALI
and in case law suggests an important deviation from the shareholder primacy norm.
The extreme deference afforded directors' business decisions strengthens their
ability to take into account non-shareholder interests. Outside of conflict of interest
settings, corporate directors have a duty of care to act in good faith and in a manner they
believe to be in the best interests of the corporation. 62 Courts analyze whether there has
been a breach of that duty by reference to the business judgment rule. 63 That rule not
only represents a presumption that director decisions are rational and informed, but
embodies a desire to refrain from second guessing the decisions of directors and
officers. 64
When applied, the business judgment rule results in court sanctions of the vast
majority of corporate decisions. Indeed, the court in Shlensky upheld the directors'
decisions based in part on their understanding of the wide discretion afforded to directors
to make decisions on behalf of the corporation, apparently even those that forgo
shareholder profit. 65 Reflecting this discretion, courts rarely overturn directors' decisions
in this area. 66 In fact, outside of the takeover context, there are no reported cases in
which courts have overturned directors' decision to favor a constituent group over
shareholders' profit.67 By allowing directors the freedom to advance, and even favor, the
interests of other groups, court application of the business judgment rule in the context of
ordinary business decisions undermines the shareholder primacy norm.
Courts also have departed from an insistence on shareholder primacy in the takeover
context. In Revlon, the Delaware Supreme Court asserted that when the corporation
places a company up for sale, the board's sole responsibility is to maximize shareholder
value and hence it could not consider or favor other groups. 68 However, the Delaware
Supreme Court has subsequently limited Revlon in a manner that significantly chips away
at the shareholder primacy norm. 69 Indeed, before Revlon, the court in Unocal Corp. v.
Mesa Petroleum Co. 70 alluded to this limitation when it held that directors could consider
the interests of "creditors, customers, employees, and perhaps even the community
generally" when defending against a takeover. 71 Moreover, the Revlon court confirmed
director ability to consider stakeholder interests when attempting to prevent a takeover. 72
In later cases, the Delaware court insisted that only two circumstances triggered the
Revlon duty to maximize shareholder profit: when a board puts the company up for sale
and during a change-of-control transaction. 73 Outside of these circumstances, the court
maintained that directors are "not under any per se duty to maximize shareholder value,"
but instead are free to consider the interests of all groups impacted by the corporation,
both in the context of takeovers and with regard to other business decisions. 74
Outside of Delaware, 32 states have enacted "constituency" statutes that give
directors the flexibility to consider other interests during takeovers and other business
decisions. 75 Legislatures passed such statutes during the height of takeovers in the 1980s
to prevent the negative consequences such takeovers had on non-shareholder groups like
employees and the surrounding community. 76 By enabling directors to consider issues
other than shareholder profits and to value groups other than shareholders during
takeovers, those statutes undermine shareholder primacy. 77 At least two thirds of the
constituency statutes extend beyond takeovers, allowing directors to consider the
concerns of non-shareholders when making ordinary business decisions. 78 While only
Connecticut requires directors to consider stakeholders, 79 these statutes reflect further
erosion of the shareholder primacy norm.
Moreover, the fact that courts have strayed from shareholder primacy in the takeover
context reflects a significant erosion of that concept. This is because takeovers generate
the highest level of tension between the stakeholder and shareholder theories given the
promise of enormous wealth for shareholders at the expense of other groups' interests as
a result of a takeover. For example, takeovers tend to precipitate massive employee
layoffs as well as plant closings that displace customers and undermine the affected
community's economic stability. 80 Takeovers also increase creditors' risks because they
69. See David Millon, Redefining CorporateLaw, 24 IND. L. REv. 223, 240 (1991) (noting that limitations
on Revlon suggest a judicial willingness to subordinate shareholder concerns); Lyman Johnson & David Millon,
The Case Beyond Time, 45 Bus. LAW. 2105, 2110-12 (1990) (same).
70. Unical Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
71. Id. at 955. While there appears to be some agreement on the notion that the Unocal standard has
eroded, see Griffith, supra note 15, at 64, it remains true that the decision served to weaken the duty to
maximize profit. See id. at 64-65.
72. See Revlon, 506 A.2dat 176.
73. See Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140, 1150 (Del. 1989).
74. Id.
75. See Fairfax, supra note 18, at 460 n.285.
76. See Eric W. Orts, Beyond Shareholders: Interpreting Corporate Constituency Statutes, 61 GEO.
WASH. L. REv. 14, 24 (1992).
77. See Fairfax, supra note 18, at 460-61 (discussing content of these statutes); Orts, supra note 76, at 26-
27.
78. See Fairfax, supra note 18, at 463 n.299 (discussing statutes that apply only in the takeover context).
79. See id. at 460.
80. See Wells, supra note 2, at 126-28.
2006] Rhetoric of CorporateLaw
often involve the corporation assuming tremendous debt that it sometimes cannot
repay. 81 At the same time, takeovers offer shareholders significant premiums over their
stock price. 82 In this way, takeovers reflect a collision between the two theories, while
the decision to forestall takeovers appears to represent a decision to disfavor shareholder
maximization. 83 The case law suggests that courts have settled this collision in favor of
other groups, and hence suggests courts' unwillingness to absolutely endorse shareholder
primacy.
3. The Reaffirmation
Proponents of the shareholder primacy norm claim that these doctrines are
consistent with the "long-term" interest of shareholders, and hence do not reflect a
meaningful embrace of the stakeholder approach. 84 Under this view, directors can forgo
short-term shareholder profit to further long-term shareholder interest. To that end, this
argument finds support in court decisions requiring all charitable contributions or
expenditures for other social projects made by corporations to be reasonable in light of
85
the corporation's financial condition.
Advocates of this long-term view also suggest that charitable contributions or other
actions that advance non-shareholder interests enhance a corporation's image, inuring to
the benefit of shareholders by inspiring employee and customer loyalty. 86 A similar
result occurs when directors favor the interests of various groups. Thus, proponents of the
shareholder primary view characterize all corporate decisions that advance other groups'
interests as truly aimed to benefit shareholders. Those scholars therefore explain away the
seeming intrusions on shareholder primacy within the legal doctrine.
That characterization, however, while seemingly rooted in corporate practices,
ignores several realities and ultimately belies the assumptions on which such
characterizations rest. First, the flexibility courts afford directors and officers to address
concerns of other groups under the guise of long-term shareholder value suggest that, as a
81. See Robert W. Hamilton, CorporateMergers and Acquisitions, in THE GUIDE To AMERICAN LAW
YEARBOOK 66, 74 (1990) reprinted in CASES AND MATERIALS ON CORPORATIONS: INCLUDING PARTNERSHIPS
AND LIMITED LIABILITY COMPANIES, at 983-85 (Robert W. Hamilton & Jonathan R. Macey, eds., 9th Ed.)
(noting that after a takeover targets' total debt obligations may exceed their ability to repay).
82. See Wells, supra note 2, at 126-28.
83. See Millon, supranote 69, at 240 (noting that judicial willingness to constrain director behavior for the
benefit of other constituents in the context of takeovers reflects a significant intrusion on the shareholder
primacy norm).
84. See THE Bus. ROUNDTABLE, PRINCIPLES OF CORPORATE GOVERNANCE 30 (2002), available at
http://www.brtable.org/pdf/704.pdf ("Corporations are often said to have obligations to stockholders and to
other constituencies, including employees, the communities in which they do business, and government, but
these obligations are best viewed as part of the paramount duty to optimize long-term stockholder value.");
ORG. FOR ECON. CO-OPERATION & DEV., OECD PRINCIPLES OF CORPORATE GOVERNANCE 46 (2004),
available at http://www.oecd.org/dataoecd/32/18/31557724.pdf (noting that it is "in the long-term interest of
corporations to foster wealth-creating cooperation among stakeholders. The governance framework should
recognize that the interests of the corporation are served by recognizing the interests of stakeholders and their
contribution to the long-term success of the corporation.").
85. See Ray Garrett, Corporate Donations, 22 BUS. LAW. 297 (1967) (noting that donations should be
reasonable in light of a corporation's financial condition and they should bear some reasonable relation to the
corporation's interest).
86. See Chen & Hanson, supra note 5, at 46-48.
The Journalof CorporationLaw [Spring
87. See AM. LAW INST., PRINCIPLES OF CORPORATE GOVERNANCE § 2.01 n.2 (1992); Edward S. Adams
& Karl D. Knutsen, A Charitable Corporate Giving Justificationfor the Socially Responsible Investment of
Pension Funds:A PopulistArgument for the Public use of Private Wealth, 80 IOWA L. REV. 211,233-34 (1995)
(describing direct corporate benefit doctrine); id. at 227 (noting that courts have stretched the concept of direct
benefit "to vindicate society's desire to use private resources for public purposes") Bainbridge, supra note 64, at
97 (arguing that courts did not require directors to demonstrate any benefit to the corporation).
88. See Elhauge, supra note 24, at 771-73 (noting that courts do not probe into actual profit-making
potential of corporate decisions, but only require such potential to be conceivable).
89. See AM. LAW INST., supra note 87, § 2.01 n.2.
90. See Union Pac. R.R. Co. v. Trustees, Inc., 329 P.2d 398, 401-02 (Utah 1958).
91. See Shlensky v. Wrigley, 237 N.E.2d 776, 779 (11. App. Ct. 1968).
92. Id. at 781.
93. See Bainbridge, supra note 64, at 97 (noting that the court invented links to shareholder interests).
94. See Elhauge, supra note 24, at 745 ("Arguments that socially responsible conduct would increase
profits are thus probably less about identifying profit-maximizing opportunities that corporations have missed
than about helping create a patina of conceivable profitability that makes it easier for managers to engage in
conduct that really sacrifices expected corporate profits.").
2006] Rhetoric of CorporateLaw
corporations should dedicate a portion of their income to worthy endeavors. 95 Even the
ALl notes that corporations can devote resources to charitable endeavors even if there is
no economic advantage to shareholders. 96 Similarly, courts validate such giving based on
the notion that charitable gifts generate good will in the community by enhancing the
97
corporation's reputation as a good citizen.
Moreover, the claimed long-term explanation of these findings as one rooted in
shareholder profits is unpersuasive in the context of takeovers where shareholders clearly
have no long-term interest in the ongoing enterprise. For proponents of the shareholder
primacy norm, Revlon may appear to be adequate confirmation of that norm. However,
courts' willingness to restrict Revlon should create cause for concern because it suggests
that the shareholder primacy norm may have continued significance only in limited
circumstances.
Indeed, it is noteworthy that the Delaware courts' first endorsement of stakeholder
rhetoric occurred in the takeover context, because it demonstrates the courts' willingness
to allow corporations to consider other constituents even when shareholders may not
benefit. This destroys the perception that courts require an unwavering commitment to
shareholder primacy.
Then too, outside of Delaware, numerous constituency statutes allowing directors to
consider or favor the interests of relevant corporate stakeholders during takeovers and
other activities undermine the shareholder primacy norm altogether. 98 An analysis of
those statutes reveals that they abrogate any requirement that corporations advance
shareholder interests over others, instead enabling directors to balance the interests of all
relevant groups without focusing primarily on shareholders. In this regard, the notion of
long-term shareholder value cannot be utilized to justify the statutes. 99
There are some who discount the impact of such statutes. For example, some might
maintain that given Delaware's primacy in corporate law, the fact that Delaware has not
passed such a statute minimizes the overall impact of such statutes. However, it is
arguable that in light of directors' ability to attend to other constituents under Unocal, as
well as the limits placed on Revlon, such statutes would be redundant in Delaware.
Some critics also might insist that the impact of these statutes may be limited
because such statutes are not mandatory and were passed in part to protect managers
rather than other constituents. To be sure, such statutes provide increased discretion to
managers, enabling them to protect their jobs at the expense of shareholder profit.
95. See Theodora Holding Corp. v. Henderson, 257 A.2d 398, 405 (Del. Ch. 1969) (holding that a
corporation should be allowed to promote public welfare); Sorensen v. Chicago, Burlington & Quincy R.R. Co.,
199 N.W. 534 (Neb. 1924) (holding that corporations should be allowed to donate funds or services to aid in
good works); A.P. Smith Mfg. Co. v. Barlow, 98 A.2d 581, 587 (1953) (holding that corporations have
responsibility to support charitable causes). See also Adams & Knutsen, supra note 87, at 239 (noting that the
court adopted corporate responsibility as an independent justification for allowing charitable corporate giving).
96. See AM. LAW INST., supra note 87, § 2.01 n.2, cmt. f.
97. See Victor Brudney & Allen Ferrell, CorporateCharitableGiving, 69 U. CHI. L. REV. 1191, 1193-94
(2002) (noting that most charitable contributions are characterized as "good-will" gifts that seek to promote the
public image of the corporation). The good will promoted is approval of the corporation's role as a good citizen.
See id. at 1194.
98. See Fairfax, supra note 18, at 460-61; Mitchell, supra note 20, at 588-89; Orts, supra note 76, at 26-
27. See supra note 77.
99. See Elhauge, supra note 24, at 766-67.
690 The Journalof CorporationLaw [Spring
C. ConcludingAssessments
Viewed together, many doctrines, from those involving charitable contribution to
those related to takeovers, reveal that corporate law has moved closer to the stakeholder
model than the shareholder primacy norm. These doctrines grant directors and officers
wide discretion not only to consider the interests of non-shareholders, but also to favor
those interests in all but a narrow set of circumstances. Directors may be required to offer
some plausible connection to shareholder concerns in making those decisions. But these
trends illustrate that shareholder primacy may no longer constitute the chief concern
governing corporate behavior. At the very least, courts allow corporations considerable
flexibility in the concerns that guide their behavior.
The rhetoric, however, does not reflect this flexibility. Amazingly, most corporate
scholars continue to proclaim the dominance of the shareholder primacy theory despite
these erosions. They have done so even after courts and legislatures clearly articulated
increasingly stakeholder focused doctrines.
Less than five years ago, Professors Henry Hansmann and Reinier Kraakman
proclaimed, "there is no longer any serious competitor to the view that corporate law
should principally strive to increase long-term shareholder value." 10 1 This proclamation
in the face of an apparent shift in corporate law illuminates the unwavering nature of the
shareholder primacy rhetoric in corporate legal discourse.
In 2005 Professor Hansmann reaffirmed his earlier view, noting that there is
"increasing consensus among the relevant actors around the globe" on the normative or
ideological claim that the shareholder oriented model of the business corporation is "the
most attractive social ideal for the organization."' 0 2 Others similarly maintain that
shareholder primacy is the clear winner in the debate regarding the normative goals of the
03
corporation.'
This Part illustrates the recent shift in corporate rhetoric towards a heightened
embrace of stakeholder concepts. Based in part on an empirical study of corporate
documents and websites, this Part demonstrates an increase in stakeholder rhetoric by
corporations, business groups, business schools, and corporate scholars.
The corporate embrace of stakeholder rhetoric is certainly not a new phenomenon.
Such rhetoric finds its roots in Berle and Dodd's discourse about the merits of corporate
interests in issues other than shareholder maximization. 10 4 In the 1920s, corporate
officers and directors expressed the view that the corporation had obligations to groups
beyond shareholders. 10 5 Typified by business leaders like David Rockefeller, this
rhetoric pervaded the literature of the 1950s, 1960s, and early 1970s. 106 In response to
this rhetoric, one writer complained that it was no longer fashionable for corporations to
"take gleeful pride in making money."' 1 7 With the enactment of the constituency
statutes, a variation of stakeholder rhetoric had a resurgence in the late 1980s. 108 Despite
this shift in the discourse, stakeholder rhetoric has been eclipsed by shareholder wealth
09
maximization discourse. 1
Since 2000, corporate discourse reflects a shift from the traditional shareholder
rubric to an embrace of rhetoric focused on stakeholders. In January 2005, The Economist
captured this shift, noting: "The movement for corporate social responsibility has won the
battle of ideas." 1 0 This Part explores the growing tendency of corporations to embrace
stakeholder rhetoric and to distance the corporation from the shareholder primacy norm.
As this Part reveals, corporations now are increasingly willing to adopt rhetoric that
"posits that companies are beholden not just to stockholders-but also to suppliers,
customers, employees, community members, even social activists." II
This Part examines corporate rhetoric or "talk""11 2 by assessing literature
disseminated from corporations, including annual reports, mission statements, "good
citizenship" reports, websites, and corporate codes of conduct. In addition, this Article
examines rhetoric within corporate governance principles adopted by various business
organizations. Finally, this Article focuses on rhetoric within business schools in their
curricula. This focus is critical given the importance of business schools in developing
and shaping the philosophy of future business leaders.
companies discuss activities with, and corporate commitment to, other stakeholders,
ranging from employees to suppliers and creditors. 115 Another 74% of these reports 116
highlight the importance of such stakeholders in the first five pages of the 1report.
17
Moreover, many annual reports discuss other interests throughout the document.
In a radical shift away from profit speak, a few companies address their annual
report to groups other than shareholders. 118 For example, the annual report of General
Electric Company begins with a "letter to stakeholders" as opposed to the traditional
"letter to shareholders." 119 According to General Electric, their reference to stakeholders
is meant to capture the company's commitment to groups beyond shareholders. 120 The
rhetoric in these reports underscores corporate focus on stakeholders, as well as the
prominence these concerns now receive.
In addition to their annual reports, many companies have adopted mission or value
statements that de-emphasize shareholder profit and highlight the corporation's
commitment to its constituents and the broader, even global, community. 12 1 The adoption
of such goals reflects a global trend. A 2004 study representing 47% of North American
companies, 27% of European companies, and 2.4% of Asian-Pacific companies, found
that 89% of such companies have written value statements. 122 Ninety percent of such
statements emphasize ethical behavior and integrity. 123 Other values highlighted in those
reports included commitment to customers, commitment to employees and social
responsibility, and corporate citizenship notions. 124 Values associated with earnings
115. See infra Appendix A (revealing that 44 out of 50 companies include such rhetoric within their annual
report).
. 116. Id. (indicating that 37 out of 50 companies discuss their commitment or responsibility to stakeholders
within the first five pages of their annual report).
117. Indeed, Walmart's annual report includes numerous references to stakeholders. See WAL-MART, 2005
ANNUAL REPORT (2005), available at http://www.walmartstores.com/Files/2005AnnualReport.pdf at 3, 10, 16,
17. Other reports similarly are replete with references to customers, community and the workplace. See
TARGET, 2004 ANNUAL REPORT (2005), available at http://media.corporate-
ir.net/mediafiles/irol/65/65828/reports/2004TGTannual.pdf, BANK OF AM., 2004 ANNUAL REPORT (2005),
availableat http://media.corporate-ir.net/mediafiles/irolU71/71595/reports/2004-ar.pdf; ALTRIA, 2004 ANNUAL
REPORT (2005), available at
http://www.altria.com/download/pdf/investorsAltriaGrouplnc_2004_AnnualRpt.pdf; WALGREENS, 2005
ANNUAL REPORT (2005), availableat http://investor.walgreens.com/downloads/ar2005.pdf.
118. See, e.g., THE HOME DEPOT, INC., 2004 ANNUAL REPORT (2005), available at
http://ir.homedepot.com/downloads/HD 2004_AR.pdf; MEDCO HEALTH SOLUTIONS, INC., ANNUAL REPORT
2004 (2005), available at http://media.corporate-ir.net/media_files/NYS/MHS/reports/2004ar.pdf; MICROSOFT
CORP., MICROSOFT CORPORATION ANNUAL REPORT 2005 (2006), available at
http://www.microsoft.com/msft/ar.mspx.
119. See GEN. ELEC. CO., LETTER TO STAKEHOLDERS (2005), available at
http://www.ge.com/files/usa/en/ar2004/pdfs/ge-ar2004_letter.pdf. This emphasis is consistent with the annual
report which heavily emphasizes customers, the community, and the workplace.
120. See GEN. ELEC. Co., GUIDE TO THE GENERAL ELECTRIC 2004 ANNUAL REPORT: UNDERSTANDING
ANNUAL REPORTS (2005), available at http://www.ge.com/files/usa/en/ar2004/pdfs/ge-ar2004__guide.pdf.
121. See The Good Company, supra note 8, at 3.
122. See CHRIS KELLY ET AL., THE ASPEN INST. AND BOOZ ALLEN HAMILTON INC., DERIVING VALUE
FROM CORPORATE VALUES 2, 10 (2005), available at
http://extfile.bah.com/livelink/livelink/145534/?fttnc=dOc.Fetch&nodeid=145534 (discussing methodology).
123. Id.at 2.
124. Id.According to the study, 88% of such statements feature commitment to customers, while 78%
include commitment to employees and 65% focus on commitment to social responsibility or corporate
2006] Rhetoric of CorporateLaw
citizenship. Id. Issues of environmental responsibility and diversity surface in fewer than half of such
statements. See id. Interestingly, while North American companies are more likely to focus on ethical
considerations in their value statements, Asian-Pacific and European companies are more likely to focus on
social responsibility or corporate citizenship. KELLY ET AL., supra note 122, at 3. Hence, only 58% of North
American companies include such issues, while 75% of Asian-Pacific companies and 69% of European
companies have value statements that include such issues. Id. at 4.
125. Id. at 3-5 (noting that values such as initiative, adaptability and innovativeness appear in only 30% to
60% of formal value statements, while 69% of those statements focus on commitment to shareholders).
126. 58%, or 29 out of 50, Fortune 50 companies have prepared such reports. See infra Appendix A (study
of Fortune 50 companies).
127. See CHEVRON CORP., 2004 CORPORATE RESPONSIBILITY REPORT, available at
http://www.chevron.com/cr-report/2004/documents/cr-report_2004_complete.pdf; EXXON MOBIL CORP., 2004
CORPORATE CITIZENSHIP REPORT (2004), available at
http://exxonmobil.com/corporate/files/corporate/ccr04_fullreport.pdf, FORD MOTOR Co., 2003/04 CORPORATE
CITIZENSHIP REPORT (2004), available at
http://www.ford.com/en/company/about/corporateCitizenship/reportdefault.html; GEN. ELEC. CO., OUR
ACTIONS: GE 2005 CITIZENSHIP REPORT (2005), available at
http://www.ge.com/files/usa/en/citizenship/pdfs/citizrep2005.pdf, GEN. MOTORS CORP., 2004 CORPORATE
RESPONSIBILITY REPORT (2004), available at
http://www.gm.com/company/gmability/sustainability/reports/04/000_tools/fullreport.pdf.
128. See infra. Appendix A.
129. See John M. Conley & Cynthia A. Williams, Engage, Embed, and Embellish: Theory Versus Practice
in the CorporateSocial Responsibility Movement, 31 J. CORP. L. 1, 2-4 (2005).
130. Id. at 6 (noting that between 1999 and 2002, the percentage of Fortune Global 250 companies
producing social, environmental, or sustainability reports has increased from 35% to 45%). The authors also
note that 72% of the top 100 Japanese companies produce such reports, while 49% of U.K. companies and 36%
of U.S. companies engage in such reporting. See id. at 6.
131. See id. at 3-4 (describing countries, including France, Germany and Denmark, that require detailed
disclosure of social and environmental risk). The authors also identify a new rule promulgated by the British
government requiring reporting on social and environmental risks. See id.
132. Eighty-six percent, or 43 out of 50, of Fortune 50 corporations address stakeholder issues on their
website. See infra Appendix A.
The Journalof CorporationLaw [Spring
B. Codes of Conduct
In recent years corporations also have adopted codes of conduct that focus on the
responsibilities directors and officers have to a variety of corporate constituents. The
Sarbanes-Oxley Act of 2002133 essentially requires that public corporations adopt codes
of ethics for their senior financial officers. The Act mandates that such corporations
disclose if they have such a code and, if not, to provide a reason for its absence. 134 In
complying with Sarbanes-Oxley, many corporations have voluntarily adopted codes that
sweep more broadly than establishing just a code of ethics for their financial officers.
These broader codes often address the treatment of stakeholders and the corporation's
commitment to good corporate citizenship. 135 Indeed, since society often equates ethical
corporate behavior with conduct that accounts for all corporate constituents, 136 the post-
Enron push for corporate codes of ethics has spurred the implementation of general
corporate codes that focus on the corporation's responsibility to groups beyond
shareholders. 137
C. CorporateInfrastructure
With these developments, the stakeholder concept appears to have taken root within
the corporate infrastructure. Many corporations have created positions for officers who
are responsible for focusing on stakeholder issues or have sought the services of firms to
help them meet the needs of such groups. 138 Other companies have entire departments
dedicated to such tasks. For example, Wal-Mart has a Global Ethics Office designed to
39
promote and facilitate an effective global ethics program. 1
Finally, many corporations have established committees on their boards that are
charged with reviewing and overseeing the company's programs on issues that impact the
company's stakeholders and broader society. In fact, more than 30% of Fortune 50
companies have such committees. 140 The creation of these formal positions not only
reflects the growing acceptance of stakeholder rhetoric, but also the desire to provide
structural support for the implementation of the principles underlying that rhetoric.
133. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 406, 116 Stat. 745, 789-90 (codified in scattered
sections of U.S.C.).
134. Id. § 406. Corporations also must disclose waivers to such codes. Id.
135. Joshua A. Newburg, Corporate Codes of Ethics, Mandatory Disclosure, and the Market for Ethical
Conduct, 29 VT. L. REv. 253, 261-62 (2005). See, e.g., WAL-MART STORES, INC., STATEMENT OF ETHICS
(2005) available at http://media.corporate-ir.net/media-files/IROL/11/112761/corpgov/Ethics%20_current.pdf
(outlining responsibilities to shareholders, employees, suppliers, competitors, customers, communities, and
governmental authorities).
136. See Newburg, supra note 135, at 292 (noting that stakeholder rhetoric "often overlaps substantially
with the rhetoric of corporate codes of ethics").
137. See id.; see also The Good, the Bad, and their CorporateCodes of Ethics: Enron, Sarbanes-Oxley, and
the Problems with Legislating Good Behavior, 116 HARv. L. REv. 2123, 2126 (2003) ("[C]orporate scandals of
the 1960s, 1970s, and 1980s 'reinforced the conclusion that corporate codes should be part of the repertoire of
corporate self-governance."') (citation omitted).
138. See The Good Company, supra note 8, at 3 (discussing creation of corporate responsibility officers
within various corporations).
139. See WALMART STORES, INC., GLOBAL ETHICS OFFICE, available at
http://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg-8.
140. See infra Appendix A (showing that 17 out of 50 companies have such committees).
2006] Rhetoric of CorporateLaw
141. The Princeton Review, Money Talks, Ethics Listens: Socially Aware MBAs (last visited Mar. 28,
2006), available at http://www.princetonreview.com/mba/research/articles/find/ethics.asp.
142. See THE ASPEN INST. & WORLD RES. INST., BEYOND GREY PINSTRIPES 2005: PREPARING MBAs FOR
SOCIAL AND ENVIRONMENTAL STEWARDSHIP 2 (2005) [hereinafter BEYOND GREY PINSTRIPES], available at
http://www.beyondgreypinstripes.org/pdf/2005_beyond-grey-pinstripes.pdf (describing data from survey
conducted in 2003).
143. Jeremy Caplan, The Best in Class, TIME MAG., Dec. 19, 2005, at A37, 2005 WLNR 19911592.
144. See id. (finding over 950 electives).
145. See id. For example, Stanford offers 30 electives on topics from environmental sustainability to ethics.
Id. at A37.
146. See BEYOND GREY PINSTRIPES, supra note 142.
147. See id.
148. See id.
149. See Francesca Di Meglio, B-School Students with a Cause, BUS. WK., Jan. 6, 2005, available at
http://www.businessweek.com/bschools/content/jan2005/bs2005016_5334_bsOOI .htm.
150. Id.
The Journalof CorporationLaw [Spring
E. CorporateOrganizationsand Scholars
Traditional corporate organizations have also incorporated stakeholder rhetoric into
their principles of corporate governance. Reflecting this incorporation, the ALI notes that
"the corporation is a social as well as an economic institution, and accordingly ... its
pursuit of the economic objective must be constrained by social imperatives and may be
qualified by social needs." 152 Entities such as the Business Roundtable and the
Organization for Economic Co-operation and Development (OECD), a group comprised
of 30 countries, including the United States, that focus on fostering good corporate
53
governance, also recognize that corporations have some responsibility to stakeholders. 1
Several authors on the forefront of corporate governance have recently recognized
that directors have a responsibility not merely to shareholders, but also to stakeholders.
Ira Millstein recently proclaimed that directors must be people whom "shareholders,
employees, suppliers, customers and communities can trust to 'do the right thing." '" 154 In
this same vein, Adrian Cadbury, the head of one of the first groups to publish corporate
governance guidelines, argued that the international debate regarding corporate
governance is converging on a stakeholder view of the corporation. 1 55 In his view,
directors "are being asked to account for the impact which actions taken in the interest of
' 156
shareholders may have on society in its widest sense."
Even Professors Hansmann and Kraakman, who argued a few years ago that there
was virtual universal agreement on the dominance of shareholder primacy, recently
appeared to switch gears, stating "by assigning designated individuals a specific role as
decision-makers on behalf of the enterprise, the corporate form enhances the probability
that those individuals will respond in a principled fashion to the interests of all corporate
57
constituencies simply through moral principles and social pressure."1
F. Reflections on StakeholderRhetoric
It is important not to overstate the prevalence of stakeholder rhetoric. Some
organizations have no such rhetoric in their principles of corporate governance. For
151. David B. Montgomery & Catherine A. Ramus, CorporateSocial Responsibility Reputation Effects on
MBA Job Choice 8 (Stanford Graduate Sch. of Bus., Research Paper No. 1805, 2003), available at
http://gobi.stanford.edu/Research Papers/Library/RP805.pdf.
152. See AM. LAW INST., 1 PRINCIPLES OF CORP. GOVERNANCE § 2.01 cmt. e (1992).
153. See THE Bus. ROUNDTABLE, supra note 84, at 30-33 (noting obligations to employees and the
community); see also id. at 33 (noting that the corporation has an obligation to "be a good citizen"); ORG. FOR
ECON. CO-OPERATION & DEV., supra note 84, at 46 ("Corporations should recognize that the contributions of
stakeholders constitute a valuable resource for building competitive and profitable companies.").
154. Ira M. Millstein, The Accountable Corporation: A Perspective on Corporate Governance (Rules,
Principles,or Both), in THE ACCOUNTABLE CORPORATION, VOLUME I (Marc J. Epstein & Kirk 0. Hanson,
eds., 2005).
155. See Adrian Cadbury, The Rise of Corporate Governance in THE ACCOUNTABLE CORPORATION,
VOLUME I (Marc J. Epstein & Kirk 0. Hanson, eds., 2005).
156. Id.
157. Henry Hansmann & Reinier Kraakman, What is CorporateLaw?, in THE ANATOMY OF CORPORATE
LAW: A COMPARATIVE AND FUNCTIONAL APPROACH 12 (Reinier R. Kraakman ed., 2004).
2006] Rhetoric of CorporateLaw
"total victory,"' 169 the increase of such rhetoric supports the notion that corporations, at
least in their discourse, have shifted their guiding principles away from an exclusive
focus on wealth maximization.
Both proponents and critics of the stakeholder theory tend to discount the
importance of the growing rhetorical embrace of stakeholder concepts to corporate law.
Such groups identify two reasons why such rhetoric may be relatively insignificant. First,
they contend that the rhetoric appears inconsistent with the actual practices corporations
implement and, hence, has had little impact on corporate behavior. 170 Second, these
groups assert that the increased endorsement of such rhetoric represents a temporary
public relations response to the negative press generated by corporate scandals. 171 Under
this interpretation, stakeholder rhetoric, along with the practices it has generated, will
recede once that press dies down. This Article declines to address the extent to which the
rhetoric can, and likely will, have an impact on corporate conduct. 172 Instead, this Article
maintains that even if one concedes that the rhetoric may have no impact on corporate
169. In this regard, this Article departs from The Economist, which claimed that "[i]n public relations
terms, [the stakeholder] victory is total." The Good Company, supra note 8, at 3.
170. There is certainly evidence to suggest that the actual practice of corporations may belie their concerns
for stakeholders. For example, in 2004 when stakeholder rhetoric appeared to permeate corporate documents
and websites, the amount of money corporations donated to charitable causes amounted to less than 1% of
pretax profit. See id. at 4. This relatively small amount is consistent with historical averages. Studies reveal that
corporate giving rarely exceeds 1.5% of pretax corporate income. See Brudney & Ferrell, supra note 97, at 1194
n.20. It should be understood that 1% of corporate income represents a significant sum of money, particularly to
charities with limited sources of funding. Then too, the stakeholder theory does not anticipate that corporations
devote all or substantially all of their resources to charity. Ultimately, however, the level of charitable giving
does not seem to reflect the apparent commitment corporations appear to espouse. Yet evidence also exists that
corporations are increasingly involved in corporate programs aimed at what companies deem to be socially
responsible endeavors. For example, in 2005, Home Depot announced plans to spend $25 million to build 1,000
playgrounds over the next three years. See Grow, supra note 111. In June 2005, General Electric revealed its
plan to invest billions of dollars in environmental friendly technologies, while IBM has developed a program to
bring its technologies to schools and communities. Id. Moreover, in May 2005, the chief executive at Home
Depot invited executives from 24 companies and foundations to discuss community service. Id. As a result of
that meeting, such executives plan to institute a nationwide corporate volunteer program to increase by 10% the
number of corporate employees who provide some service to their community. Id. Hence, one can find support,
at least anecdotally, both for and against the proposition that rhetoric influences corporate behavior.
171. The virtual wave of corporate misconduct typified by Enron and WorldCom generated significant
negative publicity for corporations in general. See Lisa M. Fairfax, Form Over Substance?: Officer
Certificationand the Promise of EnhancedPersonalAccountability under the Sarbanes-Oxley Act, 55 RUTGERS
L. REv. 1, 10 (2002). Indeed, consumer confidence in corporations and their governance apparatuses
plummeted, generating what some referred to as a crisis of confidence in the nation's corporate governance
system. Id. at 10 n.42. The corporate embrace of stakeholder rhetoric with its emphasis on good corporate
citizenship reflects one key response to this crisis. As one source asserts, "[t]here's no doubt that a surge in
community outreach and do-good deeds is, in large part, a gussied-up bid for good favor." See Grow, supranote
11.Hence, it is not fortuitous that the surge in stakeholder rhetoric has come on the heels of large corporate
scandals. It also may be no surprise that 2003 and 2004, the immediate years after such scandals, witnessed all
time highs in corporate charitable giving. Id. In this regard, commentators acknowledge the short-term impact
of stakeholder rhetoric on corporate conduct.
172. Although an examination of the behavioral impact of corporate rhetoric is beyond the scope of this
Article, I plan to explore such an impact in later scholarship.
2006] Rhetoric of CorporateLaw
conduct or that such impact is episodic at best, both critics and proponents of the
stakeholder theory overlook the normative importance of such rhetoric.
This Part asserts that the rhetorical embrace of stakeholder concepts signals societal
and investor dissatisfaction with shareholder primacy as the guiding norm of corporate
behavior. 173 This trend can be understood from two perspectives. First, when viewed in
light of its classical meaning, corporate rhetoric can be characterized as a mechanism
designed to persuade relevant audiences regarding the validity of the corporate enterprise
and its agents' behaviors. From this viewpoint, the fact that corporations adopt rhetoric
embracing stakeholder concepts suggests that corporations do not believe that
shareholder primacy rhetoric is as persuasive a justification for their behavior as
stakeholder rhetoric.
Second, corporate rhetoric also can be viewed to serve an expressive function,
reflecting corporations' understandings that the most appropriate corporate behavior is an
embrace of stakeholder concerns. Under either view, the fact that corporations favor a
mode of discourse that embraces a concern for stakeholders suggests dissatisfaction with
the shareholder primacy norm. Even if that dissatisfaction emerges only during times of
distress, it sends an important signal about the public's normative preference regarding
the corporation's behavior.
Section A of this Part develops a theory of corporate rhetoric that highlights its
intrinsic value to the discourse on corporate norms. Part B illuminates the manner in
which corporate rhetoric reveals a preference for the stakeholder theory. Part C explores
the audiences at which corporations direct their rhetoric, concluding that such direction
illustrates a broad acceptance of the rhetoric by non-shareholders and shareholders alike.
Part D examines the relevance of the possible temporary nature of the rhetoric to these
observations.
173. Arguably, the fluidity of corporate law identified in Part 11,which enables corporations to focus and
even favor non-shareholder interest over shareholders' profit-making concerns, calls the norm into question. See
Fairfax, supra note 18, at 458-59; Blair & Stout, supra note 7, at 406.
174. See Michael Frost, Introduction to Classical Legal Rhetoric: A Lost Heritage, 8 S. CAL. INTERDISC.
L.J. 613, 614 (1999) (noting historical roots of rhetoric); Bernard E. Jacob, Ancient Rhetoric, Modern Legal
Thought, and Politics: A Review Essay on the Translation of Viehweg's "Topics and Law ",89 Nw. U.L. REV.
1622, 1636 n.46 (1995) (same).
175. See Frost, supra note 174, at 614 (noting that the term "rhetoric" today is "usually associated with
meaningless political exaggeration or more stylistic embellishment").
176. See AMERICAN HERITAGE COLLEGE DICTIONARY 1170 (3rd ed. 2000).
177. See supra note 170.
The Journalof CorporationLaw [Spring
178. See, e.g., PLATO, GORGIAS 453a, 453d (380 B.C.) in PLATO: EUTHYPHRO, APOLOGY, CRITO, MENO,
GORGIAS, MENEXENUS at 237-38 (R.E. Allen trans., 1984) (defining rhetoric as the craft of persuasion);
ARISTOTLE ON RHETORIC: A THEORY OF Civic DISCOURSE 36 (George A. Kennedy trans., Oxford Univ. Press
1991) (350 B.C.) (defining rhetoric as the "ability in each [particular] case to see the available means of
persuasion"); Jacob, supra note 174, at 1636. See also AMERICAN HERITAGE COLLEGE DICTIONARY, supra note
176, at 1170 (defining rhetoric as a skill in using language effectively and persuasively). Along this same vein,
speech is viewed as not only the primary means to communicate ideas and beliefs, but also as a means of
influencing others. Hence, whether we define the language used by corporations as rhetoric or speech, the
underlying notion is that the speech communicates ideas. See David Kretzmer, Freedom of Speech and Racism,
8 CARDOZO L. REV. 445, 462 (1987). Indeed, the First Amendment protects speech based on the notion that it
represents the principal means of communicating ideas, and the primary vehicle of persuading people regarding
the validity of those ideas.
179. See The Internet Classics Archive, Rhetoric by Aristotle,
http://classics.mit.edu/Aristotle/rhetoric.l.i.html (last visited Mar. 29, 2006) (stating that rhetorical study in its
strictest sense is concerned with modes of persuasion).
180. In the Roman period, "rhetor" refers to a teacher of rhetoric, while in classical Greek it refers to any
public speaker. ARISTOTLE, supra note 178, at 35 n.32.
181. In Aristotle's view, rhetoric is "an ability, in each particular case, to see the available means of
persuasion." See id. at 36.
182. See id. at 34 n.24 (noting that Aristotle believed truth was grounded in nature and capable of
apprehension by reason).
183. See id. at 33 (noting that Aristotle believes that people have a natural disposition for the truth, and
reasoning will allow them to regard this truth).
184. See Robert Cooter, Expressive Law and Economics, 27 J. LEGAL STUD. 585, 604 (1998); Melvine A.
2006] Rhetoric of CorporateLaw
the impact of such rhetoric on behavior, 185 these scholars agree that such rhetoric
expresses the kind of behavior in which courts would prefer corporate actors to
engage. 186 In fact, Professor Sean J. Griffith has advanced a theory of corporate rhetoric
in which he asserts that the rhetoric embodied in judicial opinions can be viewed as a
"thaumatrope" that enables courts to exercise doctrinal flexibility. 187 Under Griffith's
view, this flexibility allows judges to respond to public pressure by shifting their
rhetorical discourse from accountability, on the one hand, to flexibility on the other. 188 In
this way, courts use judicial rhetoric to communicate their expectations about corporate
behavior in light of the public's perception of that behavior.
Corporate documents, even more pointedly than judicial opinions, have a profound
expressive function that not only shapes, but also reflects, a corporation's future actions.
To be sure, rhetoric embodied in corporate documents and on corporate websites may be
regarded in part as the corporate response to judicial rhetoric. Corporate rhetoric
expresses corporate compliance with judicial standards, as well as corporations'
understandings of the kind of behavior necessary to achieve their compliance with
judicial rulings.
Corporate rhetoric, seen as both a persuasive and an expressive device, has
important repercussions for our understanding of corporate norms. Scholars agree that
judicial rhetoric reflects courts' expression of the most appropriate norm. 189 In other
words, court opinions allow judges to articulate the normative behavior they would like
corporate actors to follow. The essential function of that rhetoric, however, is to define
and protect judicial authority. 190
Rhetoric espoused by corporations can be viewed in an even more broad-sweeping
manner. Thus, corporate rhetoric, like judicial rhetoric, operates to protect and to validate
the corporate enterprise by expressing those normative positions that relevant audiences
find to be the most persuasive justification for that enterprise. It also can be understood as
a normative expression of a corporation's ideals. This view is explicitly captured in the
annual report of Citigroup, Inc., which discusses its responsibility to employees and other
stakeholders under the heading of "The Company We Want to be."1 91 As this sentiment
suggests, corporate rhetoric, at its core, is aspirational and hence normative, embodying
corporations' assessments of the behavior they ought to engage in. Whether they engage
Eisenberg, Corporate Law and Social Norms, 99 COLUM. L. REV. 1253, 1270 (1999) (arguing that the courts
instruct directors on how to "play their directed role"); Griffith, supra note 15, at 8 (describing good faith as a
rhetorical response to corporate crisis); Rock, supra note 15, at 1016 (noting that rhetoric in legal opinions helps
clarify courts' expectations regarding corporate behavior even when no liability is found). Professor Rock refers
to judicial rhetoric as storytelling, noting that Delaware courts tell stories through opinions as a way of
articulating the appropriate norms. Rock, supra note 15, at 1063.
185. See Peter C. Konstant, Sacred Cows or Cash Cows: The Abuse of Rhetoric in Justifjying Some Current
Norms of TransactionalLawyering, 36 WAKE FOREST L. REV. 49, 81-99 (2001) (noting the manner in which
rhetoric can be used to avoid meaningful analysis).
186. See Griffith, supra note 15, at 56.
187. Id.
188. See id.
189. See id.; Rock, supra note 15, at 1063 (arguing that the Delaware courts "tell stories as a way of
articulating and expressing norms").
190. See Griffith, supra note 15, at 56.
191. See CITIGROUP INC., 2004 ANNUAL REPORT (2005), available at
http://citigroup.com/citigroup/fin/data/ar04 Ic-en.pdf.
The Journalof CorporationLaw [Spring
in such behavior at present is beside the point. What the corporation aspires to signals its
preferred conduct, illustrating its expression of the optimal norm.
192. See Chen & Hanson, supra note 5, at 46-48 (noting the view that a focus on non-shareholders is
consistent with a focus on shareholders).
193. See id.
194. See, e.g., HEWLETr-PACKARD DEV. Co., HP ANNUAL REPORT 2003 21 (2004),
http://www.hp.comfhpinfo/investor/financials/annual/#2003 (noting that while the company engages in socially
responsible behavior "because it's simply the right thing to do," the company also engages in it because it
enhances the company's bottom line). See VERIZON, 2004 ANNUAL REPORT 14 (2005), available at
http://investor.verizon.com/financial/quarterly/pdf/O4VZAR.pdf ("Being responsible members of our
communities makes us better at what we do. As we succeed, we produce not only a good return for shareowners
and a good living for our employees, but we also create something of lasting value for society.").
195. See KELLY ET AL., supra note 122, at 3.
2006] Rhetoric of CorporateLaw
196. Debra L. Lee, Chief Executive Officer, Black Entertainment Television, Lawyers as Leaders:
Chartering the Course of America, Remarks at the Harvard Law School Celebration of Black Alumni (Sept. 17,
2005).
197. See KELLY ET AL., supra note 122, at 2-3 (discussing value statements where shareholders were
discussed along with other groups without receiving any particular prominence).
198. Johnson & Johnson, Our Credo, available at http://www.jnj.com/our-Company/our-credo/index.htm
(last visited Mar. 29, 2006).
199. Id.
200. Id.
201. For example, before discussing its commitment to performance, Pfizer Inc.'s expression of value
focuses on integrity, respect for people, customers, community, innovation, and teamwork. See Pfizer Inc.,
About Pfizer: Vision and Values, http://www.pfizer.com/pfizer/are/mnabout-vision.jsp (last visited Mar. 29,
2006). A similar reordering can be seen in the manner in which General Electric, Home Depot, Microsoft, and
Medco open their annual reports with a letter addressed to other constituents. See sources cited supra notes 116-
17.
202. See infra Appendix A (revealing that seven companies address stakeholder concerns on the very first
page of their annual reports).
203. See KELLY ET AL., supranote 122, at 3.
704 The Journalof CorporationLaw [Spring
20 4
interests either within its annual report or on its corporate website.
Additionally, when corporations discuss other constituents, they do not necessarily
justify their actions in terms of profit. For example, in its annual report, ExxonMobil
Corporation explains that it has a commitment to servicing the community because "we
live here too." 20 5 Also, while some may suggest that the connection to shareholders is
implicit, at least 42% of Fortune 50 companies make no reference to shareholder profit or
value when discussing other groups in their annual report. 20 6 This failure to discuss
shareholders suggests that corporations do, in fact, distance themselves from a strict view
of the shareholder primacy norm that focuses only on profit.
This distancing may stem from corporations' beliefs that society, including
investors, finds the principles underlying stakeholder rhetoric more acceptable than those
embodied within the shareholder primacy norm. Indeed, corporate pressure to embrace
stakeholder rhetoric reflects society's desire for corporations to be good citizens as well
as their belief that such citizenship is more closely aligned with the stakeholder theory.
Commentators agree that corporations adopt stakeholder rhetoric to project an appearance
of good corporate citizens. 20 7 At the very least, it follows that society equates such
citizenship with stakeholder principles.
Moreover, it also appears that society does not believe that the principles embodied
in the shareholder primacy norm comport with good corporate citizenship. In fact,
Professor Clark notes that the most serious criticism of the shareholder primacy model
relates to the notion that strict profit maximization may prohibit corporations from
pursuing public goals. 20 8 Indeed, one author notes that corporations, at least in this
20 9
current climate, have found it difficult to focus solely on profit-making considerations.
Instead, corporations feel pressured to address the concerns of customers, employees, and
the broader society. 2 10 In this regard, the recent surge in stakeholder rhetoric surrounding
good corporate citizenship, coupled with a decreased emphasis on shareholder primacy
norm, underscores society's discomfort with the ability of the shareholder primacy norm
to accommodate society's desire that corporations demonstrate their citizenship.
Society and investors have encouraged embracing the stakeholder rhetoric because
such groups seem to equate ethical behavior with the stakeholder norm. During corporate
2 11
misconduct, such as the recent scandals involving corporate fraud like WorldCom,
corporations feel pressured to demonstrate a commitment to ethical values. 212 Studies
204. See infra Appendix A (revealing that all but one company discuss other stakeholders in some arena,
whether on their website, in their annual report or corporate citizenship report, or in the context of a committee).
205. EXXONMOBIL CORP., 2004 SUMMARY ANNUAL REPORT 37 (2005), available at
http://www.exxonmobil.com/corporate/files/corporate/AR_2004.pdf. ExxonMobil similarly does not justify its
commitment to employees in relation to shareholder profit. In its words, "[w]e are committed to providing a
positive work environment that values the wide-ranging perspectives inherent in our diverse workforce." Id. at
34-35.
206. See infra Appendix A.
207. See Knauer, supra note 5 1, at 57-60; The Good Company, supra note 8, at 3.
208. See CLARK, supra note 3, at 680.
209. See Grow, supra note 111.
210. Seeid.
211. See Fairfax, supra note 17 1, at 7-8.
212. See The Good, the Bad, and their Corporate Codes of Ethics: Enron, Sarbanes-Oxley, and the
Problems with Legislating Good Behavior, 116 HARV. L. REv. 2123 (2003).
2006] Rhetoric of CorporateLaw
reveal that this demonstration often takes the form of the adoption of corporate codes,
many of which embody stakeholder concepts. 2 13 The commitment to ethical conduct also
takes the form of more pronounced stakeholder rhetoric, coupled with a move to de-
emphasize shareholder primacy. 214 Indeed, Professor Clark suggests that the public
views the corporate manager who embraces some form of stakeholder rhetoric as "nobler
and more trustworthy" than one who adopts shareholder primacy rhetoric, and hence is
viewed as the "calculating opportunist. '2 15 To this end, the embrace of stakeholder
rhetoric suggests some societal discontent with the shareholder primacy norm's ability to
constrain improper and unethical conduct. At bottom, this reflects the persuasive nature
of stakeholder rhetoric.
These expressions also reflect a greater concern for balancing the interests of all
groups, and that such advancement acknowledges some discontent with the normative
idea that the corporation's sole or primary objective should be to maximize profit. At
best, the corporate rhetoric endorses the long-term shareholder primacy view, which is
admittedly flexible and allows corporations to attend to many non-shareholder interests
even when there is relatively little impact on profit considerations. There is much to
suggest that such rhetoric is more expansive than this view. This is because some
portions of the rhetoric do not seek to justify programs only in terms of their value to
shareholders, while other portions do not focus on shareholder or profit-making issues at
all. In fact, there are instances in which it appears that corporations have sought to
distance themselves from such rhetoric because that rhetoric fails to capture values that
society finds important. Hence, on a spectrum, the current corporate rhetoric appears
more closely aligned with stakeholder theory. Since the rhetoric reflects corporate
assessment and expression of the most persuasive norm, that rhetoric appears to reveal a
normative preference for the stakeholder theory.
213. See Newburg, supra note 135, at 255, 258, 268; Harvey L. Pitt & Karl A. Groskaufrnanis, Minimizing
CorporateCivil and Criminal Liability: A Second Look at CorporateCodes of Conduct, 78 GEO. L. J. 1559,
1589-99 (1990).
214. See The Good, the Bad, and their Corporate Codes of Ethics: Enron, Sarbanes-Oxley, and the
Problems with Legislating Good Behavior, supra note 212, at 2127 (discussing the cycles of corporate codes
and stakeholder rhetoric); Pitt & Groskaufmanis, supranote 213, at 1575-98.
215. See CLARK, supranote 3, at 687.
216. See infra notes 218, 219.
217. See ARISTOTLE, supra note 178, at 41 (noting that rhetoric focuses on what appears true to a given
audience or to the people in need of argument).
The Journalof CorporationLaw [Spring
2 19
that the audience determines the purpose of the rhetoric.
This Article advances three points with regard to audience. First, this Article
recognizes that examining the audience demonstrates that corporations may adopt
rhetoric for instrumental or profit-making purposes. The second point, however,
maintains that even if rhetoric is aimed at different audiences and hence is adopted for
different purposes, such purposes do not negate the normative significance of its
adoption. That adoption confirms corporate understanding that such audiences, including
federal regulators and the judiciary, find rhetoric that embraces stakeholder concepts as a
more persuasive justification for corporate existence than shareholder primacy rhetoric.
Third, this Article points to evidence that corporations aim stakeholder rhetoric at
investors and at the business community. This final point indicates that corporations
include shareholders within the audiences that they believe find stakeholder rhetoric
persuasive.
a. Judiciaryand FederalRegulators
Some contend that corporations adopt other rhetoric in response to increased federal
regulation of corporations as well as increased judicial activism. It is certainly true that
corporate rhetoric has increased in the past five years, which coincides with the period of
increased government regulation in the form of both the passage of Sarbanes-Oxtey 220 as
22 1
well as in the form of criminal prosecutions of high-profile corporate executives.
Similarly, during this period courts have become more interventionist and less
deferential to corporate decision-making. This can be seen not only in the Delaware
Supreme Court's willingness to overturn lower court decisions, 222 but also in its
articulation of seemingly more stringent standards of review for corporate conduct in the
form of the good faith doctrine and a less deferential definition of director
independence. 223 At least one study suggests that corporations believe that demonstrating
strong values through corporate value statements embracing ethics and consideration of
218. Id. at 41; The Internet Classic Archive, supra note 175, at Part 2 (noting that a statement is persuasive
because there is someone whom it persuades).
219. See ARISTOTLE, supra note 178, at 47 (noting that rhetoric's objective relates to the person addressed);
The Internet Classic Archive, supra note 179, at Part 2 (noting that the hearer of the rhetoric determines the
rhetoric's end and objective).
220. President Bush described Sarbanes-Oxley as the most far-reaching reform since Franklin Roosevelt's
time. George W. Bush, President of the United States, Remarks at the Signing of the Sarbanes-Oxley Act of
2002 (July 30, 2002), availableat http://www.whitehouse.gov/news/releases/2002/O7/20020730.html.
221. See Fairfax, supra note 171 at I I n.46, 59-60 (discussing several criminal cases against corporate
executives).
222. See Renee M. Jones, Rethinking CorporateFederalism in the Era of CorporateReform, 29 J. CORP. L.
625, 645 (2004); Hillary Sale, Delaware's Good Faith, 89 CORNELL L. REv. 456, 469-82 (2004) (noting the
willingness of Delaware courts to use the doctrine of good faith).
223. See id.
2006] Rhetoric of Corporate Law
others is essential to mitigating legal and regulatory risk. 224 Hence, it seems plausible
that corporate rhetoric represents a response to increased activity by regulators and the
judiciary, and is thus aimed at those audiences.
Viewed against this backdrop, corporate rhetoric may be designed to prevent
increased government and judicial regulation of corporate conduct. Professor Griffith
argues that the primary function of corporate judicial rhetoric is to protect the judiciary
from entangling itself in disputes about corporate behavior. 22 5 Similarly, to the extent
rhetoric is aimed at federal regulators and judges, the function of corporate rhetoric is to
protect corporate decision-making from the threat of judicial or governmental
intervention. This threat encourages corporations not only to engage in proper conduct,
but also to seek measures of assuring regulators of such engagement. Corporate rhetoric
attempts to provide that assurance.
b. Customers
It is also possible that corporations aim their rhetoric at customers. For example, an
evaluation of the rhetoric adopted by corporations reveals that corporations engaged in
the service industry are more likely to include stakeholder rhetoric in their discourse than
corporations outside the service industry. 226 The fact that corporations feature
stakeholder rhetoric on websites available to the public, and thus all potential customers,
further supports the proposition that corporations utilize such rhetoric to attract those
customers. There is also a growing recognition among corporations that stakeholder
227
values enhance a corporation's reputation and inspire brand loyalty among customers.
Corporations that recognize this have an incentive to direct their stakeholder rhetoric at
customers.
If corporations adopt rhetoric to appeal to customers, then the primary purpose of
such rhetoric may be to increase profits. Indeed, ensuring a better reputation in the
community and thereby enhancing brand loyalty ultimately means that corporations will
attract more customers to purchase their products and services. 228 In fact, many
commentators insist that most, if not all, corporate engagements in socially responsible
behavior represent an attempt to curry favor with potential customers and improve the
corporation's bottomline. 229 Based on this view, if corporations aim their rhetoric at
customers, then such rhetoric is consistent with their profit-making considerations.
c. Employees-CurrentandFuture
Some believe that corporations target rhetoric at their employees. Certainly some
corporate codes of conduct appear to speak directly to employees, expressing both a
commitment to employees and an expectation regarding their proper conduct in the
workplace. 230 Moreover, at a recent conference, several CEOs of public companies
indicated that embracing stakeholder rhetoric and values reflected a response to the needs
of employees. 23 1 The president and chief operating officer of The Goldman Sachs Group
argued that in order to attract quality employees, the company had to be perceived as
engaging in socially responsible behavior. 232 As he noted, "people want to be in a
company that stands for something." 233 He argued that because employees spent
significant amounts of time at work, they desired their work environment to be more
aligned with their values, which extended beyond making money. 234 Another officer
asked, "[h]ow can a company that is a collection of individuals be anything other than a
reflection of those people and their values?" 235 Thus, corporate rhetoric embracing a
commitment to others regarding behavior and values may reflect a response to employee
concerns.
The presence of rhetoric within business schools reveals that the rhetoric is aimed
not simply at current workers but also at this nation's future employees and executives.
Increased electives and conferences featuring stakeholder concepts at business schools
support this understanding. 236 The increase in student involvement in organizations
addressing such principles furthers this notion. 237 Hence, there appears to be a growing
awareness that employees, both in the rank and file and at the executive level, desire their
corporations to engage in socially responsible behavior. Corporate rhetoric directed at
employees reflects this awareness.
From this perspective, the primary goal of corporate rhetoric may be to attract and
retain employees. In an increasingly competitive market, executives suggest that they
must engage in behavior that attracts the best and most qualified employees. 238 As
Valero Energy's annual report explains, "if you take care of employees, they'll take care
230. See Newburg, supra note 135. Also, the annual report of Citigroup appears aimed at employees
because it discusses meetings held with employees designed to foster values and appreciation of employee
efforts. See CITIGROUP, INC., supra note 191.
231. See Panel Discussion at the Harvard Law School, Celebration of Black Alumni, Lawyers as Leaders:
Chartering the Course of America (Sept. 17, 2005). Panelists included Lloyd C. Blankfein, President and Chief
Operating Officer, The Goldman Sachs Group, Inc.; Debra L. Lee, President and CEO of Black Entertainment
Television (BET); Adebayo 0. Ogunlesi, Executive Vice Chairman and Chief Client Officer, Credit Suisse First
Boston; and Clarence Otis Jr., CEO of Darden Restaurants Inc.
232. Lloyd C. Blankfein, President and Chief Operating Officer, The Goldman Sachs Group, Inc., Lawyers
as Leaders: Chartering the Course of America, Remarks at the Harvard Law School Celebration of Black
Alumni (Sept. 17, 2005).
233. Id.
234. Id.
235. Adebayo 0. Ogunlesi, Executive Vice Chairman and Chief Client Officer, Credit Suisse First Boston,
Lawyers as Leaders: Chartering the Course of America, Remarks at the Harvard Law School Celebration of
Black Alumni (Sept. 17, 2005). In a similar vein, Debra L. Lee, president and CEO of BET, agreed that
engaging in socially responsible behavior makes the employees feel good about their work place. See id.
236. See supra notes 144, 148 and accompanying text.
237. See supra note 150 and accompanying text.
238. See supra note 232.
2006] Rhetoric of CorporateLaw
of the shareholders." 239 Certainly this rationale also aligns the rhetoric with profit-
making concerns since no corporation can thrive without a viable workforce.
239. VALERO ENERGY CORP., 2004 SUMMARY ANNUAL REPORT 19 (2005), available at
http://www.valero.com/docs/InvestorRelations/AnnualReports/2004AR.pdf.
240. See KELLY ET AL., supra note 122, at 3 (finding no difference between the focus on values of public
and private companies).
241. See Clarence Otis, Jr., CEO of Darden Restaurants Inc., Lawyers as Leaders: Chartering the Course of
America, Remarks at the Harvard Law School Celebration of Black Alumni (Sept. 17, 2005).
The Journalof CorporationLaw [Spring
hand, it may be true that corporations adopt the rhetoric for profit-making reasons,
thereby undermining the extent to which we can expect the rhetoric to have any impact
on corporate behavior. On the other hand, the adoption reveals its appeal to a variety of
different groups, and indicates such groups' normative preferences for the stakeholder
theory.
242. See infra Appendix A (noting that 13 companies link information regarding other stakeholders to their
respective investor relations sites).
243. See supra notes 211-212.
20061 Rhetoric of CorporateLaw
during times of corporate misconduct, that embrace suggests that there are at least periods
of time when the shareholder primacy rhetoric is less palatable than a rhetoric and norm
which focuses on stakeholders. In this regard, the embrace of stakeholder rhetoric
highlights the at least intermittent dissatisfaction with the more traditional norm.
Then too, at some level, the embrace of stakeholder rhetoric during corporate crisis
should be especially troubling for advocates of shareholder primacy because it
symbolizes the failure of the shareholder primacy norm as a constraining influence, while
indicating societal belief that the norm may be insufficient to guide corporate conduct
during its more critical time periods. The fact that society appears to equate the
stakeholder norm with more ethical and altruistic principles supports this indication. Just
as people reveal their true character during times of crisis, one can assert that institutions
and societies also gravitate towards their "true" ideals during such times. In this regard,
the fact that stakeholder rhetoric emerges during those times strengthens the claim that
society and investors find the norm embodied within that rhetoric to be a better
expression of their normative ideal of corporate conduct. Hence, even if one concedes
that the corporate embrace of stakeholder rhetoric is a temporary response to corporate
crisis, the fact that corporations fall back on such rhetoric during these times, and shy
away from shareholder primacy rhetoric, at least merits our attention and further
scholarly discussion.
V. CONCLUSION
This study reflects data from Fortune 100 companies as identified in the April 2005
list of Fortune 500 companies in Fortune magazine. Data was gathered from the most
recent annual reports and proxy statements of such corporations as well as corporate
websites and corporate press releases. This study uses the term "stakeholder rhetoric" to
refer to language that focuses on corporate constituents other than shareholders, including
employees, creditors, customers, and the community. Such rhetoric also includes
discussion of corporate social responsibility.
Table 1 presents data on the presence of stakeholder rhetoric within corporate
documents, websites, or by corporate board committees of Fortune 100 corporations.
"AR" represents annual report; "SR" represents a social responsibility or good citizenship
report; "WS" represents website; "BC" represents board committee; "Link" represents
corporations that link information regarding social responsibility issues to their investor
relations website.
Table I
1 Wal-Mart
2 Exxon Mobil Y4 7 . T4 4
3 General Motors . .4 .4 4
4 Ford 4 . . T4 4
5 General Electric T .4 T T .
6 Chevron Texaco 4 . 4 T4 .4
7 Conoco Phillips 4 4
8 Citigroup 1 7 4 T 7
9 AIG
10 IBM T "I 7
11 Hewlett Packard 7 T 7
12* Berkshire Hathaway
The Journalof CorporationLaw [Spring
13 Home Depot T T T
14 Verizon T T T T
15 McKesson H
16 Cardinal Health
17 Altria Group 7 T
18 Bank of America T T T
19 State Farm 4
20 JP Morgan 4 T T T
21 Kroger
22 Valero 4
23 Ameri-Source 4
24 Pfizer T T 4
25 Boeing
34 Dow Chemical 4 T 4 4
35 Albertsons 4
20061 Rhetoric of CorporateLaw
36 Morgan Stanley T T T
37 MetLife T T
38 Walgreens
44 Archer-Daniels-Midland
45 Sears
46 Safeway
49 Motorola T /
50 Intel / 'I
Total Number 44 29 43 19 13
* Represents the only Fortune 100 company for which stakeholder rhetoric was not
found in any corporate document or on its website.
Table 2 presents data on the presence of stakeholder data within annual reports of
Fortune 100 companies by demonstrating the relative pages on which the data appears
within the report. "W/5 pgs" represents stakeholder rhetoric that appears within the first
five pages of the report; "1st pg" represents stakeholder rhetoric that appears on the first
or cover page of the report; "Opening LTR" represents corporations that address their
annual report to a non-shareholder group.
The Journalof CorporationLaw [Spring
Table 2
1 Wal-Mart
2 ExxonMobil
3 General Motors
4 Ford
5 General Electric
6 ChevronTexaco IT q
7 ConocoPhillips 7
8 Citigroup
9 AIG-N/A
10 IBM
11 Hewlett Packard
12 Berkshire Hathaway-N/A
13 Home Depot q
14 Verizon
15 McKesson
16 Cardinal Health 7 7
17 Altria Group
18 Bank of America
19 State Farm I
200612006] Rhetoric of CorporateLaw
20 JP Morgan
21 Kroger T -
22 Valero
23 AmeriSource
24 Pfizer
25 Boeing 7 7
27 Target 7 -
28 Dell 7
29 Costco
31 Marathon Oil
32 Time Warner
33 SBC
34 Dow Chemical
35 Albertsons
36 Morgan Stanley
37 MetLife 7 - 7 -
38 Walgreens 7 -
39 United Technologies
41 Microsoft
42 UPS
43 Lowe's /
44 Archer-Daniels-Midland
45 Sears
46 Safeway
47 Lockheed Martin
48 Medco
49 Motorola
50 Intel H
Total Number 37 18 8