Tuesday, September 9, 2014

Corporate Lawyers Might Know What's Up

I asked Jamie O'Connell, a law professor at UC Berkeley, whether it is well known that in the US it is extremely difficult for shareholders to successfully sue a corporate board in the US for violating fiduciary duty.  Basically, a corporate board that is accused of violating their fiduciary duty to maximize shareholder value can always rely on the "business judgment rule" in court.  Shlensky v. Wrigley seems to be the case that is cited most often to demonstrates this principle.  Professor O'Connell said that among corporate lawyers and among lawyers generally, it's very well-known.  This surprises me because this does not seem to be well-known among MBA's or undergraduate business majors.  Professor O'Connell himself is a human rights lawyer, though, so he may be particularly familiar with this.

At the same time, corporate managers that don't maximize profit are likely to lose their bonuses and even their jobs.  Shareholders can and do campaign to fire board members they don't like.  Usually the imperative to maximize shareholder value is enforced this way.

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