Shareholder Primacy and the Business Judgment Rule: Arguments for Expanded Corporate Democracy

Abstract

There is a fundamental flaw in the law’s approach to corporate governance. While shareholder primacy is a well-established norm within U.S. corporate law, the business judgment rule essentially holds directors blameless when they fail to maximize shareholder wealth. During the past century, control of the corporation has passed from shareholders to managers. As a result, shareholders have little practical say in who runs the corporation, even though they cannot usually hold managers legally liable when those managers destroy shareholder wealth through incompetence. Despite a number of arguments asserting that shareholders do not deserve any additional management powers, this article concludes that this flaw in corporate governance compels greater shareholder democracy, primarily through access to the corporate proxy to nominate directors.

Keywords: Business Judgment Rule, Shareholder Primacy, Shareholder Democracy