The Goals of the Corporation under Shareholder Primacy: Just Profit — Or Social Responsibility and Religious Exercise Too?

Abstract

Under the doctrine of shareholder primacy, the duty of a corporate director is to act for the benefit of the shareholders. This is not the same as profit maximization. It is only the same if shareholders care about profit and nothing else. The current Hobby Lobby case regarding a corporation’s religious exemption from the Obamacare emergency contraception mandate is an example: the shareholders have made it clear they wish the directors to spend more on litigation than could possibly be saved by avoidance of the mandate. Goals other other than pure profit should be permitted both for public and for closely held corporations. Even for public corporations in financial “efficient markets”, maximization of market value may demand that the corporation sacrifice longterm profit for other goals. In some cases this will be to the detriment of minority shareholders who value profit alone, but the problem is no difference in essence from shareholder disagreement because of their differing time horizons or tax positions.

While corporate directors should and do have a fiduciary duty to act only for the benefit of shareholders, not for customers, employees, or community, this is not precisely equivalent to profit maximization, nor does it require (or even allow) directors to ignore religious beliefs. In practice the business judgment rule gives directors enough slack to accommodate other goals besides profit maximization, but it is worth detailing the interplay between the beliefs and desires of shareholders and directors to aid conscientious directors in their duty.

Keywords: corporate law, purpose, shareholder primacy, director primacy, Hobby Lobby, religion, business judgment rule, ACA contraception mandate