The CEOs of 150 major U.S. public companies recently pledged to act for all of their “stakeholders”—customers, employees, suppliers, communities and yes, even stockholders. Much commentary ensued. But before we get too excited about whether these CEOs are grasping the mantle of government to act on behalf of the citizenry and other people who aren’t paying them, there is the prior question of whether, as a matter of Delaware law, they can.
Under Delaware law, directors owe a fundamental duty of loyalty—the question is, to whom? There has been some academic debate over the years as to whether this duty is owed exclusively to stockholders or is also owed to other stakeholders of the corporation, but the weight of decided Delaware law comes down firmly on the side of stockholders. The Delaware Supreme Court ruled 30 years ago that the interests of other stakeholders may be considered only if “there are rationally related benefits accruing to the stockholders.” The current Chief Justice of the Delaware Supreme Court echoed this view: “[T]he object of the corporation is to produce profits for the stockholders … [T]he social beliefs of the manager, no more than their own financial interests, cannot be their end in managing the corporation.” In other words, the duty of loyalty requires that the corporation be run for the benefit of stockholders—a predictable result, as the Chief Justice points out, in a governance system that in all its particulars is based on the “relationship between corporate managers and stockholders … where only stockholders get to vote and only stockholders get to sue to enforce directors’ fiduciary duties.”
