I ask my Advanced Business Associations students to recognize and process theory and policy and relate them to doctrine at the practical level.  This is, as most of you will recognize, a tall order of business for students who have just recently learned what business associations law is and may not yet (at the time they take the course) have applied the law in a practical context outside the classroom.  (The course is open to 2L and 3L students who have already taken Business Associations.)

So, when it came time to lionize my friends Lyman Johnson and David Millon at a symposium honoring their work (which, as you may recall, I first heralded on the BLPB a year ago and wrote a bit about back in October), I decided to put my scholarship pen (keyboard) where my teaching mouth is.  My goal for the symposium was to write something that linked theory and policy through doctrine to law practice and, at the same time, incorporated Lyman’s and David’s work. The essay I produced in fulfillment of these objectives was recently released and posted to SSRN.  I excerpted from it in my post on Saturday.  The full SSRN abstract follows.

In context, corporate law is often credited with creating, hewing to, or reinforcing a shareholder wealth maximization norm. The now infamous opinion in Dodge v. Ford Motor Co. describes the norm in a relatively bald and narrow way: “A business corporation is organized and carried on primarily for the profit of the stockholders.” As a matter of theory and policy, commentators from the academy (law and business) and practice (lawyers and judges) have taken various views on this asserted norm—ranging from characterizing the norm as nonexistent or oversimplified to maintaining it as simple fact.

In an effort to broaden the conversation about the shareholder wealth maximization norm in an applied context, this essay describes shareholder wealth maximization under various state laws (in and outside Delaware) as a function of firm-level corporate governance—corporate law statutes, decisional law interpreting and filling gaps in that statutory law, and corporate charter and bylaw provisions—as applicable to both publicly held and privately held corporations in a variety of states. In this overall context, the essay considers the possibility that holders of shares in for-profit corporations may desire to maximize overall utility in their shareholdings of a particular firm, rather than merely the financial wealth arising from those holdings. To accomplish its purpose, the essay first briefly and generally addresses shareholder wealth maximization as a function of applicable statutory and decisional law and as a matter of private ordering (collecting, synthesizing, and characterizing, in each case, points made in the extant literature) before suggesting the broad implications of that analysis for corporate governance and shareholder wealth maximization and concluding. Ultimately, the essay makes a case for a more nuanced look at the shareholder wealth maximization norm. Given differences in doctrine and public policy among the states and variance in that doctrine and public policy among public, private, and statutory close or closely held corporations within individual states, answers to open questions are likely to (and should) depend on individualized facts assessed through the lens of specific statutory and decisional law and applicable public policy.

I fear that this short piece does not do the subject (or Lyman and David’s amazing work) justice.  But my biggest regret is that the essay went to press without the addition of thanks to two special folks in my author’s footnote.  I want to call those two colleagues out here.  

I cite to their work in the essay.  Both of them have influenced my work in this area and beyond.  Both deserve better than what I offer here.

First, I must thank friend-of-the-BLPB (and friend o’ mine) Bernie Sharfman.  Bernie read a draft of the essay and issued numerous thoughtful comments.  He always raises insightful points on corporate governance matters.  Although I didn’t come his way fully in each instance, I was able to address most of his comments one way or another in the final version of the essay.  Thank you, Bernie!

Second, I owe thanks to BLPB co-editor Haskell Murray.  Like Bernie, Haskell took a spin through an earlier draft of the essay and offered thoughtful comments.  Haskell’s work in social enterprise law–which has required that he spend a bunch of time thinking about shareholder wealth maximization–was particularly helpful in thinking through some of the issues I address in the essay.  Thank you, Haskell!

In writing this piece, I was, in fact, very aware that all of us who research and write about corporate governance stand on the shoulders of so many (some giants) who have done so before.  The work in this area is rich and varied.  Just when you think you have heard or read it all, there’s something new to think about.  

Although my primary area of scholarly inquiry is corporate finance, I am glad to have the opportunity to write in corporate governance on a frequent basis.  Of course, corporate finance and corporate governance walk hand-in-hand in practice.  And my students all aim to practice–the advanced ones, in business law.  Perhaps this essay will be of use to them, if it does little else.  In any event, the process of creating it has certainly been useful to me as I think about how to best teach budding business lawyers to engage in a satisfying and successful law practice.