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Prof. Bainbridge yesterday posted about The Modern Corporation Statement on Company Law.  The statement has ten fundamental rules, of which number ten is:

Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. This is reflected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the latter goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.

Prof. Bainbridge is with Delaware Chief Justice Strine in that profit maximization is the only role (or at least only filter) for board members.  As he asserts, “The relationship between the shareholder wealth maximization norm and the business judgment rule, . . . explains why the business judgment rule is consistent with the director’s “legal obligation to maximise profits for…

This week, two of my co-bloggers shared some great insights on the revamped American Apparel board of directors.  See Marcia Narine quoted in The Guardian article American Apparel adds its first woman to revamped board of directors; Joan Heminway, American Apparel 1, NFL 0. For those not following the American Apparel saga, the New York Times recently reported:

The founder and chief executive of American Apparel, Dov Charney, was fired this week because an internal investigation found that he had misused company money and had allowed an employee to post naked photographs of a former female employee who had sued him, according to a person with knowledge of the investigation. 

Beyond the public relations problems surrounding Charney’s departure, American Apparel is struggling financially as sales have dropped dramatically. As an initial step in trying start a turnaround, the company announced four new board members, including the company’s first female director, Colleen Birdnow Brown, former chief executive of Fisher Communications. 

When I opened the Guardian article quoting Marcia, I had another article open in the tab next to it from the Washington Post’s On Leadership section: For women and minorities, advocating for diversity has a downside.  That article explained:

In corporate America, diversity is about as controversial as motherhood and apple pie. CEOs love to tout the number of women in their upper ranks. Human resource departments like to trumpet their diversity programs in glossy reports.

But a new study finds that for female and minority executives, being seen as an advocate for diversity could actually have a downside. The researchers behind the study, which will be presented at the Academy of Management’s annual conference in early August, found that women and minorities who were rated by their peers as being good at managing diverse groups or respecting gender or racial differences also tended to get lower performance ratings. That’s because they may be viewed as “selfishly advancing the social standing of their own low-status demographic groups,” the researchers write, a no-no when it comes to rating good managers.

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