Further to last week's Riches post, Sullivan & Cromwell discusses how the Business Roundtable's new "Statement on the Purpose of a Corporation" squares with the board's fiduciary duties under Delaware law. Importantly, the consideration of multiple stakeholder interests in furtherance of the creation of long-term value for the company and its shareholders is not inconsistent with the board's fiduciary duties and - in fact - is now arguably widely acknowledged to be critical to generating long-term value given the nexus between and among the various stakeholders and corporate value. However, an articulated broad commitment that includes delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, and supporting communities is not tantamount to subverting or disregarding long-term value for shareholders, whose capital fuels corporate America.
Yesterday, the Business Roundtable itself clarified in a Q&A format certain aspects of its Statement that have generated confusion and angst among investors and others - indicating that the new language was intended to more accurately reflect business principles that the BRT had espoused for many years:
5. Why is Business Roundtable prioritizing political and social goals over its shareholders? Shouldn't government, not business, define and address societal objectives? The Statement is not a repudiation of shareholder interests in favor of political and social goals. Rather, the Statement reflects the fact that for corporations to be successful, durable and return value to shareholders, they must consider the interests and meet the fair expectations of a wide range of stakeholders in addition to shareholders.
The BRT's clarifications expressly reiterate the Statement's support of the free market system and companies' accountability to shareholders for generating long-term returns.
Ropes & Gray adds this helpful perspective concerning the Statement:
Importantly, the Statement does not alter or change a director’s fiduciary duties. Thus, at least for companies that are incorporated under Delaware law, which does not have an “other constituencies” provision, nothing has changed. As Chief Justice Strine has observed, “[w]hen the corporation is not engaging in a sale of control transaction, the directors have wide leeway to pursue the best interests of stockholders as they perceive them, and need not put any specific weight on maximizing current share value. As a means to the end of increasing stockholder welfare, directors may consider the interests of other constituencies, such as the corporation’s employees, but only as a means, and not as an end.”3 Taking the impact of other constituencies into account can be part of focusing on long-term shareholder value, consistent with fiduciary duties.
The Sullivan & Cromwell memo outlines how directors may take into account all of the various stakeholder interests in a manner consistent with garnering the protections of the business judgment rule, and also explains how public benefit corporations differ for those companies that may wish to consider that alternative corporate structure.
See also the Business Roundtable's release; "The Business Roundtable’s statement isn’t revolutionary. It’s a truism" from The Washington Post;" 'B Corp' leaders challenge Apple, others to become force for good" from appleinsider; our previous report: "Benefit Corporations: Explained & Timely Revisited," and additional information & resources on our Director Duties & Liabilities and Benefit Corporations pages.