The Shareholder Primacy Norm The Shareholder Primacy Norm Professor Hector R Rodriguez School of Business Mount Ida Colleg...
<ul><li>Society </li></ul><ul><ul><li>The Corporation and Its Stakeholders </li></ul></ul><ul><ul><li>People for the Ethic...
Shlensky v. Wrigley <ul><li>The case considered the claim that the directors of the corporation owning the Chicago Cubs (i...
Shlensky v. Wrigley <ul><li>The complaint further alleged a plethora of facts supporting a conclusion that installing ligh...
The Verdict <ul><li>The court affirmed dismissal of the complaint stating that it was “not satisfied that the motives assi...
Conclusion <ul><li>Even if profit maximization is the nominal standard, business judgment review still would sustain any p...
What about Dodge v. Ford? <ul><li>Although the decision did include strong pro-shareholder language, the decision never st...
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The Shareholder Primacy Norm - Shlensky v, Wrigley

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The Shareholder Primacy Norm - Shlensky v, Wrigley

  1. 1. The Shareholder Primacy Norm The Shareholder Primacy Norm Professor Hector R Rodriguez School of Business Mount Ida College Shlensky v. Wrigley
  2. 2. <ul><li>Society </li></ul><ul><ul><li>The Corporation and Its Stakeholders </li></ul></ul><ul><ul><li>People for the Ethical Treatment of Animals </li></ul></ul><ul><ul><li>Corporate Citizenship </li></ul></ul><ul><ul><li>The Social Responsibility of Business </li></ul></ul><ul><ul><li>The Shareholder Primacy Norm </li></ul></ul><ul><ul><li>CSR, Citizenship and Sustainability Reporting </li></ul></ul><ul><ul><li>Responsible Investing </li></ul></ul><ul><ul><li>The Community and the Corporation </li></ul></ul><ul><ul><li>Taxation and Corporate Citizenship </li></ul></ul><ul><ul><li>Corporate Philanthropy Programs </li></ul></ul><ul><ul><li>Employees and the Corporation </li></ul></ul><ul><ul><li>Managing a Diverse Workforce </li></ul></ul><ul><li>Environment </li></ul><ul><ul><li>A Balanced Look at Climate Change </li></ul></ul><ul><ul><li>Non-anthropogenic Causes of Climate Change </li></ul></ul><ul><ul><li>Sulfates, Urban Warming and Permafrost </li></ul></ul><ul><ul><li>Conventional Energy </li></ul></ul><ul><ul><li>The Kyoto Protocol </li></ul></ul><ul><ul><li>Green Building </li></ul></ul><ul><ul><li>Green Information Technology </li></ul></ul><ul><ul><li>Transportation, Electric Vehicles and the Environment </li></ul></ul><ul><ul><li>Geo-Engineering </li></ul></ul><ul><ul><li>Carbon Capture and Storage </li></ul></ul><ul><ul><li>Renewable Energy </li></ul></ul><ul><ul><li>Solid, Toxic and Hazardous Waste </li></ul></ul><ul><ul><li>Forests, Paper and Carbon Sinks </li></ul></ul><ul><ul><li>Life Cycle Analysis </li></ul></ul><ul><ul><li>Water Use and Management </li></ul></ul><ul><ul><li>Water Pollution </li></ul></ul>Course Map – Topics Covered in Course
  3. 3. Shlensky v. Wrigley <ul><li>The case considered the claim that the directors of the corporation owning the Chicago Cubs (including 80% shareholder Mr. Wrigley) had violated their fiduciary duties by refusing to install lights in the field. </li></ul><ul><li>The complaint alleged that Mr. Wrigley “has admitted that he is not interested in whether the Cubs would benefit financially” from installing lights, but rather was motivated by “his personal opinions ‘that baseball is a “daytime” sport and that the installation of lights and night baseball games will have a deteriorating effect upon the surrounding neighborhood.’” </li></ul>Source: Shlensky v. Wrigley, Appellate Court of Illinois, First District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
  4. 4. Shlensky v. Wrigley <ul><li>The complaint further alleged a plethora of facts supporting a conclusion that installing lights would in fact have increased corporate profits: </li></ul><ul><ul><li>Every other baseball team had installed lights for the purpose of increasing attendance and revenue; </li></ul></ul><ul><ul><li>Cubs road attendance, where night baseball was played, was better than Cubs home attendance; </li></ul></ul><ul><ul><li>Cubs weekday attendance was worse that that of the Chicago White Sox, who played at night in the same city, even though their weekend attendance, when both teams played day ball, was the same; and </li></ul></ul><ul><ul><li>The cost of installing lights, which could be financed, would be more than offset by the extra revenue that would result from increasing attendance by playing night baseball. </li></ul></ul>Source: Shlensky v. Wrigley, Appellate Court of Illinois, First District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
  5. 5. The Verdict <ul><li>The court affirmed dismissal of the complaint stating that it was “not satisfied that the motives assigned to [Mr. Wrigley] are contrary to the best interests of the corporation and the stockholders,” because in the long run a decline in the quality of the neighborhood might reduce attendance or property value. </li></ul><ul><li>The court did not allow inquiry into whether such long-run profitability was Mr. Wrigley’s actual motivation. Rather, it held irrelevant any motives other than fraud, illegality or conflict of interest, thus rendering moot the allegations that Mr. Wrigley was motivated not by corporate profits, but by public interest concerns. </li></ul>Source: Shlensky v. Wrigley, Appellate Court of Illinois, First District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
  6. 6. Conclusion <ul><li>Even if profit maximization is the nominal standard, business judgment review still would sustain any public-spirited activity without any inquiry into actual profitability or the manager’s actual purposes as long as it had some conceivable relationship to long-run profitability, however tenuous. </li></ul><ul><li>Such relationship can almost always be conceived. </li></ul><ul><li>It is in fact to see what socially responsible conduct could not plausibly be justified under the commonly accepted rationalizations that it helps forestall possible adverse reactions from consumers, employees, government regulators, etc. </li></ul>Source: Environmental Protection and the Social Responsibility of Firms, Einer R Elhauge, p.30, 2005
  7. 7. What about Dodge v. Ford? <ul><li>Although the decision did include strong pro-shareholder language, the decision never stated that it is the directors’ exclusive duty to maximize shareholder profits. </li></ul><ul><li>Rather it held that profits should be the primary but not exclusive goals of managers. </li></ul><ul><li>The Dodge court stated: </li></ul><ul><ul><li>“ We do not draw in question, nor do counsel for the plaintiffs do so, the validity of the general proposition stated by counsel… that although a manufacturing corporation cannot engage in humanitarian works as its principal business, the fact that it is organized for profit does not prevent the existence of implied powers to carry on with humanitarian motives such charitable works as are incidental to the main business of the corporation.” </li></ul></ul>Source: Environmental Protection and the Social Responsibility of Firms, Einer R Elhauge, p.30, 2005

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