Situation-Specific Fiduciary Duties ForCorporate Directors: EnforceableObligations Or Toothless Ideals?

I. INTRODUCTIONA process of philosophical change is underway in the corporate world.(1) Judicial opinions, legislative acts, and scholarly legal articles are replete with evidence of dissatisfaction with the traditional idea that a corporation is a mere profit-making entity whose interests are equivalent to the interests of those who hold its stock.(2) Helping to replace the notion that the singular role of the corporation in our society is to maximize shareholder wealth is a realistic understanding that the modern corporation is a tremendously influential institution.(3) The emerging idea is that today's corporate directors--whose decisions have far-reaching effects on many more groups than just the corporation's shareholders--should consider the interests of the other groups whose fate they influence.(4) Board consideration of nonshareholder groups holding a stake in the corporation is especially imperative in situations in which the interests of one or more of these "stakeholder" groups are implicated to a greater degree than are shareholder interests.(5)The traditional model's requirement that the board of a solvent corporation all but ignore the interests of everyone except the shareholders--no matter what the circumstances--has yielded inequities.(6) As the legal community has become increasingly aware of these inequities, it has begun to formulate alternative theories regarding the purpose of the public corporation in a free society.(7) In rethinking the question of corporate purpose, the law has recognized the need for director attention to the interests of corporate stakeholders other than shareholders and has attempted to accommodate this need.(8)Nonshareholder corporate constituency statutes are, as one commentator put it, "the most obvious feature of th[is] reordering of the corporate legal landscape."(9) However, these statutes may well exacerbate the problem they purportedly seek to address.(10) By allowing but not requiring corporate directors to consider the interests of nonshareholders, and by not identifying situations in which directors should give special consideration to particular groups' interests, the majority of these statutes actually serve to expand directorial discretion.(11) The broad sweep of nonshareholder corporate constituency statutes, the discretionary tone most of them employ, and their failure to include enforcement provisions effectively leave corporate boards accountable to no one, not even the shareholders.(12)Recent decisions under Delaware's common law of corporations offer greater hope for more modest, yet more effective, implementation of the philosophical shift away from the traditional conceptualization of the corporation.(13) Most importantly, in late 1991, in footnote fifty-five of Credit Lyonnais v. Pathe Communications Corp.,(14) Chancellor William Allen of the Delaware Court of Chancery addressed the potential for conflicting interests among corporate constituencies.(15) Less manipulable than the nonshareholder corporate constituency statutes, Chancellor Allen's footnote fifty-five is potentially a better shield for the interests of stakeholders other than shareholders.(16) Like the statutes, Credit Lyonnais's footnote fifty-five indicates that directors should be allowed to consider the concerns of all stakeholders, but it apparently also goes further and requires the board to consider certain stakeholders' concerns under certain circumstances.(17)Chancellor Allen explained in footnote fifty-five that the interests of the entire corporate enterprise, not just the shareholders, provide the proper frame of reference for a director making decisions on behalf of a solvent corporation nearing insolvency.(18) The Chancellor also recognized that when a corporation is teetering on the verge of insolvency, the interests of the corporate creditors are particularly pertinent.(19) Thus, Chancellor Allen implied that in a given decisionmaking process, the identity of the beneficiaries of the directors' fiduciary duties should depend on the specific corporate circumstances. …