page_title: United States corporate law
section_title: Stakeholder interests
hierarchical_section_title: United States corporate law / Directors' duties / Stakeholder interests
caption_attribution_description: English: The Chicago Cubs host the Arizona Diamondbacks on July 15, 2012 at Wrigley Field in Wrigleyville, Chicago, IL
context_page_description: United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has done the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size.
context_section_description: Most corporate laws empower directors, as part of their management functions, to determine which strategies will promote a corporation's success in the interests of all stakeholders. Directors will periodically decide whether and how much of a corporation's revenue should be shared among directors' own pay, the pay for employees (e.g. whether to increase or not next financial year), the dividends or other returns to shareholders, whether to lower or raise prices for consumers, whether to retain and reinvest earnings in the business, or whether to make charitable and other donations. Most states have enacted "constituency statutes", which state expressly that directors are empowered to balance the interests of all stakeholders in the way that their conscience, or good faith decisions would dictate. This discretion typically applies when making a decision about the distribution of corporate resources among different groups, or in whether to defend against a takeover bid. For example, in Shlensky v Wrigley the president of the Chicago Cubs baseball team was sued by stockholders for allegedly failing to pursue the objective of shareholder profit maximization. The president had decided the corporation would not install flood lights over the baseball ground that would have allowed games could take place at night, because he wished to ensure baseball games were accessible for families, before children's bed time. The Illinois court held that this decision was sound because even though it could have made more money, the director was entitled to regard the interests of the community as more important. Following a similar logic in AP Smith Manufacturing Co v Barlow a New Jersey court held that the directors were entitled to make a charitable donation to Princeton University on the basis because there was "no suggestion that it was made indiscriminately or to a pet charity of the corporate directors in furtherance of personal rather than corporate ends." So long as the directors could not be said to have conflicting interests, their actions would be sustained.
  Delaware's law has also followed the same general logic, even though it has no specific constituency or stakeholder statute. The standard is, however, contested largely among business circles which favor a view that directors should act in the sole interests of shareholder value. Judicial support for this aim is typically found in a case from Michigan in 1919, called Dodge v Ford Motor Company. Here, the Ford Motor Company president Henry Ford had publicly announced that he wished not merely to maximize shareholder returns but to raise employee wages, decrease the price of cars for consumers, because he wished, as he put it, "to spread the benefits of this industrial system to the greatest possible number". A group of shareholders sued, and the Michigan Supreme Court said in an obiter dictum that a "business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end." However, in the case itself a damages claim against Ford did not succeed, and since then Michigan law has been changed. The US Supreme Court has also made it clear in Burwell v Hobby Lobby Stores Inc that shareholder value is not a default or overriding aim of corporate law, unless a corporation's rules expressly opt to define such an objective. In practice, many corporations do operate for the benefit of shareholders, but this is less because of duties, and more because shareholders typically exercise a monopoly on the control rights over electing the board. This assumes, however, that directors do not merely use their office to further their own personal goals over the interests of shareholders, employees, and other stakeholders.
caption: Most states follow the approach in Shlensky v Wrigley,[129] that directors do not only need to maximize shareholder profits. They can balance the interests of all stakeholders, as in a decision to not put in floodlights to play nighttime baseball games, in the community's interest.
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