ABSTRACT
The American Law Institute (ALI) is currently working on a Restatement of the Law of Corporate Governance (‘Restatement’). At the ALI’s May 2022 annual meeting, the membership approved inter alia § 2.01, which purports to restate the objective of the corporation. Section 2.01 differentiates between what the drafters refer to as common law jurisdictions and stakeholder jurisdictions. The latter are those states that have adopted a constituency statute (a.k.a. a non-shareholder constituency statute).
The drafters assert that, in common law jurisdictions, the corporate objective is to ‘enhance the economic value of the corporation, within the boundaries of the law … for the benefit of the corporation’s shareholders …’ In doing so, corporation is allowed to consider the impact of its actions on various stakeholders, provided doing so redounds to the benefit of shareholders. In stakeholder jurisdictions, the corporation’s objective is to ‘enhance the economic value of the corporation, within the boundaries of the law … for the benefit of the corporation’s shareholders and/or, to the extent permitted by state law, for the benefit of employees, suppliers, customers, communities, or any other constituencies’ ….
Bainbridge, Stephen Mark, A Critique of the American Law Institute’s Draft Restatement of the Corporate Objective (August 4, 2022). UCLA School of Law, Law-Econ Research Paper No 07, 2022.
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