Comment on Dunfee

Abstract

A.A. SOMMER, JR. [*] Professor Dunfee has done singularly competent job in elucidating one of the recognized exceptions to the general proposition that, in the words of [ss] 2.01 of the American Law Institute's Principles of Corporate Governance: Analysis and Recommendations, a corporation [ldots] should have as its objective the conduct of business activities with view to enhancing corporate profit and shareholder gain. [1] The exception is that corporation may take into account ethical considerations even if they adversely affect shareholder value. He has provided framework within which managers can make rational--and rationalized--decisions as to when ethical considerations may supersede shareholder interests. As the Reporter for the Principles of Corporate Governance remarks, [t]here is very little direct authority on the permissibility of taking ethical considerations into account in framing corporate action where doing so might not enhance profits. [2] This proposition is in many ways more difficult to articulate than is the exception relating to eleemosynary contributions, which is often dealt with explicitly in statutes. The proposition that the managers of the corporation (executives and directors) have primary and almost all-encompassing obligation to maximize shareholder value is one that many find difficult to accept. The debate is not new one, and it did not start with the famous Berle-Dodd dust-up in the early 1930s. The seeds of this controversy had their origins in the very beginnings of the corporate form of economic enterprise. The earliest corporations, while they were generally organized by private citizens, nonetheless existed because of royal or parliamentary largesse, and, while they were permitted and often encouraged to make profit from their activities, they were also adjured to serve some public purpose, such as the operation of toll road, the provision of essential supplies, and so on. Charting the limits for manager in giving heed to ethical considerations is difficult. Separating out the manager's personal ethical instincts from those that should properly animate him as an official of the corporation is not an easy task. What one manager may perceive as marketplace morality, even hypernorm, may appear differently in the eyes of another manager. The ambiguities are amply demonstrated in the examples that accompany the articulation of the general principle in section 2.01 of the Principles of Corporate Governance. In several instances, set of hypothetical facts is stated, and conflicting conclusions are both justified under the principles set forth in the black letter principle. [3] A recognition that corporation and its management may depart from strict adherence to the profit-making purpose of the corporation opens up large area of discretion for management. In day when homelessness is pervasive problem, it is easy to rationalize substantial corporate commitment to easing the plight of the homeless. Such activity might be linked to making the community more desirable place in which to live; that rationalization could easily mask simple sentimentality and the sympathy of corporate official for the underprivileged. Professor Dunfee would like his conclusions regarding the appropriate impact of moral considerations upon corporate decisionmaking to stand alone and not depend upon any corporate benefit deriving from adherence to community ethical perceptions. However, not infrequently in his article the corporate benefit--or detriment--creeps in. This is not inappropriate. The corporation flouting the prevailing ethical mindset in community might very well suffer in its business. Corporate executives are probably more sensitive than they have ever been to the impact public opinion can have on their business. Newspapers, radio, television, and now the Internet make the dissemination of information about corporate conduct instantaneous and provide the mechanisms for mobilizing opinion and action quickly. …