Corporations and the Duty to Obey the Law

Abstract

Most corporate law scholars seem not to care much about corporate crime. While courts hearing corporate law cases do occasionally talk in principle about the firm's duty to obey the law, these cases tend to arise in situations in which the violation of law ended by costing the shareholders money. This chapter argues in favor of bringing lawsuits against corporations breaking the law on the grounds that illegality is “ultra vires,” beyond the power of the corporation. If recognized, this theory would allow a shareholder to sue the company to enjoin its violation of international law. The chapter first examines whether corporations have a duty to obey the law. It then discusses the ultra vires doctrine, illegal activities by corporations and the duty to obey the law as ultra vires, and why a firm's stakeholders would not want the corporation to break the law. The chapter also examines two serious problems in applying the ultra vires doctrine as outlined here: the problem of unclear law and the problem of “law-as-price.”