The Ambiguous Duty of Corporate Directors

Abstract

This paper addresses the question of whether boards of directors of public corporations have a primary duty to the corporation itself or to the shareholders of the corporation. It suggests that proponents of each side of this long-standing debate appear to be more divided not over the “duty to whom” question, but rather over questions of whether directors in fact make value enhancing decisions, how the outcomes of their decisions are measured, and how increases in value are distributed among various competing corporate constituencies. The paper concludes that resolution of conflicting views on this topic lies in a well-established legal principle, the business judgment rule.