CLIENT ALERT: The Business Judgment Rule in Stakeholder Capitalism
Thiago Spercel, a partner at Sichenzia Ross Ference Carmel, recently published a paper entitled “The Business Judgment Rule in Stakeholder Capitalism” at the Northwestern Journal of International Law and Business. The paper was produced during his time as a Visiting Scholar at Columbia Law School in the beginning of the year.
In the paper, Spercel discusses the purpose of a corporation and the tension between shareholder primacy and stakeholder capitalism. Certain extreme situations of stakeholder-centric decisions that cannot be reconciled with value creation for shareholders could potentially constitute a breach of management’s duty of loyalty if they involve self-dealing or conflict of interest situations, resulting in the unavailability of the business judgment rule protection.
Clear, well-structured, and properly executed stakeholder-friendly decisions will likely create long-term value to shareholders and are germane to the shareholder primacy doctrine, but impulsive, poorly structured decisions taken by managers seeking personal reputation and recognition will often translate into destruction of shareholder value and therefore should be deterred by the law.
