It seems that one central tension for the courts with regard to corporate purpose is the interplay between the directors’ fiduciary duty toward the corporation and the interests of shareholders. We see this balancing of profit vs purpose in Dodge v Ford Motor Co, where the court toes the line between upholding the primacy of shareholders and deferring to the directors’ forward-facing business plan. In Shlensky v Wrigley, Peoples Department Stores Inc (Trustee of) v Wise, and BCE Inc v Debentureholders, we see the court elaborate on how the court generally shouldn’t interfere unless there is fraud, illegality, or other shenanigans; that the fiduciary duty is owed to the corporation and not other related individuals; and that the question of a duty of care is entirely separate.
So, then, it’s pretty clear that the courts really want people to remember that their business dealings in these situations must be centred around the corporation, and though it might take into account the interests of shareholders and creditors where disputes arise, the central tenet is this notion of the “best interests of the corporation”.
Maybe it’s a non-answer, but the main conclusion I get from this is that these cases don’t really get us any closer to explaining what the corporation is and why it should exist in the form it has taken over other potential alternatives. As decided in Dodge, the profit motive is important, so if shareholders aren’t making quite as much money as they should be, the court seem to be willing to remediate that. But beyond that, the best interests of the corporation in and of itself—and coextensively, the corporate purpose—seem to clearly extend only as far as ensuring that the corporation continues to exist.
I feel like I learned several lessons from Harry Potter about the problems inherent in existing without any real purpose (see e.g. Dementors, immortality via unicorn blood, the entire point of Voldemort), so I’m a little skeptical about this. Thoughts? Have I missed something in the readings?
Hey Kai Ying, yea I basically reached the same point of non-answer answer in reading the cases as you did-or at least, the two SCC decisions seemed like non-answers via their complexity, in opposition to the [over] simplified identification of shareholder and corporate interests seemingly exemplified in the US cases.
It seemed to me, in reading the cases, that the US decisions defined the corporate interest by reference to the shareholders interest, and then used the business judgement rule to circumscribe the extent to which some shareholder or other could go to court to argue against the directors’ sense of what constituted the best plan to achieve shareholder interest. By contrast (I thought) the two SCC decisions seemed to strike a different path, identifying corporate best interest as functionally separate from shareholder interest in a much stronger way. Although its probably for the best that corporate interests aren’t directly tied to shareholder profit (it allows for the necessary debasement of debentures in BCE), I thought that I would have a far harder time applying the SCC corporate purpose rule than the simpler US rule-the Canadian rule involving (I thought) a higher level of abstraction than the US rule.
Maybe I’m way off though- it wouldn’t be the first time. Do other people think the US and Canadian cases are consistent in approach, rather than contrastable?