“When we hang the last capitalist, another will appear to sell us the rope” – Variously attributed to Marx, Lenin, Stalin, and your annoying friend who reads too much Chomsky.
One of the best features of Association Football/ Soccer, in my opinion, is that it has 17 clear rules, and that those allow for a complete, well-managed game. The duty of loyalty and “view to the best interests of the corporation” doctrine is not at all like the rules of Association Football. Instead, it appears to be one of those doctrines that is thought up to allow courts to make a show of solving a problem identified in business governance, without anyone really having to change the way they do business.
The imposition of this duty is obviously well intentioned. Where shareholders leave the management of a corporation to directors, they are at the obvious disadvantage of not being able to prevent directors from directing the company to favour their own interests. The imposition of a statutory duty to act with a view to the best interests of the company, i.e. the creation of value for shareholders, is obviously a desirable counterweight to that power imbalance. Unfortunately, the end result of this seems to be the courts attempting, in the face of a structural failing of capitalism, to solve the problem by enforcing a sense of fair play.
Brant Investments Ltd. v. KeepRite Inc. is illustrative. In that situation, the actions of the directors were deemed not to be improper essentially because, in delegating certain decisions to an “independent committee”, the court found that the directors had discharged their obligation to impartially consider the best interests of the corporation in making a decision to purchase certain assets of a subsidiary over the objections of the minority shareholders in the corporation. The court justified this finding based on the business judgement rule, providing wide latitude to boards in making this type of decision.
The important factor to remember is that, in the end, the action that was harmful to the minority shareholders, taken by the directors, was approved. Whatever justification we might apply to this situation, ultimately directors are apparently able to, in the right conditions, act counter to the interests of shareholders. This is a structural defect. Nothing short of structural change can fix it. It arises, much like many of the other contradictions of capitalism, from the structure of the corporate form. Judicial oversight will not save us.
