As I was studying for my jurisprudence class, I came across a philosopher whose ideas appear to be directly transferable to an issue in company law: that of trying to discern what it means to be “in the best interests of the corporation”.
Jeremy Bentham measured right and wrong as “the greatest happiness of the greatest number”. From Peoples v Wise, we know that in trying to assess what is in a corporation’s best interests, the directors should consider “inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment”.
Professor Festinger suggested that perhaps the court was implying that directors should consider the various interests of stakeholders in that order. However, if we were to transpose Bentham’s utilitarian philosophy into the equation, then we could define the best interests of the corporation as “the greatest happiness for the greatest number of stakeholders”.
That would then beg the question of what “happiness” is. Considering the subject, it’s probably money. So now we have “the bests interests of the corporation” meaning “the [most money] for the greatest number [of stakeholders as listed in Peoples v Wise]”. Doesn’t quite have the same ring to it as Bentham’s original dictum, but then again, company law was never supposed to be sexy.
I think I agree with you, Piers, on the gist of what you said – but maybe disagree with how the courts would interpret calculating that from a utilitarian (and likely economic) viewpoint.
Although Peoples v Wise did end up naming those stakeholders – and though I agree with you that the order may not be as relevant as we might think on first glance – it did so in a context where they all seem to be a secondary consideration. To be more precise, the court (in paragraph 42) said: “From an economic perspective, the “best interests of the corporation” means the maximization of the value of the corporation,” going on to say that “However, the courts have long recognized that various other factors may be relevant in determining what directors should consider in soundly managing with a view to the best interests of the corporation,” then naming the various stakeholders as you quoted above.
If you take their words at face value, and also at least loosely equate the economic perspective to the utilitarian perspective (something that I, as an economist, would probably do) that would mean that the courts in determining what is in the best interests of the company would look first to the company’s monetary value itself before jumping to the total happiness in the system of the stakeholders. (Here, I agree with you in that equating happiness to monetary value is probably practical.) This, I think, is also a process that makes it easier for the courts to adjudicate claims if they can look to the company’s value before trying to mathematically suss out the interests of all the stakeholders in the system.
In summary, I agree with your conclusion that when naming the stakeholders for the director to consider in thinking about the best interests of the company, it seems prudent to look at the stakeholders’ total maximization of happiness rather than placing them in an order of priority. However, I would preface that by saying the court would (and it is more prudent to) look to the total maximization of the company’s value itself before they would move on to the considerations of stakeholders whenever the court wants to determine what the best interests of the company should have been in the mind of the director in order to see if the director’s decision was in line with those interests.
Whereas the pursuit of happiness is difficult to measure (i.e. am I happier or you? How do we quantify happiness?), money is quite easy. Thus, after all the checks and balances, an action leads to profit overall, the corporation will take that action. Now, this means that the cost-benefit analysis must be accurate. We need to be able to account for all the externalities in the equation. Recent movement for equality, justice, environment etc. have shaped the cost-benefit analysis to be more well-rounded. I hope that this trend continues so that what seems like corporate machines can be more like corporate persons… that the corporations will take into account what our morals would, albeit arising from numbers and dollars.
Piers this is a pretty solid idea. If we look at maximizing the overall utility (happiness) of the stakeholders in a company we could arguably be creating a new moral dimension for corporate law. But this is not without setbacks. The biggest setback I see is it would be very difficult to have a universal understanding of what is maximizing the overall utility for stakeholders? But then again, do we ever have a consistent principle in corporate law?