In American corporate governance law, the business judgment
rule gives management expertise the benefit of the doubt over stockholder
proposals. Compared with executive skill, they look rather populist and thus
potentially irrational in nature. Nevertheless, with the rule chaffing up
against the property-rights foundation of corporate capitalism, the managerial
prerogative can be said to be dubious. Indeed, a strict private-property basis
justifies displacing the default profit-maximization mission for a given
corporation. Alternatively, stockholders may want to use their concentrated,
collective wealth for other purposes, such as to alleviate hunger. Once enough
profit has been made for the business to be sustained for another year or two,
any additional surplus would be spent on food pantries, for example, rather
than going out as dividends or being retained by the corporation. Because
managerial skill is premised on the profit-maximization goal and its associated
strategies, corporate executives intrinsically resist alternatives proposed by
stockholders. The managers face a conflict of interest in providing their
recommendation for stockholders. Even when the proposal assumes profit-maximization
but differs from a current strategy (i.e., adopted by management), a conflict
of interest exists should the management seek to provide a recommendation for
the stockholders. In this essay, I use the activism of Trian Fund Management at
DuPont to illustrate this point.
The full essay is at “Stockholder
Activism at DuPont.”