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21 Stetson L. Rev. 163 (1991-1992)
The Proper Interpretation of Corporate Constituency Statutes and Formulation of Director Duties

handle is hein.journals/stet21 and id is 173 raw text is: THE PROPER INTERPRETATION OF CORPORATE CONSTITUENCY STATUTES AND FORMULATION OF DIRECTOR DUTIES* Steven M.H. Wallman** At least twenty-eight states have adopted some form of the so- called nonshareholder constituency or stakeholder statutes.1 Such labels belie, however, the more important and subtle notion ar- ticulated by these statutes: what this article calls the corporate con- stituency concept. This article first describes these statutes - more accurately referred to as corporate constituency statutes - and de- fines the proper standard to govern directors' actions - the best interests of the corporation standard. Next this article reviews the competing standards for director duties and shows why the formula- tion of this standard embodied in the corporate constituency concept is the superior standard for director decisionmaking both in connec- tion with ordinary business matters and takeovers. The article also outlines the benefits of the corporate constituency paradigm and its promise as a model for defining the duties of directors of major pub- lic corporations. Finally, this article rebuts objections raised by oppo- nents of the corporate constituency statutes. THE CORPORATE CONSTITUENCY STATUTES In many venues, the debate over the merits of the corporate con- stituency statutes has been clouded by misunderstanding as to what the statutes say. Thus, the actual language of the statutes presents a useful starting point.2 In 1983 Pennsylvania adopted the first of these statutes: * Copyright © 1991 by Steven M.H. Wallman. ** J.D. 1978, Columbia University School of Law; M.S. 1976 Sloan School of Management, Massachusetts Institute of Technology; B.S. 1975 Massachusetts Institute of Technology. The author is a partner in the Washington, D.C., office of Covington & Burling. He is the co-drafter of the first corporate constituency statute enacted in 1983 and the drafter of the recent Penn- sylvania corporate law amendments reaffirming the corporate constituency concept. He grate- fully acknowledges the helpful comments of Kathleen Wallman, Ellen Ranard, and Michael Cutler. 1. See appendix A to this article for an analysis of the current corporate constituency statutes. 2. See Symposium appendix, infra p. 279, for the pertinent language of all current statutes.

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