On an Expansive Definition of Shareholder Value in the Boardroom
Directors of a Delaware corporation must act in the best interest of the corporation and its shareholder. Other stakeholders – such as employees, creditors, customers, and suppliers – may only be considered by directors to the extent there are rationally related benefits to the welfare of shareholders. The preceding two tenets of Delaware law may on occasion appear to pose challenges to a corporate board considering an environmental or social initiative that cannot readily be supported by traditional metrics of long-term financial value for shareholders. However, I submit that boards have the discretion to take an expansive view of shareholder welfare or value that is reflective of non-financial considerations increasingly espoused by institutional and retail shareholders. To the extent shareholders publicly and privately articulate their support for a corporation’s environmental and social agenda, directors should be able to confidently take these into account when assessing whether a board-level decision is in the best interest of the corporation and its shareholders, without direct and express linkage to shareholder financial gain.
This article originally appeared in The CLS Blue Sky Blog - Columbia Law School's Blog on Corporations and The Capital Markets. Eduardo Gallardo is on the advisory board and a regular contributor.