- 1. The Shareholder Primacy Norm The Shareholder Primacy Norm
Professor Hector R Rodriguez School of Business Mount Ida College
Shlensky v. Wrigley
2.
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- The Corporation and Its Stakeholders
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- People for the Ethical Treatment of Animals
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- The Social Responsibility of Business
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- The Shareholder Primacy Norm
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- CSR, Citizenship and Sustainability Reporting
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- The Community and the Corporation
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- Taxation and Corporate Citizenship
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- Corporate Philanthropy Programs
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- Employees and the Corporation
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- Managing a Diverse Workforce
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- A Balanced Look at Climate Change
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- Non-anthropogenic Causes of Climate Change
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- Sulfates, Urban Warming and Permafrost
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- Green Information Technology
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- Transportation, Electric Vehicles and the Environment
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- Carbon Capture and Storage
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- Solid, Toxic and Hazardous Waste
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- Forests, Paper and Carbon Sinks
Course Map Topics Covered in Course 3. Shlensky v. Wrigley
- The case considered the claim that the directors of the
corporation owning the Chicago Cubs (including 80% shareholder Mr.
Wrigley) had violated their fiduciary duties by refusing to install
lights in the field.
- The complaint alleged that Mr. Wrigley has admitted that he is
not interested in whether the Cubs would benefit financially from
installing lights, but rather was motivated by his personal
opinions that baseball is a daytime sport and that the installation
of lights and night baseball games will have a deteriorating effect
upon the surrounding neighborhood.
Source: Shlensky v. Wrigley,Appellate Court of Illinois, First
District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
4. Shlensky v. Wrigley
- The complaint further alleged a plethora of facts supporting a
conclusion that installing lights would in fact have increased
corporate profits:
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- Every other baseball team had installed lights for the purpose
of increasing attendance and revenue;
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- Cubs road attendance, where night baseball was played, was
better than Cubs home attendance;
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- Cubs weekday attendance was worse that that of the Chicago
White Sox, who played at night in the same city, even though their
weekend attendance, when both teams played day ball, was the same;
and
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- The cost of installing lights, which could be financed, would
be more than offset by the extra revenue that would result from
increasing attendance by playing night baseball.
Source: Shlensky v. Wrigley,Appellate Court of Illinois, First
District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
5. The Verdict
- The court affirmed dismissal of the complaint stating that it
was not satisfied that the motives assigned to [Mr. Wrigley] are
contrary to the best interests of the corporation and the
stockholders, because in the long run a decline in the quality of
the neighborhood might reduce attendance or property value.
- The court did not allow inquiry into whether such long-run
profitability was Mr. Wrigleys actual motivation. Rather, it held
irrelevant any motives other than fraud, illegality or conflict of
interest, thus rendering moot the allegations that Mr. Wrigley was
motivated not by corporate profits, but by public interest
concerns.
Source: Shlensky v. Wrigley,Appellate Court of Illinois, First
District, Third Division, 1968, 95 Ill. App. 2d 173, 237 N.E.2d 776
6. Conclusion
- Even if profit maximization is the nominal standard, business
judgment review still would sustain any public-spirited activity
without any inquiry into actual profitability or the managers
actual purposes as long as it had some conceivable relationship to
long-run profitability, however tenuous.
- Such relationship can almost always be conceived.
- It is in fact to see what socially responsible conduct could
not plausibly be justified under the commonly accepted
rationalizations that it helps forestall possible adverse reactions
from consumers, employees, government regulators, etc.
Source: Environmental Protection and the Social Responsibility
of Firms, Einer R Elhauge, p.30, 2005 7. What about Dodge v.
Ford?
- Although the decision did include strong pro-shareholder
language, the decision never stated that it is the
directorsexclusiveduty to maximize shareholder profits.
- Rather it held that profits should be the primary but not
exclusive goals of managers.
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- We do not draw in question, nor do counsel for the plaintiffs
do so, the validity of the general proposition stated by counsel
that although a manufacturing corporation cannot engage in
humanitarian works as its principal business, the fact that it is
organized for profit does not prevent the existence of implied
powers to carry on withhumanitarian motivessuch charitable works as
are incidental to the main business of the corporation.
Source: Environmental Protection and the Social Responsibility
of Firms, Einer R Elhauge, p.30, 2005