Putting New Sheets on a Procrustean Bed: How Benefit Corporations Address Fiduciary Duties, the Dangers Created, and Suggestions for Change

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INTRODUCTION

In Greek myth, Procrustes, a bandit son of Poseidon, had a one-size-fitsall iron bed on which he invited passers-by to spend the night.1 Once his guests were asleep, he used his ironsmith?'s hammer to stretch them to fit the bed. If a guest proved too tall, Procrustes would use shears to amputate the excess in order that the body would fit the bed. Ultimately, Theseus, who killed the Minotaur and escaped the Maze using Ariadne?'s thread, killed Procrustes by compelling him to fit his own body to his bed.

In current parlance, a procrustean bed is an arbitrary standard to which exact conformity is enforced; that which does not fit the standard is either ignored or stretched and cut until compliant. A procrustean law is canonical, formal, rigid, hard, and fast, from which there can be no deviation. Procrustean laws have their place, and where uniformity is necessary or desired, Procrustes should rear his head. However, procrustean laws have costs as well, since individual circumstances, choice, and liberty are neglected at the expense of uniformity.

A fundamental and long-standing corporate law issue is whether, and the extent to which, a procrustean bed of unalterable rules should apply to business corporations, or whether shareholders should be able to select the bed of their own choosing when joining together in a business relationship in corporate form.2 For example, one of corporate law?'s central mantras reflects a norm that American business corporations have the purpose of creating financial benefit for their shareholders.3 In Dodge v. Ford Motor Co., the Michigan Supreme Court stated:

A business corporation is organized and carried on primarily for the benefit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among shareholders in order to devote them to other purposes.4

In procrustean terms, this view of corporate essence would mean, first, that corporations do not have purposes and goals that do not involve shareholder profit-maximization and, second, that corporate agents, including directors, who pursue other purposes and goals, can be liable to the corporation and its shareholders for breach of their fiduciary duty and for waste of corporate assets. Although modern corporate law may be more nuanced than that expressed in 1919 by Dodge,5 shareholder profit-maximization principles have been expressed in more recent cases and writings.6 Thus, corporate directors arguably continue to have a fiduciary duty requiring that they be motivated by their desire to increase the corporation?'s value for the shareholders?' benefit.

Even if the legal effect of the shareholder profit-maximization norm might be overstated, the widely-held perception that corporations exist to maximize shareholder profit can operate on a prophylactic level to discourage directors from considering non-shareholder interests when making significant corporate decisions. For example, Ben & Jerry?'s was once a poster child for social enterprise and social entrepreneurship, pursuing a ?"dual-mission?"7 by seeking to advance its founders?' progressive social goals while yielding an acceptable financial return to its shareholders.8 In 2000, however, Ben & Jerry?'s was acquired by Unilever, an international conglomerate that may, over time, have a different focus from the Ben & Jerry?'s founders. Paradise lost, at least according to one storyline. Some have argued that corporate law compelled the Ben & Jerry?'s-Unilever transaction by presenting the Ben & Jerry?'s board with two options when Unilever made its takeover bid: accept the offer with its rich rewards to existing shareholders (including the founders), or attempt to thwart it by using anti-takeover measures and other protective devices with the potential for fiduciary breach claims by shareholders who were deprived of maximum financial benefit. …