The BJR as Stakeholders' Last Resort

Progressives -- including this writer, and VC Strine -- note that Delaware's director-friendly corporate governance regime permits corporate leadership to protect the corporate bastion (including all its constituents) from unfriendly shareholder pressures.  I.e., the pressures to boost share price while taking no prisoners, or to sell the ship to the highest bidder, even if that bidder threatens to dismantle everything and move it to Thailand.  But such protective actions, of course, can occasionally make such shareholders irate enough to sue them.

Prof. Ribstein has a cute, sports-oriented example in his post today:

The Cubs were the subject of Shlenksy v. Wrigley, 95 Ill. App. 2d 173, 237 N.E.2d 776 (1968), in which an owner challenged the majority shareholder’s refusal to put lights in Wrigley field [because of the negative impact of night lighting on the surrounding neighborhood].  As Usha says (footnotes omitted):

The case illustrates the power of the business judgment rule: directors’ actions cannot be questioned absent fraud, illegality, or conflict of interest. For our purposes, what is interesting is that it appears that Wrigley, who owned 80% of the firm’s shares, may have been interested in running the corporation in a way that “protect[ed] values such as tradition and concern for neighbors, even at the expense of short term profit.” While the business judgment rule provides a shield, nevertheless majority owners in a for-profit organization such goals and motives are vulnerable to attack by minority shareholders. In contrast, the nonprofit structure of the Packers ensures that a Shlenksy-style suit could never even be brought against the management.

George Will has written (in Pursuit of Happiness and Other Sobering Thoughts 311 (1978)) that when, back in the pre-Tribune days, he sought to buy stock in the Cubs a substantial Cub shareholder told him to ignore “price-earnings ratios, return on capital, and a bunch of other hogwash which has no place in a transaction between two true sportsmen.”  Usha is suggesting that it that’s so, the team should make it official and use the non-profit form.

But do you really need a non-profit corporation to ensure the preservations of lofty ideas?  In my Accountability and Responsibility in Corporate Governance I stress the capaciousness of the business judgment rule in accommodating this objective.  After all, Wrigley’s emphasis on traditionalism and no lights helped build a powerful franchise and cement Chicagoans to the team despite the use of the for-profit form.

Of course, there's always this problem: how much is the "I'm only doing this to look out for my peeps" just dishonest window dressing for bad management?