At the Taiwan Corporate Governance Association’s Corporate Governance Summit in Taipei on December 3, 2010, Delaware Supreme Court Justice Randy J. Holland gave the keynote speech entitled “Corporate Social Responsibility, Shareholders and Stakeholders.”  The focus of this year’s Summit is the development of Taiwan’s approach to corporate social responsibility (“CSR”) issues and the relationship between CSR and the prospect of sustainable and responsible investment by the public as shareholders.  Justice Holland spoke about relevant corporate governance issues and judicial decisions regarding CSR in the United States in general and Delaware in particular and how that relates to the current environment in Taiwan. 

Kevin F. Brady of Connolly Bove Lodge & Hutz LLP submitted this report from Taipei on Justice Holland’s speech.  Kevin was part of the Delaware delegation in Taiwan who were participating in conferences and seminars on Delaware corporate law in conjunction with the Summit.  

Justice Holland noted that the origin of CSR in the United States is the 1932 debate published in the Harvard Law Review between Adolph A. Berle and Professor Merrick Dodd.  Berle argued for the shareholder primacy theory which states that the corporation exists to make money for shareholders ( a hat tip here to Professor Gordon Smith’s 1998 article The Shareholder Primacy Norm, 23 J. Corp. L. 277 which Justice Holland cited).  Berle’s theory was that “all powers granted to a corporation or the management of a corporation are necessarily and at all times exercisable only for the ratable benefit of all the shareholders as their interest appears.”  Dodd, on the other hand, argued for “a view of the business corporation as an economic institution which has a social service as well as a profit-making function.”  Dodd argued that the proper purpose of the corporation and the proper goal of the corporate managers was not confined to making money for shareholders but also included “more secure jobs for employees, better quality products for consumers and greater contributions to the welfare of the community as a whole.”
Justice Holland noted that Dodd emerged as the winner of that debate as supported by Delaware’s judicial decisions which differentiate between three different scenarios: (i) the day-to-day operations of a corporation; (ii) the hostile takeover situation and (iii) and the sale of the corporation.  In the day-to-day operations, Delaware corporate law (and in particular the business judgment rule) allows directors to make decisions deviating from short-term profit maximization and redirect some resources from shareholders to other stakeholders.  In the hostile takeover situation, under Unocal, in analyzing the effect of an imminent takeover on the “corporate enterprise,” directors may consider the “impact on constituencies other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally.”)  Finally, in the sale of the corporation, since Revlon dictates that the board of directors’ focus shifts from preservation of the corporate entity to maximizing shareholder value, CSR would not be considered as part of that analysis. 

Justice Holland pointed out that in Taiwan, the Taiwan Stock Exchange (“TWSE”) and the Gre Tai Securities Market in Taiwan (“GTSM”) in 2010 jointly adopted Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies.  According to those best practices, directors of Taiwan corporations can adhere to the law while still considering stakeholders other than shareholders and issues of CSR for the same reasons that are proper considerations for directors of Delaware corporations. Justice Holland closed by noting that these corporate issues present significant considerations for the international community and given the number of recent corporate initiatives (such as proxy access and “going green”), it will be interesting to watch how these initiatives will be addressed.