Best Interests

From the decision of the Supreme Court of Canada in Peoples Department Stores Inc. (Trustee of) v. Wise, [2004] 3 Supreme Court Reports 461, at paragraph 42:

…it is clear that the phrase the “best interests of the corporation” should be read not simply as the “best interests of the shareholders”. From an economic perspective, the “best interests of the corporation” means the maximization of the value of the corporation: see E. M. Iacobucci, “Directors’ Duties in Insolvency: Clarifying What Is at Stake” (2003), 39 Can. Bus. L.J. 398, at pp. 400‑1. However, the courts have long recognized that various other factors may be relevant in determining what directors should consider in soundly managing with a view to the best interests of the corporation. For example, in Teck Corp. v. Millar (1972), 33 D.L.R. (3d) 288 [British Columbia Supreme Court], Berger J. stated, at p. 314:

A classical theory that once was unchallengeable must yield to the facts of modern life. In fact, of course, it has. If today the directors of a company were to consider the interests of its employees no one would argue that in doing so they were not acting bona fide in the interests of the company itself. Similarly, if the directors were to consider the consequences to the community of any policy that the company intended to pursue, and were deflected in their commitment to that policy as a result, it could not be said that they had not considered bona fide the interests of the shareholders…

…We accept as an accurate statement of law that in determining whether they are acting with a view to the best interests of the corporation it may be legitimate, given all the circumstances of a given case, for the board of directors to consider, inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment.

Basic point being that the views that directors’ exclusive or primary duty is that of the maximization of shareholder wealth is long gone, at least from a legal perspective, and irrespective of what economists might say. The obligation of directors to act with a view to “the best interests of the corporation” is legally associated with a duty of care towards various non-shareholder parties, including stakeholders, or the general community. Legal obligations irrespective of whether there is empirical support for the corporation being economically improved through such larger focus. As is implied by Mr. Justice Berger in the Teck decision, going back to 1972 and reaffirmed or approved by the Supreme Court of Canada in 2004, in the Peoples Department Stores decision, if the company ends up worse off economically, due to directors considering community interests, the directors can still be viewed as having “considered bona fide the interests of the shareholders”.

All this community. Out of the fog of the 1970s…

About brucelarochelle
This entry was posted in Business Commentary, Corporate Social Responsibility, Legal Issues. Bookmark the permalink.

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