IV The Impact of the Maximum Condition of Loyalty on Business Judgment
As stated, Courts have consistently taken a deferent stance via the business judgment rule provided that the particular board decision at issue provides some rational benefit to the shareholders and does not violate the duties of loyalty, good faith or care. However, this analysis only implicates the minimum condition of loyalty and, like the lineage of Delaware case law on the duty of loyalty, necessarily omits the maximum condition of loyalty by generalizing from the particular. These cases of checking business judgment decisions against directors’ fiduciary duties appear to weigh the duty of loyalty in its minimum condition alone, by solely rooting out business decisions which go against the interests of the company. With no consideration as to whether these duties – and the duty of loyalty in particular – affirmatively charge the directors with acting in accordance with the maximum thrust when making a business decision, this analysis only runs half-twain through the depths of directors’ duties. If, as discussed supra, the duty of loyalty does, indeed, have a maximum condition with an affirmative thrust, the business judgment rule should therefore be weighed against the duty of loyalty in its maximum capacity as well (as opposed to simply in its minimum/corrective/non-violative capacity).
By expanding the existing business judgment analysis to include the maximum thrust of the duty of loyalty, it becomes apparent that directors – such as Cook in our foregoing hypothetical – would be able to extend the breadth of their business judgment beyond simply the shareholder maximization norm. That is, if the business decision must not violate the minimum condition of the duty of loyalty, logically therefore, it must also abide by the tenets that comprise the duty under its maximum condition as well. By combining the heightened state of anxiety surrounding US/China relations in the context of this hypothetical with the previous duty of loyalty analysis which indicates affirmative extrashareholder obligations to others “such as a nation”, the maximum thrust of the duty of loyalty under the deference of the business judgment standard may allow Cook to appease political calls to withhold the dividend without violating his fiduciary duties.
Accordingly, Cook might be able to predicate his decision to not issue the dividend (and thereby enrich CIC’s sovereign overseers) on nationalistic or patriotic reasons given the hostile climate between the US and China and the economic dynamic of a weakened US economy vs. China’s robust State Capitalism growth model. Under the maximum thrust of the duty of loyalty and the judicial deference to the business judgment rule, Cook may be able to defend against any subsequent litigious objections by couching this decision in his obligation to act loyally (to the nation) in accordance with the maximum thrust. Simply put, if the Delaware Supreme Court’s proclamation in Mills Acquisition Co. that “[n]ot only do these principles demand that corporate fiduciaries absolutely refrain from any act which breaches the trust reposed in them, but also to affirmatively protect and defend those interests entrusted to them” holds true, Cook and his fellow Apple, Inc. directors might be able to predicate their reasons for withholding the dividend on broader reasons than the attenuated threat of increased pricing for rare earth metals. It is through this maximum condition of loyalty that a director may predicate such “affirmative duties of devotion” that run in favor of another, “such as a nation”, in positing a purpose behind a business decision.
While it therefore appears that the maximum condition of the duty of loyalty affords directors the ability to consider such broader interests (beyond shareholder primacy) when making a business decision, it is unclear what, if any, limitations exist regarding these extra-shareholder interests in the context of loyalty’s affirmative duties of devotion. For instance, may a director consider national policy issues when making a corporate decision, or must they be confined to the state in which the corporation is formed? Unfortunately, elucidatory case law on this point is virtually nonexistent. However, the majority of states have adopted a statutory regime on this point that may prove informative on the underlying policy aims for such state-based corporate doctrines (such as the duty of loyalty). These statutes, known as constituency statutes, essentially permit directors to consider, to varying degrees, nonshareholder interests when making corporate business decisions.