V Finding Guidance for the Duty of Loyalty’s Maximum Condition In State Constituency Statutes
Because, as previously discussed, the majority of case law on the duty of loyalty has necessarily omitted its maximum condition, many states have adopted constituency statutes in order to afford directors the right to consider broader interests in making their corporate business decisions. Although the specific language of the statutes varies from state to state, the unifying principle common to all constituency statutes is that they enable corporate directors to consider interests other than those of their shareholders when exercising their corporate decision-making authority. By analyzing the limitations in the language of these statutes as it pertains to which broader public policy considerations directors are allowed to weigh in the context of corporate business decisions, it may be possible to determine the corresponding limitations in the maximum thrust of the duty of loyalty. Furthermore, since both fiduciary duties and these constituency statutes are creatures of state law and both are couched in public policy, finding cross-instrumental guidance on their respective limitations is contextually appropriate as well.
A general survey of these constituency statutes reveals that broader social and economic factors may indeed be considered in the context of the corporation’s “community” when making a corporate business decision. Furthermore, what constitutes a community relative to a given corporation may be assessed at the local, state or even the national level. For instance, constituency statutes in Pennsylvania and Vermont allow directors to “consider the interests and effects of any action upon nonshareholders”, Vermont and Wisconsin allow directors to consider “any other relevant social factors”, and Wyoming allows directors to consider the broader interests of “local and national economies” in making corporate business decisions.
Therefore, if we cross-apply the limitations in these state-created constituency statutes to the similarly-focused maximum thrust of the duty of loyalty, it is apparent that national economic and/or patriotic social concerns, may be considered in the context of a business decision under the maximum thrust of the duty of loyalty. Therefore, Tim Cook and his fellow Apple, Inc. directors could logically and fairly withhold the dividend from Apple shareholders (and CIC in particular) in the interests of the United States and its broader economic recovery.
Unfortunately for Cook, California Governor Arnold Schwarzenegger vetoed a bill that would allow California corporations (like Apple, Inc.) to consider such nonshareholder interests in 2008 and Delaware – the leading jurisdiction for corporate law – does not have any such similar contingency statute. These unfortunate truths, combined with the fact that the maximum condition of loyalty exists all but in the ether of corporate case law, creates a rather unsteady legal framework when attempting to rebut a duty of loyalty violation in the directors’ decision to withhold the dividend. Accordingly, without a Congressional declaration of policy or a transaction amount (in excess of 10%) sufficient to trigger CFIUS review, Cook and his fellow Apple, Inc. directors may have no choice but to issue the dividend regardless of the political ramifications.