American CEOs: Shareholder Value is No Longer Everything

On August 19, 2019, the Business Roundtable released a new “Statement on the Purpose of a Corporation” (the New Statement) signed by 181 top American CEOs, including the leaders of Apple, Pepsi and Walmart. The signatories to the New Statement commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.

The Business Roundtable has long endorsed the principle that corporations exist principally to serve shareholders. However, the New Statement supersedes previous statements and outlines what the Business Roundtable calls a modern standard for corporate responsibility.

Indeed, the New Statement represents a significant break from past orthodoxy in the United States. However, it is largely consistent with Canadian law regarding the duties of directors.

The New American Perspective

The New Statement notes that, while each of the signatories’ individual companies serves its own corporate purpose, they share a fundamental commitment to all of their stakeholders. The signatories to the New Statement commit to:

  • Deliver value to their customers

  • Invest in their employees

  • Deal fairly and ethically with their suppliers

  • Support the communities in which they work

  • Generate long-term value for shareholders

The New Statement concludes by noting that each of the signatories’ stakeholders is essential.

It is important to note that the New Statement is not binding and does not reflect current law in the United States.

You can view the New Statement here.

The Canadian Perspective

In the 2008 decision of the Supreme Court of Canada (SCC) in BCE Inc. v. 1976 Debentureholders (the BCE Decision), the SCC confirmed that "directors owe their duty to the corporation, not to stakeholders and that the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation." The SCC provided further guidance on these duties by concluding that the interests of other stakeholders in the corporation may be relevant in an assessment of the duties of directors. The practical effect of the BCE decision is that directors have effectively been required to assess a range of interests when exercising their business judgment.

The BCE Decision has recently been codified into the Canada Business Corporations Act which now provides that directors and officers may consider, but are not limited to, the interests of shareholders, employers, retirees and pensioners, creditors, consumers and governments, as well as the environment and the long-term interests of the corporation, when acting with a view to the best interests of the corporation.

Accordingly, directors and officers of Canadian companies must take care in exercising their fiduciary duties to consider the interests of the relevant “stakeholders,” the environment and the long-term interests of the corporation.

DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.