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mises made in return for a
property tax reduction, it agreed to a new investment program with the offended
community (Hattori. 1994).
Historically, generosity toward employees has almost always won when, unlike
in Dodge Bros., the generous treatment is justified as a means of improving
efficiency or productivity. A century ago, in Steinway v. Steinway and Sons (1909).
a family shareholder lost his court challenge to the building of a company town
for manufacturing employees on the grounds that such an act of
communitarianism would improve labor relations, and, as the court noted, help
keep out unions. Later, corporations routinely defeated challenges by stockholders
to various bonus and profit-sharing plans when justified by creating incentives
for better corporate performance {Diamond v. Davis, 1935; Gallin v. National
City Bank. 1945) until they too became legally unassailable.
ESOPs, or Employee Stock Ownership Plans, might appear to be theoretically
more vulnerable to challenge since they often require the assumption of
debt or the dilution of current stock holdings to implement. Yet, except in very
rare cases in which the ESOP was thrown together at the last minute to prevent a
takeover (more on this below), ESOPs have been consistently upheld by courts
as consistent with management's right to set personnel policy and select means
of raising productivity (see Herald v. Seawall. 1972). One court, (In re Dunkin
IRRELEV'ANCE OF FIDUCIARY DUTIES TO SHAREHOLDERS 281
Donuts, 1990) even accepted management's argument that an ESOP would help
heal the effects of a corporate downsizing on surviving employees.
One might argue that the need to justify acts of generosity through a finding
of a rational business purpose such as higher productivity, long-term earning
horizons, or beneficial public relations limits a stakeholder approach to a very
timid mstrumental use of the concept. However, it is also important for stakeholder
theorists to understand that courtrooms are not forums for the expression
of deeply held moral philosophy. Lawyers are trained to make the most conservative,
precedent-supported argument that can plausibly defend a particular act
or pohcy.
No competent attorney would allow her client to argue in court that their
corporation made a decision because it 'Svas the right thing to do"' in the face of
evidence that management knew of legal alternatives whose impact on the bottom
line, short term and long term, were indisputably superior. It may smack of
moral cowardice, but given the uncertainty of what sustains and makes a business
profitable over a period of years, virtually any act that does not financially
threaten the survival of the business could be construed as in the long-term best
interest of shareholders.
Takeovers and the Pursuit of a Rational Business Plan
If board fiduciary duties toward stockholders prove significant in any issue
of corporate pohcy it is in their treatment of takeover bids. Top managers might
reasonably see such takeovers or mergers as a threat to their continued tenure m
well-paid and fulfilling jobs. Consequently, the appearance of a tender offer might
tempt them into a breach of their fiduciary duty by looking for ways to cling to
their high-paying jobs rather than making decisions based on a judgment as to
what furthers the financial interests of stockholder