By the close of the twentieth century, many observers had come to believe U.S. corporate law should and does embrace a “shareholder primacy” rule that requires corporate directors always to maximize shareholder wealth. This Essay argues that such a view is mistaken. As a positive matter, U.S. corporate law and practice does not require directors to maximize shareholder wealth but instead grants them a wide range of discretion, constrained only at the margin by market forces, to sacrifice shareholder wealth in order to benefit other constituencies.

Explicitly, the legal scrutiny accorded to managers who resist a hostile acquisition depends critically on whether a court invokes the Revlon doctrine or the Unocal doctrine as the appropriate governing standard. Under the former (and its progeny),2 shareholder primacy arguments carry great (and nearly exclusive) weight: corporate directors must be able to demonstrate that its resistance is reasonably calculated to maximize short-term shareholder value. Under the latter doctrine,3 however, immediate shareholder interests are just one of a panoply of considerations that directors may use to justify resistance to a hostile bid.

It turns out that there is no legal requirement that firms maximize profit—that is, maximize value for shareholders. Really. None. If you look at the state codes that set the terms for incorporation, they don't mandate this. The codes just vaguely state that the purpose of a business is to be a business. If you look at case law, you can see that the courts don't mandate it either. While people who want to spread the myth like to trumpet certain old court cases, it's very hard these days to get a manager or director of a company found liable for a breach of duty. All they have to do is show they had a reasonable business purpose for their actions. And the courts generally interpret such purposes broadly, to include long-term factors and the interests of employees, suppliers, other groups, and the larger community.

Corporate directors have a fiduciary duty to make decisions in the best interests of the shareholders. This aspect of fiduciary duty is often called the shareholder primacy norm. ... But the application of the shareholder primacy norm to the ordinary business decisions of publicly traded corporations is muted by the business judgment rule.

the business judgment rule specifies that the court will not review the business decisions of directors who performed their duties (1) in good faith; (2) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner the directors reasonably believe to be in the best interests of the corporation.