The Corporate Objective after eBay v. Newmark

• DOI: http://doi.org/10.1111/basr.12108
• Author: John R. Boatright
• Published date: 01 March 2017
• Date: 01 March 2017

The Corporate Objective after

eBay v. Newmark

JOHN R. BOATRIGHT

ABSTRACT

The Delaware court’s decision in eBay v. Newmark has

been viewed by many commentators as a decisive affirma-

tion of shareholder wealth maximization as the only legally

permissible objective of a for-profit corporation. The impli-

cations of this court case are of particular concern for the

emerging field of social enterprise, in which some organiza-

tions, such as, in this case, Craigslist, choose to pursue a

social benefit mission in the for-profit corporate form. The

eBay v. Newmark decision may also threaten companies

that seek to be socially responsible by serving constituen-

cies other than shareholders at the expense of some profit.

This examination of the court decision concludes that a

legal requirement to maximize shareholder value may not

preclude a commitment to social responsibility and may

even permit the pursuit of a social benefit objective, such

as the preservation of the culture developed by Craigslist.

In particular, the court’s decision in eBay v. Newmark

reflects unique features of the case that could have been

avoided by Craigslist and by other similar companies.

John R. Boatright is the Raymond C. Baumhart, SJ, Professor of Business Ethics in the

Quinlan School of Business, Loyola University Chicago, Chicago, IL. E-mail: jboatri@luc.edu.

V

C2017 W. Michael Hoffman Center for Business Ethics at Bentley University. Published by

Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford OX4 2DQ, UK.

Business and Society Review 122:1 51–70

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Having chosen a for-profit corporate form, the craigslist directors

are bound by the fiduciary duties and standards that accompany

that form. Those standards include acting to promote the value

of the corporation for the benefit of its stockholders. The “Inc.”

after the company name has to mean at least that.

1

—William B. Chandler,

Chancellor Court of Chancery of Delaware

INTRODUCTION

The Delaware court’s decision in eBay v. Newmark has been

viewed by many commentators as a decisive affirmation that share-

holder wealth maximization is the only legally permissible objective

of a for-profit corporation. The willingness of even critics of an

exclusive focus on profits to concede the legal force of this wealth-

maximizing imperative is reflected in the warning of Senator Al

Franken: “It is literally—literally—malfeasance for a corporation

not to do everything it legally can to maximize profits. That’s a cor-

poration’s duty to its shareholders.”

2

The implications of this court case are of particular concern for

companies that seek to be socially responsible by professing to

serve other constituencies, in addition to shareholders, at the pos-

sible sacrifice of some measure of profitability. The dangers of such

corporate social responsibility are cited by conservative pro-

business followers of Milton Friedman, who proclaimed that the

only social responsibility of business is “to engage in activities

designed to increase its profits.”

3

The eBay v. Newmark decision

may also threaten companies that have obtained the voluntary

Certified B Corporation designation to show how purpose-driven

for-profit business can be “a force for good” and can create

“benefits for all stakeholders, and not just shareholders.”

4

Further, the eBay v. Newmark decision threatens the emerging

field of social enterprise, in which some organizations, such as, in

this case, Craigslist, choose to pursue a social benefit mission in

the for-profit corporate form. The obstacles that standard corporate

governance might pose to social enterprises have produced new

incorporation forms, most notably the Benefit Corporation, which

explicitly requires directors to consider other interests besides

those of shareholders.

5

A writer for Forbes magazine finds in this

52 BUSINESS AND SOCIETY REVIEW