Employees v. Shareholders: Whose Interests Prevail?
For U.S. public corporations, the interests of shareholders are paramount. The legal and practical reasons for this norm are complex, but today, most U.S. public corporations and the organizations that represent them would say that a corporation exists primarily to serve its shareholders.
In a surprising about-face, the Business Roundtable released a new statement on the purpose of a corporation in mid-August. On the point that a corporation exists principally to serve its shareholders, the Roundtable stated the following: “It has become clear that this language on corporate purpose does not adequately describe the ways in which we and our fellow CEOs endeavor every day to create value for all of our stakeholders, whose long-term interests are inseparable.” The statement goes on to discuss the CEOs’ and their companies’ commitment to deliver value to other stakeholders including employees.
This, of course, begs the question of what happens when shareholders’ interests and the interests of other stakeholders, including employees, diverge; what do the CEO and the corporation do? It does not appear that the Business Roundtable is endorsing the idea that, when there is a divergence between shareholder and employee interest, the corporation should consider any interest other than those of the shareholders. In effect, it is fine for a corporation to consider the interests of its employees, provided the interests of those employees also serve the long-term interests of the corporation’s shareholders.
With the increased emphasis on the corporation’s outward responsibility to all of its stakeholders, including its employees, striking a balance between the interests of the corporation’s employees and its shareholders can be a source of tension. A thoughtful approach will be necessary for a corporation to continue to fulfill its duties to its shareholders while at the same time being cognizant of decisions and actions that may have adverse consequences for its employees. See more discussion of these and related issues in the V&E Governance Update here.
Subscribe to Managing the Modern Workplace to receive weekly email updates.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.