1

Does US law include anything that places a burden of responsibility on a company's CEO to act in the interests of its shareholders, even if the CEO owns a majority share in the company?

Let's say, as extreme example, I'm the 51% owner & CEO and the board representing 49% of the company's shareholders has an issue with me giving 100% of the company's assets away to charity - do they have any legal recourse?

I'm interested in any relevant US code or legal precedent.

1
  • Edited my question to simplify it, hopefully without changing the meaning.
    – J.Todd
    Sep 6, 2020 at 18:17

3 Answers 3

3

No, but ...

The CEO is an officer of the company (as are the directors and any others with the ability to substantially exercise control over the company) and as such, owes fiduciary duties to the company - not to the shareholders or any subset of them.

For example, if it is in the best interests of the company to enter a trading halt but not in the best interests of the current shareholders then the duty on an officer is to do what’s best for the company.

As another example, for a crime many limited by guarantee rather than by shares it’s rarely in the owner’s interest to have that guarantee called but it might be in the company’s interest.

0
1

It would be very unusual bylaws in the U.S. that provided for "shareholders could demand that the issue be put up to a vote." Rather they can vote out board members and new board members can chose a new CEO.

Another recourse stockholders have is to sell their shares.

1
  • Ok got it, so there is no legal burden involved, only internal company control mechanisms. Thanks
    – J.Todd
    Sep 6, 2020 at 18:14
-1

A corporation has some collection of owners, who select a board of directors, who will hire various people to do what the corporation does, for example they hire a CEO to be at the top of the hierarchy. The employees including the CEO have some latitude to take actions without higher approval. Ultimately, decisions by anyone who "controls" what the company does can be overturned by the owners – the shareholders. If we suppose that 51% of the shares are owned by the CEO, then he has a controlling interest in the corporation and he can legally do what he wants (as long as it's not illegal). But if 90% of the shared are held by the little guy(s), each individual can vote for or against against the giveaway plan, and if it is generally opposed by the shareholders, then it won't happen.

If Wal-Mart's board decided to give away all of its profits for the next 3 years, shareholders could demand that the issue be put up to a vote. Then there would be a campaign for the shareholders to assign their proxy to one side or the other (or actually show up to vote). There shareholders then could, in principle, oppose a plan to distribute profits as dividends and instead use the profits to build homeless shelters or dog parks or whatever they see fit.

Corporate charitable giving is huge, and if corporations were actually legally obligated to maximize profits for distribution to shareholders, they could not give to charities. The obligation of the board of directors and executives is to work in the interest of the owners, which is not always measured in dollars.

3
  • So if someone owns 51% of a company's shares, he can tell the shareholders of the other 49% to get lost? They can't retaliate in any way, if he, say, decides to donate 100% of the company's assets to charity?
    – J.Todd
    Sep 6, 2020 at 15:45
  • The board acts in the interest of the owners. If more than one person owns the company, the board has to decide how to resolve any conflict of purported interest. The board must ignore the interests of some owners, unless there is no disagreement. As a shareholder, I can vote for or against members of the board, as can my neighbor. This does not precluding filing a lawsuit – but as a 1% owner, my wingnut complaint is not likely to result in the courts invalidating the boards decision, especially if the issue is voted on by the owners.
    – user6726
    Sep 6, 2020 at 16:17
  • What kind of lawsuit might be able to win? Let's say I'm the 51% owner CEO and the board representing 49% of the company have an issue with me giving 100% of the company's assets away to charity - do they have any legal recourse?
    – J.Todd
    Sep 6, 2020 at 16:26

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .