Governance in the United States has evolved as a medley of federal law—including not only corporation law but also tax and labor law, among others—state law, and a series of codes of various self-regulating authorities ranging from the NYSE to the accounting industry. As noted in Chapter 1 "Corporate Governance: Linking Corporations and Society", state law has traditionally been the ultimate arbiter of governance issues. In contrast, in the United Kingdom, corporate reform can be affected simply through an Act of Parliament.
This unusual history of governance law in the United States has created openings for different interpretation of a variety of its provisions. For example, the law not only identifies shareholders as the “owners” of the corporation but also defines them as investors who receive ownership in the corporation in return for money or assets they invest. It stipulates that shareholders are responsible for “electing” a board of directors, the “operators” of the corporation who have overall responsibility for the business of the corporation, but it does not meaningfully address the implementation of this statute. It also specifies that the board of directors rather than its shareholders “directs” a company’s business and affairs.
Additional guidance about a board’s fiduciary role is contained in statutes governing the role and conduct of individual board members; specifically those defining a director’s obligation in terms of such principles as the duty of care, duty of loyalty, and the “business judgment rule.” The Duty of Care requires directors to be informed, prior to making a business decision, of all material information reasonably available to them in the exercise of their management of the affairs of a corporation. The Duty of Loyalty protects the corporation and its shareholders; it requires directors to act in good faith and in the best interests of the corporation and its shareholders. The prevalent legal standard is that the Duty of Loyalty requires that the director be “disinterested,” such that he or she “neither appears on both sides of a transaction nor expects to derive any personal financial benefit from it” and his or her decision must be “based on the corporate merits of the subject before the board rather than extraneous considerations or influences.”See The American Law Institute (1994), pp. 61. The Business Judgment Rule protects directors from liability for action taken by them if they act on an informed basis in good faith and in a manner they reasonably believe to be in the best interests of the corporation’s shareholders. The Business Judgment Rule does not apply in cases of fraud, bad faith, or self-dealing.
As long as these principles are adhered to and as long as directors are careful and loyal to corporate and shareholder interests, they have wide discretion to exercise their business judgment as they see fit. None of these principles provide clear guidance to the central question of who owns the corporation.