Rocky: some reading for you ~ lol The Myth of the Shareholder Owner. Also central to Bebchuk’s critique is the myth that as “owners” of the corporation, shareholders should be further empowered to determine the focus and direction of the corporation they “own.” Shareholders do not “own” corporations. They own securities shares of stock which entitle them to very limited electoral rights and the right to share in the financial returns produced by the corporation’s business opera-tions. Conceiving of public shareholders as “owners” may in some instances be a helpful metaphor, but it is never an accurate description of their rights under corporate law. Shareholders possess none of the incidents of ownership of a corporation neither the right of possession, nor the right of control, nor the right of exclusion and thus “have no more claim to intrinsic ownership and control of the corporation’s assets than do other stakeholders.”
Equally misleading is the similar myth that directors are “agents” of shareholder “principals.” Like the shareholder/owner model, the agent/principal analogy flatly misdescribes the legal re-lationship between shareholders and directors. U.S. corporate law is built on the contrary premise that directors must manage corporations in accordance with their independent business judgment. Section 141(a) of the Delaware corporations statute thus grants management power directly to the board of directors: “The business and affairs of every corporation . . . shall be managed by or under the direction of a board of directors.”76 Nowhere does the statute subject the board’s managerial power to the periodic expression of shareholder sentiment: a corporation is not a “town meeting.”77 “Nor does the statute anywhere suggest that the power to manage the corporation is a residual right of shareholders that is vested in the board by an act of agency or delegation.”78 Thus, case after leading case confirms that directors—not shareholders—are vested with the right and independent obligation to direct the management of corporate affairs.79
This primary managerial role correlates directly with directors’ unique exposure to liability. Unlike directors (who face direct and unlimited exposure for wrongful corporate acts), shareholders enjoy limited liability for corporate actions, precisely “because the corporate form assigns to them only a few residual elements of corporate control.”80 But if a corporation undertakes action because its shareholder-owners or shareholder-principals demand it, there would be little basis in law or equity to shield the shareholder from direct and unlimited liability in the event the conduct proves wrongful.81
AI
