HB Ad Slot
HB Mobile Ad Slot
The General Corporation Law's Filioque
Monday, October 17, 2022

The Nicene Creed as approved by the Council of Constantinople in 381 A.D. included the following: "τὸ ἐκ τοῦ πατρὸς ἐκπορευόμενον (who proceeds from the father).  About 200 years later at the Third Council of Toledo, the Western Christian Church, which used Latin rather than Greek, added the word, Filioque, to the creed - ex Patre Filioque procedit (who proceeds from the Father and the Son).  This may appear to be a minor change, but the addition of Filoque became one of the major causes of the schism between the Orthodox and Catholic churches in 1054 A.D.

As originally enacted, Section 309(a) of the California Corporations Code required to directors to perform their duties “in good faith [and] in a manner such director believes to be in the best interests of the corporation".  This formulation is consistent with the formulation in Section 8.30(a) of the Model Business Corporation Act - "in a manner the director reasonably believes to be in the best interests of the corporation."   In 1987, the California legislature added "and its shareholders" to Section 309(a).  1987 Cal. Stats. Ch. 1203, § 2.  According to Marsh's California Corporation Law:

This amendment made no change whatever in the California law, since the California courts have always held, as illustrated by the above quotations, that the directors owe a fiduciary duty to the shareholders as the beneficial owners of the corporation and not merely to some disembodied entity called "the corporation."

1 Harold Marsh, Jr., Keith Paul Bishop & R. Roy Finkle, Marsh's California Corporation Law § 10.06 (5th Ed. 2020).

Some shareholders, however, may read more into this change.  For example, James McRitchie recently filed filed a complaint against Meta Platforms, Inc. and several individuals alleging:

While defendants have a duty to operate the Company as a business for the financial benefit of its stockholders, those stockholders are often diversified investors with portfolio interests beyond Meta’s own financial success.  If the decisions that maximize the Company’s long-term cash flows also imperil the rule of law or public health, the portfolios of its diversified stockholders are likely to be financially harmed by those decisions.  As fiduciaries at a corporation with a business model that depends upon maintenance of a powerful global network, the directors and officers of the Company cannot willfully blind themselves to this reality: where there is great power there is great responsibility.

Meta, of course, is a Delaware corporation and McRitchie's case will not turn on whether the addition of "and its shareholders" changed California law.  Regardless of whether California's filioque was a meaningless addition, I share Professor Ann Lipton's dubiety about Mr. McRitchie's theory.

HB Ad Slot
HB Ad Slot
HB Mobile Ad Slot
HB Ad Slot
HB Mobile Ad Slot
HB Ad Slot
HB Mobile Ad Slot
 

NLR Logo

We collaborate with the world's leading lawyers to deliver news tailored for you. Sign Up to receive our free e-Newsbulletins

 

Sign Up for e-NewsBulletins