Constituency Statutes

Some find it objectionable that directors consider only the interests of shareholders when facing a merger offer, so in response some states have passed constituency statutes. Effectively, these allow a director to consider the interests of employees, suppliers, creditors customers or others when deciding whether to approve a merger. A majority of states have adopted constituency statutes, but Delaware has not.

We'll look at Iowa's as an example. Consider how might this allow benevolent managers to protect the interests of other vulnerable stakeholders? How might it allow greedy managers to protect their own interests at the expense of all stakeholders? Which do you think is more likely? Is the benefit worth the cost?

As you read, also consider whether this creates a duty to non-shareholders. Should it?