Abstract

This article uses literature and philosophy to help explain and critique existing corporate law doctrine. Starting from Charles Dickens's Hard Times, the article provides a new explanation for one of the great puzzles of existing corporate law doctrine, the coexistence of the strict duty of management to maximize profits and the business judgment rule, the practice of courts to review management decisions with great deference. The article argues that the business judgment rule is a necessary corrective to the irrationality of the underlying duty to maximize profits. The article makes this argument by analogizing corporate law to Dickens's character of Thomas Gradgrind, who seeks to live a life according to utilitarian precepts. Gradgrind realizes over the course of the novel (hence the title Gradgrind's Education) that he cannot truly live according to an ethic based on utilitarianism and also live a decent life. We argue that the business judgment rule, rather than being based on institutional concerns about courts' abilities to second-guess corporate management, instead is explained as a more rational and humanistic conception of decision making than is the utilitarianism that forms the basis of the underlying duty to maximize profits. The article also draws on Martha Nussbaum's neo-Aristotelian writings. We contend that the alternative conception of decision making to which Gradgrind is educated is quite similar to the good Aristotelian decision making described by Nussbaum in several of her writings. Using Nussbaum's descriptions as a analytical device, we suggest that the business judgment rule is, while a necessary corrective to the irrational underlying duty, still a second best alternative insofar as it retains the duty to maximize profits as a guide post. We suggest the contours of a first-best conception of fiduciary duties within corporate law, one that replaces the guidepost of shareholder return with others premised on neo-Aristotelian (and Dickensonian) notions of rationality. These new fiduciary duties would include a recognition of: fairness as a metric; the priority of the particular over the general; the importance of non-financial factors; and the absence of a supreme stakeholder.