STOCKHOLDERS, STAKEHOLDERS, AND BAGHOLDERS (OR HOW INVESTOR DIVERSIFICATION AFFECTS FIDUCIARY DUTY)

The most basic question in corporation law is: To whom does management owe its fiduciary duty, and what does that duty entail? The tradition al wisdom is that management should serve the interests of the corpora tion and the stockholders who own it by maximizing stockholder wealth. But a significant number of legal scholars argue that management duty should be more broadly construed to include other constituencies (''s takeholders''), such as employees, creditors, customers, suppliers, an d the community at large. The distinction makes a difference. The broa der view of management duty means that management has more discretion and that stockholders will seldom have recourse if management fails to maximize profits. Nevertheless, many states have adopted so-called ot her constituency statutes permitting-and in some cases arguably requir ing-management to consider such other interests. Ironically, managemen t is the one constituency that identifies most with the fortunes of th e corporation as an entity. A diversified stockholder can afford to wi n some and lose some. Management cannot. Management stands to lose the most if the corporation fails. Thus, management is not likely to purs ue high-risk, high-return strategies, even in the absence of another c onstituency statute. After all, if such strategies lead to the ruin of the company, it is management that is left holding the bag.