The Duty to Maximize
Shareholder Value

Canada’s securities regulators have taken the position in National Policy 62-202
that the primary objective of takeover bid laws is to protect the bona fide
interests of the target’s shareholders. Consistent with this, the board’s duty under
corporate law to act in the best interests of the corporation has generally been
interpreted to mean acting in a manner that maximizes shareholder value. In other
words, the interests of the corporation have been equated with the interests of
shareholders.

But under the Supreme Court of Canada’s decision in BCE Inc. v. 1976
Debentureholders (BCE), the fiduciary duty analysis will be more complicated than
simply maximizing shareholder value when the best interests of shareholders
(to get the highest price possible for their shares) conflict with those of other
stakeholders, such as bondholders. According to the SCC, acting with a view to
the best interests of the corporation requires directors to consider the interests of
all stakeholders; there is no overriding duty to maximize shareholder value.
Directors can take comfort from the BCE decision insofar as the SCC
reaffirmed the principle that board decisions are generally entitled to a high
degree of deference under the business judgment rule.

As long as directors

• get their process right,
• respect the legal rights and the reasonable expectations of all
securityholders and creditors, and
• have regard to the interests of all stakeholders affected by their decision,
their balancing of the conflicting stakeholder interests in determining the best
interests of the corporation will be treated as a matter of business judgment
that is not to be overturned by the courts unless it falls outside the range of
reasonableness. Nonetheless, boards of directors should act with particular
caution, and with the advice of counsel, in situations in which the best interests of
shareholders appear to conflict with those of other stakeholders.