By: Adam J. Sulkowski and Kent Greenfield
This Article evaluates recently applied methods of influencing
corporate behavior and recommends that a dormant legal doctrine be
revitalized and added to the “tool box” of activists and concerned
shareholders. This study focuses on efforts to remedy and
prevent employment discrimination and draws upon data from recent
cases. The lessons derived from this analysis, however, may be
applied in other contexts, including efforts to improve the conduct
of American corporations with regard to labor relations,
environmental protection, and human rights in the developing
world.
The methods of influencing corporate behavior that will be
evaluated include class action lawsuits and shareholder proposals
to amend corporate policy. In both contexts, there are
procedural hurdles to achieving success. Even when success is
achieved, there are limits to the actual changes in organizational
behavior that result.
There is a third means for influencing corporate behavior, often
ignored, that does not involve the same theoretical or structural
limitations. The ultra vires doctrine historically allowed a
shareholder to sue to prevent a company from engaging in an
activity outside of the specific parameters of its corporate
charter. While the doctrine was almost done away with during
the 1900s inasmuch as companies are now free to alter their field
of business as they wish, a narrow slice of this doctrine
remains. Namely, forty-seven states require corporate charters
to limit a corporation to “lawful activities,” and forty-nine
states have statutes empowering the state to enjoin or dissolve the
corporation for illegal acts.
Therefore, shareholders still have the power to sue a company to
prevent the violation of laws. In the context of a company
such as Wal-Mart, a well-documented pattern of widespread illegal
gender discrimination could therefore be grounds for a shareholder
to bring an ultra vires lawsuit. Unlike a shareholder
proposal, the available remedies could include a court order to
cease the activity and to adopt a detailed monitoring, training,
and compliance plan. Unlike a class action, the high hurdles
of certifying the plaintiffs as class representatives would not
exist. Nor would there be the same mix of practical concerns
that contribute to class action attorneys emphasizing monetary
rewards over long-term, disciplined equitable relief that is
actually geared to altering company practices in the future.
The only limitation on using the ultra vires doctrine is that
there must be evidence that a company is in violation of an actual
law in a jurisdiction where it operates. In those contexts, ultra
vires can effectively enable a form of a shareholder enforcement
suit to ensure compliance with the federal laws of the United
States, the laws of individual states, the statutes of foreign
nations, or even international human rights laws.
While an ultra vires suit could also be initiated by a state
attorney general, this Article focuses upon the use of the ultra
vires doctrine by shareholder activists. Institutional investors
and shareholder groups have already sacrificed large amounts of
resources over the past decade in their efforts to improve
corporate conduct. These groups could use the ultra vires doctrine
to achieve more tangible results with a smaller expenditure of
resources.