Nussbaum

Gridgrind

Using literature and philosophy to help explain and critique existing business law doctrine. Starting from Charles Dickens's Hard Times, we provide a new explanation for one of the great puzzles of existing business 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. We argue that the business judgment rule is a necessary corrective to the irrationality of the underlying duty to maximize profits. We make this argument by analogizing business law to Dickens's character of Thomas Gradgrind, who seeks to live his life according to utilitarian precepts. Gradgrind realizes over the course of the novel (and hence the title Gradgrind's Education) that he cannot truly live according to an ethic based on utilitarianism and also live out a decent life. We argue that the business judgment rule, rather than being based on institutional concerns about courts' abilities to second-guess business management, instead is explained as this more rational and humanistic conception of decision making than is the utilitarianism that forms the basis of the underlying duty to maximize profits. We also draw on Martha Nussbaum's neo-Aristotelian writings. We contend that the alternative conception of decision making to which Gradgrind is educated in is quite similar to the good Aristotelian decision making described by Nussbaum in several of her writings. Using Nussbaum's descriptions as this 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 the guide post. We suggest the contours of a first-best conception of fiduciary duties within business 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 being a metric; the priority of the particular over the general; plus the importance of non-financial factors; and the absence of the supreme stakeholder.