McRitchie Case: Compliance with Law as Corporate Responsibility

This post marks two years since the Delaware Court of Chancery’s decision in McRitchie, 315 A.3d 518 (Del. Ch. 2024). The case is one of the most significant and comprehensive modern rulings on corporate purpose. The discussion proceeds in two parts: first, an overview of the case, its factual background, and the court’s holdings; second, its central contribution, a fundamental rethinking of corporate purpose. The court rejects both shareholder primacy and corporate social responsibility (CSR) as competing frameworks, and instead grounds corporate responsibility in compliance with positive law.

What the McRitchie Case Held

James McRitchie, a shareholder activist, promotes ״portfolio primacy", arguing that shareholders are also stakeholders, employees, customers, and creditors. Accordingly, directors should not focus solely on profit maximization, even if lawful, but must consider broader stakeholder impacts.

McRitchie brought a test case, alleging that directors breached fiduciary duties by generating profits while causing significant social harm. He sought to reshape Delaware law, which had long held, in cases such as Revlon, Paramount v. Time, eBay, Massey Energy, and Trados, that directors must pursue the corporation’s purpose by lawfully maximizing corporate value.

The Delaware Court of Chancery rejected his claims entirely. In a detailed 101-page opinion, the court reaffirmed existing law while clarifying it at an unprecedented level of depth. Crucially, it rejected both shareholder primacy and CSR as misleading dichotomies.

The court emphasized that corporate purpose is defined by law, not by managerial declarations. Under the single-firm model, directors owe fiduciary duties to the corporation itself, not directly to stakeholders or shareholders. Shareholders benefit only indirectly. Even creditors, including in insolvency, do not become direct beneficiaries of fiduciary duties. The duty, as the court put it, is to protect and increase the value of the firm’s capital.

Compliance with Law as the Core of Corporate Responsibility

At first glance, McRitchie might appear pro-shareholder, since it rejects CSR. However, the court identifies a different and more effective mechanism for protecting stakeholders: mandatory compliance with law.

Addressing the problem of externalities, the court explains that corporate law is not blind to them. Instead, external legal regimes and regulation provide the primary tools to address harms to employees, customers, and the environment.

Violations of stakeholder rights are first and foremost violations of non-corporate law. Corporate law reinforces this by imposing liability on directors who knowingly cause or fail to prevent such violations, notably through doctrines like Caremark.

Importantly, the duty to comply with law is mandatory (non-waivable). The court explicitly rejects the “law as price” theory, which treats legal violations as acceptable if profitable. In its words, such reasoning may pass in economics, but fails in corporate law.

Thus, governments regulate externalities through law and regulation, while corporate law reinforces this framework by imposing accountability on directors. Compliance with the law is therefore not something to be balanced against profit maximization, but rather a prior and binding requirement.

Conclusion

McRitchie reaffirms a precise and disciplined vision of corporate law. It rejects the false dichotomy between shareholder primacy and CSR, and instead centers the corporation itself, governed by law.

The solution to externalities is not expanding corporate purpose rhetorically, but strengthening legal compliance frameworks and enforcing them through corporate law doctrines.

Corporate responsibility, therefore, is neither optional nor ideological. It is legal, mandatory, and foundational.

To read the full article, visit our website in Hebrew.

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Dr. Asaf Raz, Senior Lecturer, Sha’arei Mishpat Academic Center; Research Fellow, University of Pennsylvania.