The Argonaut Corporation’s major stockholders adopted a resolution to financially support socially beneficial programs in the large city where they were located and to join in the Annual Giving to a local college. The board resolution stated that these commitments were “in the best interests of the company”. Several minority stockholders questioned the propriety of this resolution, claiming that it involved an activity that was outside the powers of the corporation. The resolution did make it clear, however, that contributions to identified socially beneficial programs and to the local college would not draw from funds necessary to pay dividends to its stockholders.

Can a corporation ethically make charitable contributions from corporate funds without the board of directors being challenged successfully by the minority stockholders on the grounds that this resolution is an abuse of power that would constitute a breach of good faith, which they are bound to exercise toward the stockholders?

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