Business Commons^™

Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton

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This Article reconsiders the dominant account of corporate law’s duty of loyalty, which asserts that the courts have steadily relaxed standards of fiduciary scrutiny applied to self-dealing by corporate managers across more than a century of history—to the great detriment of the shareholder interest. The account originated in Harold Marsh, Jr.’s foundational article, Are Directors Trustees? Conflicts of Interest and Corporate Morality, published in The Business Lawyer in 1966. Marsh’s showing of historical lassitude has been successfully challenged in a recent book by Professor David Kershaw. This Article takes Professor Kershaw’s critique a step further, asking whether the evolutionary …

The History And Revival Of The Corporate Purpose Clause, Elizabeth Pollman

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The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose …

Toward Fair And Sustainable Capitalism: A Comprehensive Proposal To Help American Workers, Restore Fair Gainsharing Between Employees And Shareholders, And Increase American Competitiveness By Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth And Encouraging Investments In America’S Future, Leo E. Strine Jr.

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To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make …

Governance By Contract: The Implications For Corporate Bylaws, Jill E. Fisch

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Boards and shareholders are increasing using charter and bylaw provisions to customize their corporate governance. Recent examples include forum selection bylaws, majority voting bylaws and advance notice bylaws. Relying on the contractual conception of the corporation, Delaware courts have accorded substantial deference to board-adopted bylaw provisions, even those that limit shareholder rights.

This Article challenges the rationale for deference under the contractual approach. With respect to corporate bylaws, the Article demonstrates that shareholder power to adopt and amend the bylaws is, under Delaware law, more limited than the board’s power to do so. As a result, shareholders cannot effectively constrain …

Mandating Board-Shareholder Engagement?, Lisa Fairfax

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This Article not only argues that corporations must be encouraged to enhance the level of communication between shareholders and the board, but also maintains that the benefits of increased engagement are significant enough that we should consider developing standards for incentivizing, if not mandating, more robust board-shareholder engagement for corporations that fail to respond to such encouragement. In the last several years, shareholders not only have gained increased authority over corporate elections and governance matters, but also have demonstrated a willingness to use that authority to challenge, and even reject, management policies and practices. Shareholders also have begun to demand …

Sue On Pay: Say On Pay’S Impact On Directors’ Fiduciary Duties, Lisa Fairfax

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This Article advances a normative case for using say on pay litigation to enhance the state courts’ role in policing directors’ compensation decisions. Outrage over what many perceive to be excessive executive compensation has escalated dramatically in recent years. In 2010, such outrage prompted Congress to mandate say on pay—a nonbinding shareholder vote on executive compensation. In the wake of say on pay votes, some shareholders have brought suit against directors alleging that a negative vote indicates a breach of directors’ fiduciary duties. To date, the vast majority of courts have rejected these suits. This Article insists that such rejection …

Managing Expectations: Does The Directors' Duty To Monitor Promise More Than It Can Deliver?, Lisa Fairfax

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This article grapples with whether we are expecting too much from the duty of oversight. The directors’ oversight duty refers to directors’ responsibility to actively monitor corporate officers, employees, and corporate affairs. Directors breach their oversight duty when officers and employees engage in wrongdoing that causes harm to the corporation and that wrongdoing can be attributed to directors’ failure to monitor. In other words, oversight liability holds directors liable for their failure to act under circumstances where it can be proven that directors should have acted and their actions could have prevented corporate harm.

The significance of directors’ oversight duty …

The Destructive Ambiguity Of Federal Proxy Access, Jill E. Fisch

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After almost seventy years of debate, on August 25, 2010, the SEC adopted a federal proxy access rule. This Article examines the new rule and concludes that, despite the prolonged rule-making effort, the new rule is ambiguous in its application and unlikely to increase shareholder input into the composition of corporate boards. More troubling is the SEC’s ambiguous justification for its rule which is neither grounded in state law nor premised on a normative vision of the appropriate role of shareholder nominations in corporate governance. Although the federal proxy access rule drew an unprecedented number of comment letters and is …