Law Commons^™

The Public And Private Faces Of Derivative Lawsuits, Robert B. Thompson, Randall S. Thomas

Vanderbilt Law Review

Are shareholder derivative suits at death's door? Once described as "the most important procedure the law has yet developed to police the internal affairs of corporations,"' derivative suits are today regularly portrayed as nuisance suits whose "principal beneficiaries ... are attorneys." Even if these critics are wrong, there may now be less need for derivative suits, as other forms of representative suits have grown up that do much of their work. Federal securities fraud class actions increasingly address legal claims that raise issues about management care, and fiduciary duty class actions under state law are the principal litigation vehicle to …

File Early, Then Free Ride: How Delaware Law (Mis)Shapes Shareholder Class Actions, Elliott J. Weiss, Lawrence J. White

Vanderbilt Law Review

Delaware courts have largely privatized enforcement of fiduciary duties in public corporations. In In re Fuqua Industries, Inc. Shareholder Litigation, Chancellor Chandler expressly acknowledged this judicial policy. He noted that Delaware courts implement it partly by allowing private attorneys, working on a contingent fee basis, to initiate and maintain derivative and class actions in the names of "nominal shareholder plaintiffs." Attorneys are subject only to the relatively weak constraints that they must inform their "clients" and receive their consent before they file shareholder suits. Further, Delaware courts use cost and fee shifting mechanisms to "economically incentivize" those attorneys to initiate …

Explaining The International Ceo Pay Gap: Board Capture Or Market Driven?, Randall S. Thomas

Vanderbilt Law Review

One of the most puzzling aspects of executive compensation is the pay gap that exists between American and foreign Chief Executive Officers (CEOs). U.S. CEOs are paid vastly more than their foreign counterparts: they have higher base salaries, they receive larger bonuses, they get more stock options, and they are given bigger chunks of company restricted stock. Commentators and the financial press have been quick to claim that such differences can be explained by "Board Capture," a theory that claims powerful American executives take advantage of weak domestic boards of directors and passive, dispersed shareholders to overpay themselves exorbitantly.

According …

A Team Production Theory Of Bankruptcy Reorganization, Lynn M. Lopucki

Vanderbilt Law Review

In the year before United Airlines filed for bankruptcy reorganization, the firm lost $3.2 billion. Fierce competition in the airline industry prevents United from stemming its losses solely through increases in revenues. Costs will have to be cut. The necessary expense reductions could come from reductions in employee pay and benefits, reductions in the amounts owing to creditors (which reduce interest expense), or both. Which should it be? United's situation is complicated by the fact that its employees own 55 percent of its stock and that their wage levels are protected by a collective bargaining agreement. But if we assume …

The Business Judgment Rule As Abstention Doctrine, Stephen M. Bainbridge

Vanderbilt Law Review

The business judgment rule is corporate law's central doctrine, pervasively affecting the roles of directors, officers, and controlling shareholders. Increasingly, moreover, versions of the business judgment rule are found in the law governing the other types of business organizations, ranging from such common forms as the general partnership to such unusual ones as the reciprocal insurance exchange. Yet, curiously, there is relatively little agreement as to either the theoretical underpinnings of or policy justification for the rule. This gap in our understanding has important doctrinal implications. As this paper demonstrates, a string of recent decisions by the Delaware supreme court …

The New Look Of Shareholder Litigation: Acquisition-Oriented Class Actions, Robert B. Thompson, Randall S. Thomas

Vanderbilt Law Review

Now, however, a new form of shareholder litigation has emerged that is distinct from derivative or securities fraud claims: class action lawsuits filed under state law challenging director conduct in mergers and acquisitions. The empirical data reported in this article show that these acquisition-oriented suits are now the dominant form of corporate litigation and outnumber derivative suits by a wide margin.

Are these acquisition-oriented class actions just another deadbeat in the corporate governance debate? Should policymakers take action to cut back on the development of this new form of shareholder litigation? In this paper, we argue that, just as with …

Reforming Corporate Governance: What History Can Teach Us, Margaret M. Blair

Vanderbilt Law School Faculty Publications

In this Article, I turn to the history of corporate law for insight into the role that the corporate form plays in the organization of business enterprises. I then draw implications from this history for thinking about circumstances and situations in which corporate directors should have unimpeded control over business decisions, versus situations in which shareholders should have more input and control over business decisions. In Part I, I review historical evidence of the rapid growth in demand for the corporate form to organize businesses in the United States during the early nineteenth century. I compare the law that governed …

The Globalization (Americanization?) Of Executive Pay, Randall Thomas, Brian R. Cheffins

Vanderbilt Law School Faculty Publications

In the United States, the remuneration packages of top executives are characterized by a strong emphasis on pay-for-performance and by a highly lucrative "upside." There is much discussion of the possibility that executive pay practices will globalize in accordance with this pattern. This Article assesses whether such convergence is likely to occur. After surveying briefly the key components of managerial remuneration and after examining the essential elements of the "U.S. pay paradigm," the Article considers market-oriented dynamics that could constitute a "global compensation imperative." These include wider dispersion of share ownership, more cross-border hiring of executives, growing international merger and …

The Public And Private Faces Of Derivative Lawsuits, Randall S. Thomas, Robert B. Thompson

Vanderbilt Law School Faculty Publications

Derivative suits, long the principal vehicle for discussions about representative litigation in corporate and securities law, now share the stage with younger cousins - securities fraud class actions and state law fiduciary duty class actions. At the same time alternative governance vehicles - independent directors, auditors and other reforms that have followed in the wake of Enron - potentially diminish the relative place of litigation such as derivative suits. This article presents data from all derivative suits filed in Delaware over a two-year period. We find a relatively small number, certainly as compared to fiduciary class action and securities fraud …