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Full-Text Articles in Law

Toward A Horizontal Fiduciary Duty In Corporate Law, Asaf Eckstein, Gideon Parchomovsky May 2019

Toward A Horizontal Fiduciary Duty In Corporate Law, Asaf Eckstein, Gideon Parchomovsky

Faculty Scholarship at Penn Law

Fiduciary duty is arguably the single most important aspect of our corporate law system. It consists of two distinct sub-duties—a duty of care and a duty of loyalty—and it applies to all directors and corporate officers. Yet, under extant law, the duty only applies vertically, in the relationship between directors and corporate officers and the firm. At present, there exists no horizontal fiduciary duty: directors and corporate officers owe no fiduciary duty to each other. Consequently, if one of them fails her peers, they cannot seek direct legal recourse against her even when they stand to suffer significant ...


Contracting Out Of The Fiduciary Duty Of Loyalty: An Empirical Analysis Of Corporate Opportunity Waivers, Gabriel Rauterberg, Eric Talley Jun 2017

Contracting Out Of The Fiduciary Duty Of Loyalty: An Empirical Analysis Of Corporate Opportunity Waivers, Gabriel Rauterberg, Eric Talley

Articles

For centuries, the duty of loyalty has been the hallowed centerpiece of fiduciary obligation, widely considered one of the few “mandatory” rules of corporate law. That view, however, is no longer true. Beginning in 2000, Delaware dramatically departed from tradition by granting incorporated entities a statutory right to waive a crucial part of the duty of loyalty: the corporate opportunities doctrine. Other states have since followed Delaware’s lead, similarly permitting firms to execute “corporate opportunity waivers.” Surprisingly, more than fifteen years into this reform experiment, no study has attempted to either systematically measure the corporate response to these reforms ...


The Fiduciary Enterprise Of Corporate Law, Christopher Bruner Jan 2017

The Fiduciary Enterprise Of Corporate Law, Christopher Bruner

Scholarly Works

No abstract provided.


Law And Corporate Governance, Robert P. Bartlett, Eric L. Talley Jan 2017

Law And Corporate Governance, Robert P. Bartlett, Eric L. Talley

Faculty Scholarship

Pragmatic and effective research on corporate governance often turns critically on appreciating the legal institutions surrounding corporate entities – yet such nuances are often unfamiliar or poorly specified to economists and other social scientists without legal training. This chapter organizes and discusses key legal concepts of corporate governance, including statutes, regulations, and jurisprudential doctrines that “govern governance” in private and public companies, with concentration on the for-profit corporation. We review the literature concerning the nature and purpose of the corporation, the objects of fiduciary obligations, the means for decision making within the firm, as well as the overlay of state and ...


Corporate Power Is Corporate Purpose I: Evidence From My Hometown, Leo E. Strine Jr. Dec 2016

Corporate Power Is Corporate Purpose I: Evidence From My Hometown, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

This paper is the first in a series considering a rather tired argument in corporate governance circles, that corporate laws that give only rights to stockholders somehow implicitly empower directors to regard other constituencies as equal ends in governance. By continuing to suggest that corporate boards themselves are empowered to treat the best interests of other corporate constituencies as ends in themselves, no less important than stockholders, scholars and commentators obscure the need for legal protections for other constituencies and for other legal reforms that give these constituencies the means to more effectively protect themselves.

Using recent events in the ...


Corporate Power Is Corporate Purpose Ii: An Encouragement For Future Consideration From Professors Johnson And Millon, Leo E. Strine Jr. Oct 2016

Corporate Power Is Corporate Purpose Ii: An Encouragement For Future Consideration From Professors Johnson And Millon, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

This paper is the second in a series considering the argument that corporate laws that give only rights to stockholders somehow implicitly empower directors to regard other constituencies as equal ends in governance. This piece was written as part of a symposium honoring the outstanding work of Professors Lyman Johnson and David Millon, and it seeks to encourage Professors Johnson and Millon, as proponents of the view that corporations have no duty to make stockholder welfare the end of corporate law, to focus on the reality that corporate power translates into corporate purpose.

Drawing on examples of controlled companies that ...


Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner Jan 2016

Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner

Faculty Scholarship

Corporate directors committed to a failed business strategy or unduly influenced by the company’s debtholders need a dissenting voice—they need shareholder nominees on the board. This article examines the bias, conflicts, and external factors that impact board decisions, particularly when a company faces financial distress. It challenges the conventional wisdom that debt disciplines management, and it suggests that, in certain circumstances, the company would benefit from having the shareholders’ perspective more actively represented on the board. To that end, the article proposes a bylaw that would give shareholders the ability to nominate directors upon the occurrence of predefined ...


A Defense Of The Corporate Law Duty Of Care, Julian Velasco Apr 2015

A Defense Of The Corporate Law Duty Of Care, Julian Velasco

Journal Articles

Most people would acknowledge the importance of the duty of loyalty, but the same is not true of the duty of care. Historically, the corporate law duty of care has been underenforced at best, and arguably unenforced entirely. Some scholars do not consider the duty of care to be a fiduciary duty at all, and there are those who would do away with it entirely. In this paper, I intend to provide a comprehensive defense of the corporate law fiduciary duty of care. I hope to show that the duty of care is not simply an ill-fitting appendage to the ...


A Canadian Model Of Corporate Governance: Where Do Shareholders Really Stand?, Carol Liao Jan 2014

A Canadian Model Of Corporate Governance: Where Do Shareholders Really Stand?, Carol Liao

Faculty Publications

This feature article in the Director Journal summarizes the findings from the report, "A Canadian Model of Corporate Governance: Insights from Canada's Leading Legal Practitioners," produced for the Canadian Foundation for Governance Research and the Institute of Corporate Directors (also available on SSRN).

In the report, interviews were conducted with 32 leading senior legal practitioners across Canada to opine on the fundamental principles that are driving the development of Canadian corporate governance. The report found that Canadian common law has made the process of considering stakeholders in the "best interests of the corporation" more overt, well beyond what is ...


A Canadian Model Of Corporate Governance, Carol Liao Jan 2014

A Canadian Model Of Corporate Governance, Carol Liao

Faculty Publications

What is Canada’s actual legal model to govern its corporations? Recent landmark judicial decisions indicate Canada is shifting away from an Anglo-American definition of shareholder primacy. Yet the Canadian securities commissions have become increasingly influential in the governance sphere, and by nature are shareholder-focused. Shareholders’ rights have increased well beyond what was ever contemplated by Canadian corporate laws, and the issue of greater shareholder vs. board control has now become the topic of live debate. The future of Canada's overall model seems to rest on what will be more compelling: the constancy of the corporate statutes and trajectory ...


'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against Party State Political Economic Power, Nicholas C. Howson Jan 2014

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against Party State Political Economic Power, Nicholas C. Howson

Articles

From the start of the People’s Republic of China’s (PRC) “corporatization ” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the China Securities Regulatory Commission (CSRC). Indeed, the Chinese corporate law system has been cannibalized by all - encompassing securities regulation directed at corporate governance, at least for companies with listed stock. This Article traces the path of that sustained intervention and makes a case — wholly contrary to the “quack corporate governance” critique much aired in the United States — that ...


Corporate Culture And Erm, Michelle M. Harner Jul 2013

Corporate Culture And Erm, Michelle M. Harner

Faculty Scholarship

The attitudes and actions of those viewed as leaders within a company (commonly referred to as “tone at the top”) help to define corporate culture and are critical to implementing a successful enterprise risk management (ERM) program. This paper explores the challenges and benefits of creating a risk-aware corporate culture, including the potential legal implications for boards of directors.


Adapting To The New Shareholder-Centric Reality, Edward B. Rock Jan 2013

Adapting To The New Shareholder-Centric Reality, Edward B. Rock

Faculty Scholarship at Penn Law

After more than eighty years of sustained attention, the master problem of U.S. corporate law—the separation of ownership and control—has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor ...


Auction Theory And Standstills: Dealing With Friends And Foes In A Sale Of Corporate Control, Christina M. Sautter Jan 2013

Auction Theory And Standstills: Dealing With Friends And Foes In A Sale Of Corporate Control, Christina M. Sautter

Journal Articles

A fundamental issue in Delaware mergers & acquisitions (M&A) law is the extent to which a target company’s board of directors may restrict a sales process to extract value from bidders and grant a “winning bidder” certain deal protections to protect a transaction from being overbid. Standstill agreements are one such form of deal protection. Standstills prevent bidders from making or announcing a bid for the target without the target’s consent both during the sales process and for a period after the sales process is completed and the target has executed an agreement with a “winning bidder.” Recent ...


Fiduciary Duties And Fiduciary Outs, Julian Velasco Jan 2013

Fiduciary Duties And Fiduciary Outs, Julian Velasco

Journal Articles

Fiduciary outs are virtually ubiquitous in acquisition agreements, but almost unheard of in other contexts. This is because the fiduciary out is an inherently problematic device. Although it is not intended to do so, it almost necessarily transforms an agreement into an option in the hands of one party. Nevertheless, fiduciary outs make sense in the context of acquisition agreements. This is because fiduciary outs are essentially contractual proxies for fiduciary duties. As such, they have the same purpose: to protect shareholders from abuse at the hands of directors. Fiduciary outs do this in the context of acquisition agreements by ...


Is The Corporate Director's Duty Of Care A 'Fiduciary' Duty? Does It Matter?, Christopher M. Bruner Jan 2013

Is The Corporate Director's Duty Of Care A 'Fiduciary' Duty? Does It Matter?, Christopher M. Bruner

Scholarly Articles

While reference to "fiduciary duties" (plural) is routinely employed in the United States as a convenient short-hand for a corporate director's duties of care and loyalty, other common-law countries generally treat loyalty as the sole "fiduciary duty." This contrast prompts some important questions about the doctrinal structure for duty of care analysis adopted in Delaware, the principal jurisdiction of incorporation for U.S. public companies. Specifically, has the evolution of Delaware's convoluted and problematic framework for evaluating disinterested board conduct been facilitated by styling care a "fiduciary" duty? If so, then how should Delaware lawmakers and judges respond ...


The Naked Fiduciary, Michelle M. Harner, Jamie Marincic Jan 2012

The Naked Fiduciary, Michelle M. Harner, Jamie Marincic

Faculty Scholarship

Business law is grounded in the common law of fiduciary duty. Courts and policymakers have been loath to abandon that principle. Yet, particularly in the contractual context of limited liability companies (LLCs), the fiduciary label is illusory and may undercut sound governance practices for those entities. This Article presents an in-depth empirical study about governance provisions included in LLC operating agreements and examines the implications of the data in the context of various types of businesses that might choose to organize as LLCs. The Article uses the data and related case studies to offer a new approach to LLC governance ...


The Role Of Aspiration In Corporate Fiduciary Duties, Julian Velasco Jan 2012

The Role Of Aspiration In Corporate Fiduciary Duties, Julian Velasco

Journal Articles

Corporate law is characterized by a pervasive divergence between standards of conduct and standards of review. Courts often opine on the relatively demanding standard of conduct, but their judgements must be based on the more forgiving standard of review. Commentators defend this state of affairs by insisting that it provides guidance to directors without imposing ruinous liability. However, the dichotomy can lead many, especially those who focus on the bottom line, to call into question the meaningfulness of standards of conduct. Of particular concern is the increasing popularity, in legal and scholarly circles, of the notion that fiduciary duty standards ...


The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner Jan 2011

The Search For An Unbiased Fiduciary In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company experiences financial distress, a control contest often follows. Management fights to remain in control of the company, and shareholders, creditors and others try to influence management’s exercise of that control—or wrest it away. This is not a new phenomenon. The degree of influence now exerted by corporate stakeholders in the distressed context, however, is strikingly different than in the past. Recent headlines highlight that stakeholder control issues are at the forefront of financially-distressed situations large and small. The U.S. government, as creditor, dictated the terms of Chrysler’s and General Motors’ bankruptcies. It also ...


Wilkes V. Springside Nursing Home, Inc.: A Historical Perspective, Mark J. Loewenstein Jan 2011

Wilkes V. Springside Nursing Home, Inc.: A Historical Perspective, Mark J. Loewenstein

Articles

No abstract provided.


Symposium: Fiduciary Duties In The Closely Held Business 35 Years After Wilkes V. Springside Nursing Home: Foreword, René Reich-Graefe Jan 2011

Symposium: Fiduciary Duties In The Closely Held Business 35 Years After Wilkes V. Springside Nursing Home: Foreword, René Reich-Graefe

Faculty Scholarship

On October 15, 2010—exactly fifty-nine years to the day after the opening of the original nursing home operation in 1951 which formed the core business asset of the closely held Springside Nursing Home, Inc. corporation—the Western New England University School of Law and School of Business jointly hosted their 2010 Academic Conference on “Fiduciary Duties in the Closely Held Business 35 Years after Wilkes v. Springside Nursing Home.” As with installments from prior years, the Conference was sponsored by the Western New England University Law and Business Center for Advancing Entrepreneurship. This Article examines the case of Wilkes ...


Ignoring The Writing On The Wall: The Role Of Enterprise Risk Management In The Economic Crisis, Michelle M. Harner Jan 2010

Ignoring The Writing On The Wall: The Role Of Enterprise Risk Management In The Economic Crisis, Michelle M. Harner

Faculty Scholarship

Enterprise risk management (ERM) targets overall corporate strategy and, when implemented correctly, can manage a corporation’s risk appetite and exposure. When ignored or underutilized, it can contribute to a corporation’s demise. In fact, many commentators point to ERM failures as contributing to the severity of the 2008 economic crisis. This essay examines the different approaches to ERM adopted by financial institutions affected by the 2008 economic crisis and how ERM contributed to the survival or failure of those firms. It then considers ERM in the broader context of corporate governance generally. This discussion reflects on ERM techniques for ...


How Many Fiduciary Duties Are There In Corporate Law?, Julian Velasco Jan 2010

How Many Fiduciary Duties Are There In Corporate Law?, Julian Velasco

Journal Articles

Historically, there were two main fiduciary duties in corporate law, care and loyalty, and only the duty of loyalty was likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected ...


Consumer Interest In Corporate Law, David Yosifon Nov 2009

Consumer Interest In Corporate Law, David Yosifon

Faculty Publications

This Article provides a comprehensive assessment of the consumer interest in dominant theories of the corporation and in the fundamental doctrines of corporate law. In so doing, the Article fills a void in contemporary corporate law scholarship, which has failed to give sustained attention to consumers in favor of exploring the interests of other corporate stakeholders, especially shareholders, creditors, and workers. Utilizing insights derived from the law and behavioralism movement, this Article examines, in particular, the limitations of the shareholder primacy norm at the heart of prevailing "nexus of contracts" and "team production" theories of the firm. The Article concludes ...


Art Deaccessions And The Limits Of Fiduciary Duty, Sue Chen Jun 2009

Art Deaccessions And The Limits Of Fiduciary Duty, Sue Chen

Duke Law Student Papers Series

Art deaccessions prompt lawsuits against museums, and some commentators advocate using the stricter trust standard of care, instead of the prevailing corporate standard (business judgment rule), to evaluate the conduct of non‑profit museum boards. This Article explores the consequences of adopting the trust standard by applying it to previously unavailable deaccession policies of prominent art museums. It finds that so long as museum boards adhere to these policies, their decisions would satisfy the trust standard. This outcome illustrates an important limitation of fiduciary law: the trust standard evaluates procedural care but cannot assess deaccessions on their merits. Yet this ...


Directors' Duties In Failing Firms, Kelli A. Alces, Larry E. Ribstein Jan 2007

Directors' Duties In Failing Firms, Kelli A. Alces, Larry E. Ribstein

Scholarly Publications

Despite many cases with seemingly contrary dicta, corporate directors of failing firms do not have special duties to creditors. This follows from the nature of fiduciary duties and the business judgment rule. Under the business judgment rule, the directors have broad discretion to decide what to do and in whose interests to act. There is some authority for a limited creditor right to sue on behalf of the corporation to enforce this duty. However, any such right does not make the duty one owed to creditors. The creditors individually may sue the corporation for breach of specific contractual, tort, and ...


Fiduciary Duties And Unincorporated Business Entities: In Defense Of The "Manifestly Unreasonable" Standard, Mark J. Loewenstein Jan 2006

Fiduciary Duties And Unincorporated Business Entities: In Defense Of The "Manifestly Unreasonable" Standard, Mark J. Loewenstein

Articles

This article wades into the debate between contractarians and anti-contractarians over the extent to which statutes on unincorporated business entities should limit the ability of the participants in those entities to contract around fiduciary duties. Statutes enacted in the past several years provide considerable, but not complete, freedom to limit fiduciary duties. Contractarians argue that statutory limitations are inefficient and unnecessary, while anti-contractarians take the view that the statutes provide too much freedom of contract. This article stakes out a middle ground, arguing that the drafters of the statutes got it right and that in the absence of statutory limitations ...


On The Nature Of Corporations, Lynn A. Stout Jan 2005

On The Nature Of Corporations, Lynn A. Stout

Cornell Law Faculty Publications

Legal experts traditionally distinguish corporations from unincorporated business forms by focusing on corporate characteristics like limited shareholder liability, centralized management, perpetual life, and free transferability of shares. While such approaches have value, this essay argues that the nature of the corporation can be better understood by focusing on a fifth, often-overlooked, characteristic of corporations: their capacity to "lock in" equity investors' initial capital contributions by making it far more difficult for those investors to subsequently withdraw assets from the firm. Like a tar pit, a corporation is much easier for equity investors to get into, than to get out of ...


The Sarbanes-Oxley Act And Fiduciary Duties, Lyman P. Q. Johnson, Mark A. Sides Jan 2004

The Sarbanes-Oxley Act And Fiduciary Duties, Lyman P. Q. Johnson, Mark A. Sides

Scholarly Articles

This article explores the implications of the Sarbanes-Oxley Act of 2002 for fiduciary duty analysis in corporate law. The article examines those provisions of the Act, and recent SEC, NYSE and NASDAQ rules, that most pointedly bear on corporate governance. The article develops in detail exactly how Sarbanes-Oxley and those rules may alter state fiduciary duty law. Sarbanes-Oxley makes unprecedented federal inroads into the area of corporate governance and, although the fact of federal incursion into corporate governance is important in its own right, the more intriguing issue concerns the eventual interplay between federal and state law. Specifically, on various ...


Fair Value And Fair Price In Corporate Acquisitions, Rutheford B. Campbell Jr. Nov 1999

Fair Value And Fair Price In Corporate Acquisitions, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In statutory corporate acquisitions, dissenters' rights entitle shareholders of acquired corporations to obtain a "fair value" for their consideration, while common-law fiduciary duties ensure that such shareholders receive a "fair price" in the transaction. Courts, however, have had difficulty defining and measuring fair value and fair price, leaving this area of the law in disarray. This Article reviews the current framework of appraisal rights and fiduciary duties and proposes refined definitions of fair value and fair price that are based on attractive moral and economic values widely shared by society. The proposal respects the expectations of shareholders and provides guidance ...