Business Organizations Law Commons^™

Investment Companies As Guardian Shareholders: The Place Of The Msic In The Corporate Governance Debate, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Comparative corporate governance is both necessary and hard. Recent scholarship has identified the political and historical contingency of the American pattern of corporate governance. The Berle-Means corporation, with its separation of management and risk bearing and the attendant agency conflict between managers and shareholders, is now widely recognized as being as much a creature of the American pattern of law and politics as the handiwork of neutral market forces. This recognition underscores the need to place the American experience in a comparative perspective. Other patterns of corporate governance can provide both insights into the operation of our own and a …

What Difference Does It Make Whether Corporate Managers Have Public Responsibilities?, William H. Simon

Faculty Scholarship

Alan Wolfe's thoughtful paper resonates with what I think we should call the Washington and Lee School of corporate jurisprudence.' It elaborates on that School's brilliant intellectual history of legal theorizing about the corporation and on its powerful critique of conservative arguments against managerial responsiveness to nonshareholder interests.

It also shares, I fear, a tendency to overestimate the practical stakes of abstract concepts of the corporation and fiduciary duties. This tendency takes three forms: first, a historical picture that portrays recent developments as a promising departure rather than business-as-usual; second, an assumption that certain abstract conceptions of the corporation (for …

New Myths And Old Realities: The American Law Institute Faces The Derivative Action, John C. Coffee Jr.

Faculty Scholarship

Nothing in The American Law Institute's (ALI) Principles of Corporate Governance: Analysis and Recommendations (Principles) proved more controversial than the effort to develop fair and balanced standards for the derivative action. Only the topic of corporate takeovers seems to evoke an equally intense level of emotion among corporate lawyers. Not surprisingly then, Part VII (Remedies) of the Principles attracted the same attention from critics that a lightning rod does in a thunderstorm.

Unlike other ALI Restatements, however, the Principles also encountered a professional opposition, which lobbied against its adoption, both inside and outside the ALI, on behalf of various outside …

Understanding The Japanese Keiretsu: Overlaps Between Corporate Governance And Industrial Organization, Ronald J. Gilson, Mark J. Roe

Faculty Scholarship

We aim here for a better understanding of the Japanese keiretsu. Our essential claim is that to understand the Japanese system – banks with extensive investment in industry and industry with extensive cross-ownership – we must understand the problems of industrial organization, not just the problems of corporate governance. The Japanese system, we assert, functions not only to harmonize the relationships among the corporation, its shareholders, and its senior managers, but also to facilitate productive efficiency.

Thoughts Evoked By "Accounting And The New Corporate Law", Ted J. Fiflis

Publications

No abstract provided.

A Critical Look At Corporate Governance, Lawrence E. Mitchell

Vanderbilt Law Review

The internal law of corporations is built upon the problem of competition-not competition with the world outside the corporate entity, which, according to liberal economic theory, is essential to the increase of wealth and well-being in society, but competition among the various groups of individuals that animate the corporation. The problem is (to extend the implicit metaphor) as if a human being's internal organs were constantly battling to capture all of the body's energy, rather than working together to contribute to the well-being of the whole. Like the human body, the corporation's "energy" (its assets) is, at any given point …

Untenable Status Of Corporate Governance Listing Standards Under The Securities Exchange Act, Douglas C. Michael

Law Faculty Scholarly Articles

United States securities markets operate under a system of supervised self-regulation created by the Securities Exchange Act of 1934 (Exchange Act). That system includes substantive regulation of the traders and the issuers of securities traded in those markets through the use of listing standards.

These listing standards have a unique status. They are part of a self-regulatory system, but are not classic self-regulation. The markets do not govern the traders of which it consists; rather, it governs outsiders—the issuers. The markets and the Securities and Exchange Commissions have sought to control issuers in ways not clearly related to trading in …

Corporate Law: What Is The Impact Of New Ali Proposals On Shareholder Litigation, John C. Coffee Jr., Michael P. Dooley

Faculty Scholarship

When the American Law Institute's Corporate Governance Project meets this month, one of the most hotly debated agenda items is likely to be its new rules governing shareholder litigation, which are now up for final approval.

The proposed change means that corporate boards will now have to prove in court that a decision to dismiss a shareholder claim alleging self-dealing was in the corporation's best interest. In addition, the requirement for a formal "demand" on the board by shareholders will be uniform, rather than subject to excuse, as it is under Delaware law and in the majority of states.

Drafters …

Reinventing The Outside Director: An Agenda For Institutional Investors, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Managerialist rhetoric puts the institutional investor between a rock and a hard place. The institutional investor is depicted as a paper colossus, alternatively greedy and mindless, but in all events a less important corporate constituency than that other kind of investor, the "real" shareholder. The unspoken corollary is that, regardless of the institution's investment strategy, its interests may appropriately be ignored.

An institution that trades stock frequently is considered a short-term shareholder without a stake in the future of the corporation. According to the familiar argument, the short-term shareholder has no more legitimate claim on management's attention than does a …

Protecting Nonshareholder Interests In The Market For Corporate Control: A Role For State Takeover Statutes, Frank J. Garcia

University of Michigan Journal of Law Reform

Part I of this Note describes a phenomenon of modern corporate activity first identified over fifty years ago as the "separation of ownership and control." This separation gives rise to the need for a governing corporate norm; recognizing the normative aspect of this phenomenon has direct implications for the takeover debate.

Part II analyzes the problem of a target board's fiduciary duty as the modern version of the fundamental normative issue of corporate law. It argues that the norm of shareholder wealth maximization, assumed as the starting point by those most in favor of an active and minimally regulated control …

Towards A European Constitution Of The Firm: Problems And Perspectives, Thomas E. Abeltshauser

Michigan Journal of International Law

This article will discuss in particular the proposed EEC directive on the harmonization of corporate structures as well as the proposed regulation of the Societas Europea. Initially, these proposals were strongly oriented toward German law. As such, a corporation had to have a managing board as well as a so-called supervisory board and a general meeting of stockholders. Since the EEC Commission published the so-called "Green Paper," which contains a comparative analysis of national legal systems requirements for the structure of corporations and provisions for co-determination rights for employees at the board level, the new proposals concerning the constitution of …

The Mandatory/Enabling Balance In Corporate Law: An Essay On The Judicial Role, John C. Coffee Jr.

Faculty Scholarship

A half-filled glass of water can be described as either half full or half empty. The structure of American corporate law – partly enabling, partly mandatory in character – can be viewed in much the same way. Some commentators see American corporate law as primarily composed of mandatory rules that the shareholders themselves cannot waive or modify, In their view, this mandatory component compensates both for the absence of true bargaining among the parties and for the inevitable divergence of interests between the principals (the shareholders) and their agents (the managers and directors). Conversely, other commentators, to whom this Article …

Unstable Coalitions: Corporate Governance As A Multi-Player Game, John C. Coffee Jr.

Faculty Scholarship

This is an article written in honor of Professor Donald Schwartz, a leading figure in academic corporate law for over two decades, but also a man nearly unique in his willingness to move beyond corporate law to the general study of corporate behavior. In this light, this article will not explore the latest wrinkle in the law – the most recent case, latest SEC ruling, or newest takeover defense tactic – but will instead ask if there are new ways in which we should try to talk about corporate law and corporate behavior. These were questions that Don Schwartz repeatedly …

Changing Perceptions Into Reality: Fiduciary Standards To Match The American Directors’ Monitoring Function, James D. Cox

Faculty Scholarship

This paper describes the historical fiduciary obligations of the American outside director and contrasts those obligations with prevailing obligations in today’s environment of the monitoring director. Special attention is devoted to the role of outside directors when their firm is the target of a takeover. In no other context are the demands on the outside director greater and more strain placed on the monitoring model than in the context of a corporate takeover. The final section of this paper examines the relief modern statutory provisions provide to the director and the monitoring function

Introduction, Joel Seligman

University of Michigan Journal of Law Reform

Introduction for the 1988 Journal of Law Reform Symposium: Issues in Corporate Governance.

Federal Chartering Revisited, Donald E. Schwartz

University of Michigan Journal of Law Reform

The protections that corporation law provided to shareholders and to our economic community against the excesses and complacency of corporate directors and managers have undergone a general weakening. Although it is uncertain whether the ALI can accomplish effective and meaningful reforms, this effort may be the most important attempt by the corporate community to reform itself.

Beyond Managerialism: Investor Capitalism?, Alfred F. Conard

University of Michigan Journal of Law Reform

Capitalism, in most large public corporations, has been subtly transformed from a system of dominance by the suppliers of capital to a system of dominance by the managers, dubbed "managerialism." In many respects, managerialism is beneficial to investors and other enterprise constituencies, since managers' rewards typically grow with the profitability of the enterprise. But managerialism permits drastic wastes of resources when managers hang on to their jobs after they have become inefficient or spend lavishly to defend themselves against takeover bids. Derivative suits, shareholder proposals, independent directors, and other prescriptions have failed to stifle managerial abuses. This is the message …

Two Models Of Corporate Governance: Beyond Berle And Means, Lynne L. Dallas

University of Michigan Journal of Law Reform

This Article introduces a new model of corporate governance, which challenges, as did Berle and Means, the conclusions drawn from the traditional ownership model. Rather than focusing upon the inefficiencies of the large complex firm resulting from the separation of share ownership and control, however, this new model, which I call the power model, focuses upon the political nature of decision making in the large corporation, which exists regardless of the identity of the entrepreneur.

Corporate Takeovers: Who Wins; Who Loses; Who Should Regulate, John C. Coffee Jr., Joseph A. Grundfest, Roberta Romano, Murray L. Weidenbaum

Faculty Scholarship

On December 3, 1987, during its 11th Annual Policy Conference in Washington, DC, the American Enterprise Institute convened a panel discussion on "Corporate Takeovers and Insider Trading: Who Should Regulate?" The panelists were John C. Coffee, Jr., professor of law at Columbia University; Joseph A. Grundfest, commissioner at the Securities and Exchange Commission; Roberta Romano, professor of law at Yale Law School; and Murray L. Weidenbaum, Mallinckrodt Distinguished University Professor and director of the Center for the Study of American Business at Washington University. The panel was moderated by Christopher C. DeMuth, president of AEI. The following discussion is drawn …

The Role Of The Market Model In Corporate Law Analysis: A Comment On Weiss And White, Merritt B. Fox

Faculty Scholarship

In a recent article, Elliott Weiss and Lawrence J. White sought to establish that seven decisions of the Delaware courts concerning corporation law had little value in predicting the future conduct of courts and corporations under the Delaware Corporations Law. Weiss and White relied, in part, on a statistical analysis of changes in the prices of publicly traded shares in Delaware corporations to show that the seven studied decisions had no statistically significant market impact.

In this Comment, Professor Fox takes issue with the explanation Weiss and White give for their data. Although the absence of an observed market impact …

The Corporate Governance Debate And The Ali Proposals: Reform Or Restatement?, Kathryn N. Fine

Vanderbilt Law Review

Much of the debate concerning corporate governance centers on the American Law Institute's proposed Principles of Corporate Governance [hereinafter ALI Proposals or ALI Principles].' The "restate" the law of corporate governance without departing from the primary goal stated in the ALI's charter: "to promote the clarification and simplification of the law and its better adaptation to social needs."' The ALI Proposals, however, have evolved into a"new art form"' and, unlike a restatement, have proposed reforms in addition to codifying the common law. Because of the predominance of statutory corporation law, the ALI Proposals have focused selectively on those areas that …

Recent Developments Concerning The Duty Of Care, The Duty Of Loyalty, And The Business Judgment Rule, Patricia A. Daniel

Vanderbilt Law Review

The judiciary faces a difficult task in attempting to define the proper standards of conduct for corporate directors and officers. Although courts have enunciated various standards, the prevailing theme has been that corporate directors and officers are fiduciaries who have a "distinct legal relationship" with the corporation and its shareholders. As fiduciaries, directors and officers must con-form to the duty of care and the duty of loyalty. The business judgment rule, which creates a presumption of propriety for directors' and officers' substantive business decisions, developed concurrently with these duties. Several recent court decisions concerning corporate director and officer liability appear …

Suing In The Right Of The Corporation: A Commentary And Proposal For Legislative Reform, Lawrence A. Larose

University of Michigan Journal of Law Reform

This Article is premised on the belief that the derivative action is uniquely susceptible to strike suit litigation-that is, actions with little or no substantive merit but pursued to exploit the nuisance value inherent in litigation. Although there is historic support for the notion of "pernicious and vexing" derivative litigation, some modern evidence suggests that the vast majority of publicly held companies experience no derivative litigation. Commentators, however, have questioned both the validity of the modern evidence and the conclusions derived from it. Despite these criticisms, observers of the present vitality of the derivative action, far from characterizing it as …

How Should We Talk About Corporations? The Languages Of Economics And Of Citizenship, James Boyd White

Articles

My immediate subject in this Comment is section 2.01 of the American Law Institute's proposed Principles of Corporate Governance (Tentative Draft No. 2), which defines in general terms the proper objectives and conduct of a business corporation. My larger subject has to do with the adequacy and inadequacy of various languages in which corporate pur­poses and limits might be expressed, and especially with the limits of the economic language used in the ALI Draft.

New Ways In Corporate Governance: European Experiments With Labor Representation On Corporate Boards, Klaus J. Hopt

Michigan Law Review

Corporate governance has been discussed in Europe for over 150 years. Indeed, in the 1840's, when the first Corporation Act was enacted in Prussia, three troubling features of the corporate organization form had already been discerned: (I) the vulnerability of small investors who lacked the influence and sophistication to. control the corporation; (2) the risk to creditors and the public created by the limited liability of the corporation, especially when combined with inadequate funds and poorly controlled management; and (3) the power that big corporations could amass economically, by monopolizing markets, and politically, by exerting influence on public opinion and …

The Supervision Of Corporate Management: A Comparison Of Developments In European Community And United States Law, Alfred F. Conard

Michigan Law Review

In 1971, Eric Stein published an account of the remarkable progress of the European Economic Community (EEC) toward a harmonized law of business corporations. The progress was particularly striking from an American viewpoint, because the harmonization was achieved by moving toward the more rigorous of the various national standards, in contrast to the "race of laxity" or "race for the bottom" that has characterized the movement toward uniformity in the corporation laws of U.S. states.

The Business Judgement Rule, Tamar Frankel

Faculty Scholarship

Symposium: Current Issues in Corporate Governance: Conference Panel Discussion

Prof. Kozyris: Our discussion today will focus on the so-called "business judgment rule," a judicially developed law concept that the business decisions of corporate management should not be second-guessed by the courts. The courts will not interfere with such decisions as they are being made and carried out, nor will they impose liability on management if it turns out that the decisions were wrong.

Regulating The Market For Corporate Control: A Critical Assessment Of The Tender Offer's Role In Corporate Governance, John C. Coffee Jr.

Faculty Scholarship

Better answers often await better questions. In the wake of a recent series of provocative articles dealing with contested tender offers, several questions have been vigorously debated:

(1) Should management of the target company be allowed to resist a hostile tender offer in order to remain an independent company? Which, if any, of the various "shark repellent" measures by which a potential target can make itself unattractive to a bidder are justified?;

(2) If defensive tactics were generally forbidden, should the target company's management still be permitted to encourage competing bids thereby creating an auction?; and

(3) Do hostile takeovers …

The Continuing Debate On Corporate Governance, J. Kirkland Grant

Michigan Law Review

A Review of The Modern Corporate Manager: Responsibility and Regulation by William A. Groening and The Limits of Corporate Power: Existing Constraints on the Exercise of Corporate Discretion by Ira M. Millstein and Salem M. Katsh

Union Representatives As Corporate Directors: The Challenge To The Adversarial Model Of Labor Relations, Robert A. Mccormick

University of Michigan Journal of Law Reform

This Article addresses these questions first by discussing the predominant philosophical approach adopted by unions in their dealings with management, and then describing several ways in which the labor laws reflect this traditional model of employment relations by showing, first, that the influence of unions has been limited to circumscribed categories of business decisions. The Article next examines decisions made by the National Labor Relations Board ("NLRB") and the courts that have carefully sought to separate employer from employee, assuming their interests to be inherently antagonistic. Then follows an evaluation of the NLRB's treatment of deviations from the traditional model …