Business Organizations Law Commons^™

Sticky Charters? The Surprisingly Tepid Embrace Of Officer-Protecting Waivers In Delaware, Jens Frankenreiter, Eric L. Talley

Faculty Scholarship

This article examines the response to Delaware’s much-heralded 2022 legal reform that permitted corporations, for the first time, to adopt charter provisions exculpating corporate officers from liability for breaching their fiduciary duty of care. Contrary to widespread predictions that corporate actors would swiftly adopt officer exculpation provisions, our analysis — using both traditional and generative artificial intelligence (AI) methods — reveals a surprisingly low rate of uptake, over three years after the reform’s enactment.

Our study makes both methodological and substantive contributions. Methodologically, we present a novel application of large language models (LLMs) to identify and interpret technical clauses in …

Values Primacy & Total Governance Through Activism, Carliss N. Chatman, Sergio Alberto Gramitto Ricci

Faculty Journal Articles and Book Chapters

In the aftermath of George Floyd’s murder, public companies swift-ly pledged sweeping equity commitments—only to abandon them under political and market pressure. These reversals were not aberrations. They were opportunistic, performative, and reactionary marketing responses. They expose a governance regime in which stakeholder interests are structurally reversible because they remain doctrinally optional, lacking the institutional interlock needed to create binding accountability across stakeholder roles.

This Article explores how stakeholder power is already embedded in corporate governance through interlocking initiatives grounded in shared values. Stakeholder activism—boycotts, proxy votes, viral campaigns—is not merely expressive; it is an overlooked form of governance. Drawing …

A Theory Of Calibrated Fiduciary Duties In Firms, Robert J. Rhee

UF Law Faculty Publications

Although the laws of firms state the same traditional duty of loyalty, they diverge in expressing the duty of care and the concept of good faith. The differences are not subtle shades of refinement, but quantum contrasts of discrete legal states. The law shuffles, reclassifies, and relocates core elements of the duty of care and the concept of good faith uniquely in each form of firm. Why? Despite apparent legal divergence, a single fiduciary rule governs all forms of firms. This Article presents a theory of calibrated fiduciary duties that explains important variations in the formulation of fiduciary duty and …

The New Framework For Directors’ Duty To Creditors And The Challenges Ahead – Foo Kian Beng V Op3 International Pte Ltd (In Liquidation) [2024] 1 Slr 361, Jonathan Ren Hao Cheong

Singapore Law Journal (Lexicon)

In Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] 1 SLR 361, the Singapore Court of Appeal introduced a two-step, three-category framework for evaluating whether a director has breached his fiduciary duty to consider the interests of creditors. This decision not only affirms the traditional understanding of the duty in other common law jurisdictions but also provides directors with clearer guidance on managing the affairs of the company in times of financial distress. This article builds upon the discussion in Foo Kian Beng by evaluating the new framework established by the SGCA. It also identifies potential challenges …

Texas, Delaware, And The New Controller Primacy, Christine Hurt

Faculty Journal Articles and Book Chapters

In January 2024, Elon Musk, CEO of Tesla, Inc., initiated the process of moving Tesla’s state of incorporation from Delaware to Texas, citing concerns over Delaware corporate law. The move sparked discussions about the dominance of Delaware corporate law and its recent rulings, with critics accusing Court of Chancery judges of favoring shareholder interests over controller innovation and managerial discretion.

The shift away from Delaware is set against a backdrop of increasing judicial scrutiny in the Delaware Court of Chancery, where plaintiffs have recently seen successes in litigation against controlling shareholders, corporate directors, and officers. Concerns over Delaware’s evolving legal …

Law And Social Justice: Operationalizing Stakeholder Theory In Governmental Regulations And Corporate Decision-Making For Social And Economic Sustainability, Resilience, And Democracy, Daniel Herron, Laura Powell

Pace International Law Review

It is time to shed the twentieth century capitalistic ways of shareholder maximization. It is time to fashion a “new” capitalism which retains the competitive dynamic but redefines its force to create a more socially just society. That is a huge order, to say the least. But, there is a path to that end. The 2019 U.S. Business Roundtable’s announcement, the creation of the Benefit Corporation, and the United Kingdom’s 2006 Companies Act began that process. These developments are enabling the beginning of the redefining of one of the bedrocks of capitalism: fiduciary obligation. The methodology of these developments is …

Corporate Law’S Threat To Human Rights: Why Human Rights Due Diligence Might Not Be Enough, Barnali Choudhury

Articles & Book Chapters

The take-up of mandatory human rights due diligence (HRDD) initiatives by states is continuously gaining momentum. There are now numerous states adopting some form of HRDD laws. While corporations being duly diligent in respecting human rights is a positive step towards addressing problems of business and human rights, these HRDD initiatives on their own may only be a form of window-dressing, that is, enabling states to put a smart spin on their efforts to address business and human rights issues without addressing some of the root causes of that predicament. As a result, HRDD laws are likely to be a …

The Liability Trap: Why The Alec Anti-Esg Bills Create A Legal Quagmire For Fiduciaries Connected With Public Pensions, David J. Berger, David H. Webber, Beth M. Young

Faculty Scholarship

Two proposed bills barring public pensions from considering environmental, social, and governance investment criteria create massive legal risk for any pension fiduciary or service provider. The American Legislative Exchange Council “boycott bill” and the “fiduciary duty” bill, if adopted, would impose irreconcilable legal requirements on such fiduciaries, and subject them to compliance with arbitrary and unworkable legal demands.

The main legal problems the bills create fall into four categories:

(1) the unworkable distinction between “pecuniary” and “non-pecuniary,” a distinction so blurry that the bills are self-contradictory, as we demonstrate;

(2) the clash between the bills’ definition of materiality and that …

Caremark'S Butterfly Effect, Angela N. Aneiros, Karen E. Woody

Scholarly Articles

In 1996, the Delaware Court of Chancery detailed the minimum standard for corporate boards of directors (“board”) with regard to corporate compliance programs and monitoring protocols. The landmark Caremark decision held that directors would not face liability for a breach of fiduciary duties unless they failed to implement a system of controls and compliance, or knowingly failed to monitor that system. In order to bring a successful Caremark claim, plaintiffs must prove that the board operated in bad faith by failing to exercise oversight in a sustained or systemic way. The Delaware Court of Chancery opinion noted that the theory …

The Humanities Strike Back: (E)Esg And Justice Strine Challenge Gamer Shareholder Primacy, David H. Webber

Faculty Scholarship

Leo E. Strine, Jr. is closing in on Blair and Stout for the undisputed title of all-time top-scoring stakeholderist.³ I don't intend to squander this opportunity to roast and toast him by weighing the pros and cons of basketscoring primacy. Instead, my aim is to surface an overlooked argument in the debate over shareholder primacy and stakeholderism, the case for which has been recently reinvigorated by Strine's work. My argument is this: one underappreciated aspect of shareholder primacy's appeal is that it creates a competition with a single endpoint, basically a game, and that the exhilarating tournament that results, …

Corporate Governance Reform And The Sustainability Imperative, Christopher Bruner

Scholarly Works

Recent years have witnessed a significant upsurge of interest in alternatives to shareholder-centric corporate governance, driven by a growing sustainability imperative—widespread recognition that business as usual, despite the short-term returns generated, could undermine social and economic stability and even threaten our long-term survival if we fail to grapple with associated costs. We remain poorly positioned to assess corporate governance reform options, however, because prevailing theoretical lenses effectively cabin the terms of the debate in ways that obscure many of the most consequential possibilities. According to prevailing frameworks, our options essentially amount to board-versus-shareholder power, and shareholder-versus stakeholder purpose. This narrow …

Duty And Diversity, Chris Bummer, Leo E. Strine Jr.

Ira M. Millstein Center for Global Markets and Corporate Ownership

In the wake of the brutal deaths of George Floyd and Breonna Taylor, lawmakers and corporate boards from Wall Street to the West Coast have introduced a slew of reforms aimed at increasing Diversity, Equity, and Inclusion (“DEI”) in corporations. Yet the reforms face difficulties ranging from possible constitutional challenges to critical limitations in their scale, scope, and degree of legal obligation and practical effects.

In this Article, we provide an old answer to the new questions facing DEI policy and offer the first close examination of how corporate law duties impel and facilitate corporate attention to diversity. Specifically, we …

Artificially Intelligent Boards And The Future Of Delaware Corporate Law, Christopher Bruner

Scholarly Works

The prospects for Artificial Intelligence (AI) to impact the development of Delaware corporate law are at once over- and under-stated. As a general matter, claims to the effect that AI systems might ultimately displace human directors not only exaggerate the foreseeable technological potential of these systems, but also tend to ignore doctrinal and institutional impediments intrinsic to Delaware's competitive model – notably, heavy reliance on nuanced and context-specific applications of the fiduciary duty of loyalty by a true court of equity. At the same time, however, there are specific applications of AI systems that might not merely be accommodated by …

Artificially Intelligent Boards And The Future Of Delaware Corporate Law, Christopher Bruner

Scholarly Works

This article argues that the prospects for Artificial Intelligence (AI) to impact corporate law are at once over- and under-stated, focusing on the law of Delaware – the predominant jurisdiction of incorporation for US public companies. Claims that AI systems might displace human directors not only exaggerate AI’s foreseeable technological potential, but ignore doctrinal and institutional impediments intrinsic to Delaware’s competitive model – notably, heavy reliance on nuanced applications of the fiduciary duty of loyalty by a true court of equity. At the same time, however, there are discrete AI applications that might not merely be accommodated by Delaware corporate …

Dudenhoeffer: Why Concealment Of Fraud Violates The Fiduciary Duty-Of-Prudence, Kolton G. Whitmire

American University Business Law Review

I. INTRODUCTION

In 1974, Congress sought to encourage a form of a retirement fund known as an employee stock ownership plan (“ESOP”). The statutory mandates of these plans are outlined in the Employee Retirement Income Security Act (“ERISA”). ESOPs are invested in stock of the company in which the employee works. In this way, ESOP planners’ (“plan fiduciaries”) obligations are necessarily unique. Whereas most fiduciaries are required to prudently diversify investments to protect their beneficiaries, ESOP planners are not similarly mandated. Further, Congress allows ESOP planners to concurrently be officers of the corporation in which the stock was invested. This …

Pension Fiduciaries And Climate Change: A Canadian Perspective, Maziar Peihani

All Faculty Publications

Climate change has emerged as a major issue of financial risk for Canadian pension funds when determining where to place investments. The author argues that while such pension funds recognize climate change as an issue that holds the potential for significant financial risk, the funds’ current approach to climate-related risks faces critical limitations. The author identifies the current practices of the five largest pension funds in Canada when faced with climate-related financial risks, then discusses the key shortcomings in current practices among the pension funds in three main areas.
First, the author examines organizational governance, which seeks to understand investment …

Boards In Information Governance, Faith Stevelman, Sarah C. Haan

Scholarly Articles

This Article focuses on the evolving role of boards of directors. It charts the decline of the two leading, twentieth-century conceptual frameworks shaping corporate boards’ roles: agency cost theory, which produced the limited “monitoring board,” and “separate realms” theory, which ceded board responsibility for matters other than profit maximization to government regulation. Hedge fund activism and wild stock market swings have exposed the limits of the board’s role in agency cost theory. The 2020 pandemic, economic crises, investors’ demands for socially responsible stewardship, and corporations’ own political activism have rendered separate realms thinking untenable.

Although much theorizing in corporate law …

Attorney–Client Privilege In Bad Faith Insurance Claims: The Cedell Presumption And A Necessary National Resolution, Klien Hilliard

Seattle University Law Review

Attorney–client privilege is one of the most important aspects of our legal system. It is one of the oldest privileges in American law and is codified both at the national and state level. Applying to both individual persons and corporations, this expanded privilege covers a wide breadth of clients. However, this broad privilege can sometimes become blurred in relationships between the corporation and the individuals it serves. Specifically, insurance companies and those they cover have complex relationships, as the insurer possesses a quasi-fiduciary relationship in relation to the insured. This type of relationship requires that the insurer act in good …

From Trulia To Akorn: A Ride On The Roller Coaster Of M&A Litigation, Pierluigi Matera, Ferruccio M. Sbarbaro

Faculty Scholarship

In recent years, M&A litigation has experienced a dramatic increase, culminating with a peak in 2015, when over 96. of publicly announced mergers were challenged in a shareholder lawsuit. A large number of these lawsuits were frivolous and vexatious, since most claims were filed by plaintiffs' attorneys just to extract some fees with little effort. Some abusive practices emerged, signalling an alarming exploitation of the system. One scheme that plaintiffs' attorneys put in place was the disclosure-only settlement. There, the stockholders obtained some modest supplemental disclosures, the plaintiff's attorneys got significant fee awards from the defendant directors and the defendant …

Mootness Fees, Randall S. Thomas, Matthew D. Cain, Jill E. Fisch, Steven D. Solomon

Vanderbilt Law School Faculty Publications

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs'attorneys to these developments. Specifically, we document a troubling trend-the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs'counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were challenged in …

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

Cornell Law Review

Fiduciary duty is arguably the single most important aspect of our corporate law system. It consists of two distinct subduties-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 falls her peers, they cannot seek direct legal recourse against her even when they stand to suffer significant reputational and …

Mandatory Corporate Social Responsibility? Legislative Innovation And Judicial Application In China, Li-Wen Lin

All Faculty Publications

Corporate social responsibility (CSR) is often understood as voluntary corporate behavior beyond legal compliance. The recent emergence of CSR legislation is challenging this typical understanding. A number of countries including China, Indonesia and India have expressly stated in corporate law that companies shall undertake CSR. The CSR law is controversial. Critics of CSR see the law as an unwise effort to challenge profit maximization as the only social responsibility of the corporation. Even CSR advocates welcome the CSR law with great caution. Given the vague statutory language of CSR, the practical application of the law places high demands on the …

Fiduciary Duties Of Directors Of Insolvent Corporations: A Comparative Perspective, Alessandra Zanardo

Chicago-Kent Law Review

Over the last two decades, in many jurisdictions great emphasis has been placed on directors’ fiduciary duties when a corporation is insolvent or in the amorphous “zone of insolvency”; notably, to investigate whether the directors should continue to promote the best interests of the corporation for the benefits of its shareholders, or whether their duties shift to creditors.

The resolution of this ubiquitous issue will help to answer the following questions: Do creditors have standing to pursue claims for breach of fiduciary duties in the insolvency scenario? And, if they do, is it direct or derivative standing?

This Article will …

Maine's Non-Shareholder Constituency Statute, John A. Anderson

Maine Law Review

In 1985, the Maine Legislature enacted an amendment to section 716 of the Maine Business Corporation Act which added the following paragraph to the statute: “In discharging their duties, the directors and officers may, in considering the best interests of the corporation and of its shareholders, consider the effects of any action upon employees, suppliers and customers of the corporation, communities in which offices or other establishments of the corporation are located and all other pertinent factors.” This amendment, commonly referred to as a non-shareholder constituency provision, is seen by some as affecting no great change in Maine's corporate fiduciary …

Corporate Officers As Agents, Deborah A. Demott

Washington and Lee Law Review

No abstract provided.

The Challenge Of Fiduciary Regulation: The Investment Advisors Act After Seventy-Five Years, Roberta S. Karmel

Brooklyn Journal of Corporate, Financial & Commercial Law

Seventy-five years after its enactment the Investment Advisers Act of 1940 has advanced from a relatively weak statute merely registering advisers with the Securities and Exchange Commission (SEC) to a more robust law imposing fiduciary responsibilities on advisers. Over the years, the number of investment advisers and the number of their clients have increased greatly. The SEC therefore has been pressured by Congress to develop a harmonized fiduciary standard for broker-dealers and advisers and also to develop and enforce a greater degree of oversight over the advisory industry. These developments have raised the questions of how to fund such efforts …

The Reform Of The Corporate Duty Of Care In China -- From The Introspection Of Delaware And Taiwan, Jui-Chien Cheng

Maurer Theses and Dissertations

The concept of fiduciary duty, derived from common law, was introduced to the Company Law of People’s Republic of China in 2005. The fiduciary duty plays an extremely important role in common law, particularly in U.S. corporate law. For this reason, one might have expected dramatic consequences from its introduction to Chinese law. In reality, however, few fiduciary lawsuits have been brought to the courts of China since 2005. There are three main reasons for the rarity of due care lawsuits.

First, Chinese fiduciary law has neither clear content nor a practical enforcement. This is especially true of the body …

Alternative Relief Available To Dissenting Shareholders Of A Cash-Out Merger, Edwin Davila

Akron Law Review

This article relates to the standing and right of a minority shareholder, who has dissented from a cash-out merger and commenced an appraisal proceeding, to pursue a separate individual claim of fraud in the merger through an action for rescissory damages against the participants for breaches of fiduciary duties to the shareholder. This issue arises from a cash-out merger of the minority shareholder. The situation encompasses two suits: a first filed statutory appraisal proceeding (the "Appraisal Action"); and a later filed shareholder's individual suit for damages for alleged fraud, conspiracy, self-dealing and waste of corporate assets (the "Fraud Action").

Fragmented Oversight Of Nonprofits In The United States: Does It Work? Can It Work?, Lloyd Hitoshi Mayer

Chicago-Kent Law Review

The United States is well known for its distinctive, although not unique, division of political authority between the federal government and the various states. This division is particularly evident when it comes to oversight of nonprofit organizations. The historical focus of federal government oversight has been limited primarily to qualification for tax exemption and other tax benefits, with more plenary power resting with state authorities. Over time, however, the federal government’s role has come to overlap significantly with that of the states, and many nonprofits have become subject to regulation by multiple states as their operations and donor bases expand …

Viken Securities Limited, Order Granting Defendants' Motion For Summary Judgment And Denying Plaintiffs' Motion For Partial Summary Judgement As To Counts I & Ii, Melvin K. Westmoreland

Superior Court of Fulton County: Metro Atlanta Business Case Division Opinions

No abstract provided.