Business Organizations Law Commons^™

The Duty To Creditors Reconsidered - Filling A Much Needed Gap In Corporation Law, Richard A. Booth

Faculty Scholarship

The most fundamental question of corporation law is to whom does the board of directors of a corporation owe its fiduciary duty. Recently, the question has tended to be whether and under what circumstances the board of directors has the duty to maximize stockholder wealth. But if a corporation is insolvent (or close to it), business decisions designed to maximize stockholder wealth may result in a reduction of creditor wealth. Although the conventional wisdom is that creditors must protect themselves by contractual means, there is a substantial body of case law that says that creditors can assert claims sounding in …

The Fiduciary Duty Of Disclosure After Dabit, Jack B. Jacobs

Journal of Business & Technology Law

No abstract provided.

Agents Of The Good, Servants Of Evil: Harry Potter And The Law Of Agency, Daniel S. Kleinberger

Faculty Scholarship

No abstract provided.

Bumping Along The Bottom: Abandoned Principles And Failed Fiduciary Standards In Uniform Partnership And Llc Statutes, Rutheford B. Campbell Jr.

Kentucky Law Journal

No abstract provided.

Clark's Treatise On Corporate Law: Filling Manning's Empty Towers, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Almost 45 years ago, in an elegantly depressive account of the then current state of corporate law scholarship, Bayless Manning announced the death of corporation law "as a field of intellectual effort." Manning left us with an affecting image of a once grand field long past its prime, rigid with formalism and empty of content:

When American law ceased to take the "corporation" seriously, the entire body of law that had been built upon that intellectual construct slowly perforated and rotted away. We have nothing left but our great empty corporate statutes towering skyscrapers of rusted girders, internally welded together …

Restoring Trust In Corporate Directors: The Disney Standard And The New Good Faith, Sarah Helene Duggin, Robert M. Goldman

American University Law Review

The purpose of this Article is to explore the parameters and potential impact of the good faith standard articulated in Disney V and clarified in Stone. Part I begins with a brief review of the historical impact of the tension between entrepreneurial freedom and managerial accountability, and Part II explains why the Disney standard differs significantly from the traditional understanding of good faith as the absence of subjective bad faith. Part III points out that the court’s use of the language of bad faith to articulate the new good faith may undercut the effectiveness of the standard. It urges further …

What Independent Directors Should Expect From Inside Directors: Smith V. Van Gorkom As A Guide To Intra-Firm Governance, Cheryl L. Wade

Faculty Publications

(Excerpt)

Smith v. Van Gorkom is the watershed case in which the board of a public company was held liable for breach of its fiduciary duty of care. The board of Trans Union Corporation (Trans Union) approved the company's sale to Jay Pritzker after a twenty-minute oral presentation by Chief Executive Officer Jerome Van Gorkom. The board spent only two hours considering Pritzker's offer before approving it. The directors received no notice or information before the meeting that its purpose was to approve the company's sale to Pritzker, nor did they receive anything in writing describing the proposed deal. No …

After The Revolution In Corporate Law, Roberta Romano

Journal of Legal Education

No abstract provided.

Good Faith In The World Of Delaware Corporate Litigation: A Strategic Perspective On Recent Developments In Fiduciary Duty Law, Zachary S. Klughaupt

ExpressO

The Delaware Chancery’s new-found willingness to hold corporate directors accountable for breaching the duty of good faith has provoked widespread attention in both the business and legal communities. Legal practitioners and scholars recognize the novelty of Delaware’s recent good faith jurisprudence, as well as its potential to expose directors to gigantic personal damage awards, and in fact have published numerous articles that seek to delimit the boundaries of good faith conduct. But until now, most discussions of good faith as a fiduciary duty have approached the subject as an abstract measure of conduct, showing little regard for how a complaint …

The Case Of Ceo Richard Grasso And The Nyse: Proposals For Controlling Executive Compensation At Public Nonprofit Corporations, Rachel Penski

Vanderbilt Law Review

In August 2003, for the first time in its 200-year history, the New York Stock Exchange (NYSE) announced the compensation package for its Chairman and Chief Executive Officer. The NYSE's Board of Directors revealed in a press release that it had distributed $139.5 million in deferred compensation to its CEO Richard Grasso. This payment was in addition to a base salary of $1.4 million with an annual bonus of $1 million. Due to the Exchange's status as a nonprofit corporation, Grasso's payout "led to an outcry, as [his compensation was] more in line with what chief executives of public corporations …

Seven Points To Explain Why The Law Ought Not Allow The Elimination Of Fiduciary Duty Within Closely Held Businesses: Cardozo Is Dead; We Have Killed Him., Daniel S. Kleinberger

Faculty Scholarship

Prepared as part of the author's work as co-reporter for the Revised Uniform Limited Liability Company Act, this essay argues against legislation that empowers private agreements to eliminate fiduciary duty within a business organization. The essay considers: (i) the venerable role of fiduciary duty within business organizations and the limited predictive powers of those urging radical reform; (ii) the absence of prescience in contract drafters; (iii) the strict construction function of fiduciary law; (iv) the inevitable and inappropriate pressure that elimination would put on the obligation of good faith and fair dealing; (v) the differences in remedy available for fiduciary …

Kentucky Corporate Fiduciary Duties, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

In this article I offer an interpretation of Kentucky's corporate fiduciary law. The article is positive, in that it attempts to explain our law by reference to certain principles. The article is also normative, however, in that it offers constructive criticism regarding parts of Kentucky fiduciary law and suggests changes, refinements, and clarifications intended to promote fairness and economic efficiency in Kentucky corporations.

Both the positive and the normative aspects of this piece recognize the importance of the common law developments in Delaware (and other states) and the importance of the law and economics movement. I suggest, however, that Kentucky …

Racial Stereotypes, Broadcast Corporations, And The Business Judgment Rule, Leonard M. Baynes

University of Richmond Law Review

No abstract provided.

Employee Stock Ownership After Enron: Proceedings Of The 2003 Annual Meeting, Association Of American Law Schools Section On Employee Benefits, Norman P. Stein, Colleen E. Medill, Susan J. Stabile, Jeffrey N. Gordon, Louis H. Diamond, Damon Silvers, Patricia E. Dilley

Faculty Scholarship

This session is entitled "Employee Stock Ownership After Enron," and I assume that title has drawn into this room people who know something about either Enron or employee stock, or both. For our purposes, the Enron story has as its focus the Enron 401(k) plan, which was the principal retirement plan for most Enron employees. Employees could make elective contributions to the 401(k) plan, which offered nineteen investment options, one of which was Enron stock. The 401(k) plan also provided that Enron would match employee contributions up to 3 percent of compensation. Enron's match, however, was made in Enron stock. …

Corporate Governance Issues, Peter Peterson, John Foster, Jeffrey M. Colon, William Treanor

Fordham Journal of Corporate & Financial Law

No abstract provided.

Enron And The Corporate Lawyer: A Primer On Legal And Ethical Issues, Roger C. Cramton

Cornell Law Faculty Publications

The stunning collapse of Enron, coupled with the large number of accounting irregularities and apparent corporate fraud, have created a climate in which reform and improvement of the law governing corporate lawyers is underway. The ABA Task Force on Corporate Responsibility has issued a preliminary report that recommends promising changes in the rules of professional conduct. And, the Corporate Reform Act of 2002 has changed the landscape by authorizing the SEC to promulgate rules of professional conduct for securities lawyers and directing the SEC to issue a rule requiring securities lawyers to climb the corporate ladder to prevent or rectify …

Managers' Fiduciary Duty Upon The Firm's Insolvency: Accounting For Performance Creditors, Alon Chaver, Jesse M. Fried

Vanderbilt Law Review

A corporation's managers generally owe a fiduciary duty to the corporation and its shareholders. Legal scholars interpret this duty as requiring the managers to maximize shareholder value. When a firm is solvent, the obligation to maximize shareholder value tends to give managers an incentive to deploy firm assets efficiently-that is, in a way that maximizes total value.

When a firm is insolvent, however, the duty to maximize shareholder value could lead managers to take actions that reduce the value of debt more than they increase the value of equity and therefore reduce total value. Accordingly, a number of courts have …

In Praise Of Procedure: An Economic And Behavioral Defense Of Smith V. Van Gorkom And The Business Judgment Rule, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

Comparisons Between Enron And Other Types Of Corporate Misconduct: Compliance With Law And Ethical Decision Making As The Best Form Of Public Relations, Cheryl L. Wade

Faculty Publications

(Excerpt)

One of the most important lessons that Enron offers is that sometimes managers lie and boards fail to do their jobs. Enron’s most valuable lessons relate to corporate governance, financial disclosure, accounting practices, and the management of pension funds. One of the most illuminating lessons that Enron offers, however, may be found in the reaction of jurists, legal scholars, the media, corporate professionals, elected officials, and the investing public to the Enron collapse. The general sense of public outrage is as large as the huge financial loss suffered by investors and employees.

There is a lesson to be derived …

The Sec's Regulation Fd, Richard L. Anderson, David Becker, Harvey L. Goldschmid, Eric D. Roiter, Susan E. Wolf, Alex Zisson, Jill E. Fisch

Fordham Journal of Corporate & Financial Law

No abstract provided.

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 …

The Limited Fiduciary Duties Owed By Corporate Managers To Preferred Shareholders: A Need For Change, Noelle M. Holladay

Kentucky Law Journal

No abstract provided.

Fiduciary Duty, Contract, And Waiver In Partnerships And Limited Liability Companies, Richard A. Booth Marbury Research Professor Of Law

Faculty Scholarship

Among the controversies swirling around the promulgations of new uniform statutes governing partnerships and LLCs is the question whether and to what extend fiduciary duties should be made mandatory or waivable. Although courts and commentators have not traditionally focused on the costs of fiduciary duties, the costs are significant in that such duties may preclude agents from engaging in other legitimate ventures. Indeed, fiduciary duty may be used by those to whom it is owed to prevent competition or extort side benefits form participants. Mandatory duties effectively require participants who may identify multiple business opportunities to overinvest their human capital …

Corporate Fiduciary Principles For The Post-Contractarian Era, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The impact of the law and economics movement on legal scholarship, legal analysis, and, ultimately, on the rules under which our society operates is substantial. The proponents of this movement ("Contractarians") articulate their positions skillfully and apply their principles broadly across the entire spectrum of our laws, including, of course, the area of corporate law.

The purpose of this Article is to propose, explain, and defend broad and unifying principles to guide the development of fiduciary duties of corporate managers in the post-Contractarian period. These principles are based on Pareto criteria, which are demonstrably appealing to society and provide workable …

A Positive Analysis Of The Common Law Of Corporate Fiduciary Duties, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The purpose of this Article is to offer a positive analysis of the common law of corporate managers' fiduciary duties. The Article attempts to explain the present shape of these corporate fiduciary duties by reference to Pareto criteria.

A particular state of affairs ("state B") is considered to be Pareto superior to another state of affairs ("state A") if at least one person in state B is better off than he or she is in state A and no one in state B is worse off than he or she is in state A. Since in a move from state …

Resolving The Subsidiary Director's Dilemma, Eric J. Gouvin

Faculty Scholarship

Although subsidiaries play a significant role in our economy, surprisingly little has been written about the duties of their directors. Despite widespread acceptance of holding companies as commonplace business entities, several legal problems inherent in the holding company form of ownership remain unresolved. Holding companies raise legal dilemmas for subsidiary directors that are easier to ignore than to resolve. This Article examines the subsidiary director's dilemma and demonstrates that traditional models of corporate structure are not adequate for the subsidiary-parent situation. The Author argues that the law should recognize the special relationship between a parent and its subsidiary and adopt …

Fiduciary Duties And Reasonable Expectations: Cash-Out Mergers In Close Corporations, David C. Crago

Oklahoma Law Review

No abstract provided.

The Forgotten Link: Control In Section 482, Wayne M. Gazur

Publications

The foundation of international taxable income allocations between related parties is formed by the imposition of an arm's length standard. The presence of "control" over a person invokes this measure. The author examines the implications of control presented by continuing developments in the global business environment, including the rise of cooperative interfirm arrangements.

Shift Of Fiduciary Duty Upon Corporate Insolvency: Proper Scope Of Directors' Duty To Creditors, Laura Lin

Vanderbilt Law Review

In the wake of the debt binge of the 1980s, the number of financially distressed corporations has increased dramatically.' Because a struggling company rarely ceases operations overnight, directors still need to make investment and operational decisions concerning the best use of the company's existing assets. This need remains whether the firm will regain profitability or will be liquidated. Financial distress also intensifies conflicts of interest between shareholders and creditors. Indeed, when these constituencies are unable to recover their investments in the corporation because of insufficient assets, both shareholders and creditors have incentives to maximize their individual returns regard- less of …

Why Not Good Faith?-The Foibles Of Fairness In Closely Held Corporations, Daniel S. Kleinberger

Faculty Scholarship

This essay describes the contours of the shareholder’s duty to be fair and explores some of the problems caused by the law’s imprecision in defining the duty of fairness. Because this duty is best understood as a rejection of old norms, part one of this essay describes the traditional doctrines of intra-corporate responsibility. Part two describes the special characteristics of a close corporation and outlines how those characteristics pushed close corporation law to new concepts of fairness and shareholder duties. Part three attempts to delineate those duties of fairness and also to highlight some of the dangers that arise when …