The defining tension in corporate governance in America

Business Lawyer

Volumn 52, Issue 2, 1997, Pages 393-406

  Veasey, E Norman ^a  

^a NONE

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EID: 21744456842     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (93)

1. Roberta Romano, The Genius of American Corporate Law (1993). Ms. Romano notes: The genius of American corporate law is in its federalist organization. In the United States, corporate law, which concerns the relation between a firm's shareholders and managers, is largely a matter for the states. Firms choose their state of incorporation, a statutory domicile that is independent of physical presence and that can be changed with shareholder approval. The legislative approach is, in the main, enabling. Corporation codes supply standard contract terms for corporate governance. These terms function as default provisions in corporate charters that firms can tailor more precisely to their needs. Firms therefore can particularize their charters under a state code, as well as seek the state whose code best matches their needs so as to minimize their cost of doing business.
2. Id.at l.
3. Bayless Manning, Reflections and Practical Tips on Life in the Boardroom After Van Gorkom, 41 Bus. Law. 1, 5-6(1985).
4. See del. Code ANN. tit. 8, § 141(a) (1974);.
5. Aronson v. Lewis, 473 A.2d 805, 809-11 (Del.). 1984).
6. Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del.). 1971).
7. Stated affirmatively: "[d]irectors are not obliged to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy." Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140, 1154 (Del.). 1989).
8. Graham v. Allis-Chalmers Mfg. Co., 188 A.2d 125, 129-30 (Del.). 1963);.
9. Lutz v. Boas, 171 A.2d 381, 396 (Del.). Ch. 1961).
10. DEI.. CODE ANN. tit. 8, § 141(c)(2) (Supp. 1996);.
11. Rosenblatt v. Getty Oil Co., 493 A.2d 929, 943-44 (Del.). 1985);.
12. Graham, 188 A.2d at 130.
13. DEL. CODE ANN. tit. 8, § 141(e);.
14. REVISED MODEL BUS. CORP. ACT § 8.30(b) (1984);.
15. 1 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations §§ 4.01(a)(2), 4.01(b), 4.02, 4.03 (1992).
16. FED. R. CIV. P. 23.1.
17. DEL. CH. CT. R. 23.1.
18. See Grimes v. Donald, 673 A.2d 1207 (Del.). 1996);.
19. Rales v. Blasband, 634 A.2d 927, 934 (Del.). 1993).
20. 2 American Law Institute, supra note 7, §§ 7.01-7.17 (1992);.
21. CHARLES HANSEN, A GUIDE TO THE AMERICAN LAW INSTITUTE CORPORATE GOVERNANCE PROJECT 105-33 (1995).
22. REVISED MODEL BUS. CORP. ACT § 7.40.
23. See, e.g., Grimes, 673 A.2d at 1213.
24. See FED. R. CIV. P. 23;.
25. DEL. CH. CT. R. 23.
26. See FED. R. CIV. P. 23, 23.1;.
27. DEL. C. CT. R. 23, 23.1.
28. Del. Code Ann. tit. 8, § 102(b)(7) (Supp. 1996).
29. Id.
30. See 2 AMERICAN LAW INSTITUTE, supra note 7, § 7.19 & cmt. a.
31. Section 102(b)(7) does not apply to officers acting as officers. DEL. CODE ANN. tit. 8, § 102(b)(7);.
32. see A. Gilchrist Sparks III & Lawrence A. Hamermesh, Common Law Duties of Non-Director Corporate Officers, 48 BUS. LAW. 215, 229 (1992).
33. Arnold v. Society for Sav. Bancorp, Inc. (Arnold I), 650 A.2d 1270, 1236-88 (Del.). 1994).
34. Arnold v. Society for Sav. Bancorp, Inc., 678 A.2d 533, 539-40 (Del.). 1996).
35. Arnold I, 650 A.2d at 1280.
36. Smith v. Van Gorkom, 488 A.2d 858, 872-73 (Del.). 1985);.
37. Aronson v. Lewis, 473 A.2d 805, 812 (Del.). 1984).
38. Kahn v. Lynch Communications Sys., Inc., 669 A.2d 79, 84 (Del.). 1995);.
39. Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1162-63 (Del.). 1995).
40. Guth v. Loft, Inc., 5 A.2d 503, 510 (Del.). 1939).
41. Rales v. Blasband, 634 A.2d 927, 934 (Del.). 1993).
42. In re Santa Fe Pac. Corp. Shareholder Litig., 669 A.2d 59, 67 (Del.). 1995).
43. Arnold v. Society for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del.). 1994).
44. Id. at 1288;.
45. see also Zirn v. VLI Corp., 681 A.2d 1050, 1061-62 (Del.). 1996).
46. Johnson v. Trueblood, 629 F.2d 287, 293 (3d Cir. 1980).
47. Unitrin, Inc. v. American Gen. Corp., 651 A.2d 1361, 1373 (Del.). 1995);.
48. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 958 (Del.). 1985).
49. Aronson v. Lewis, 473 A.2d 805, 812 (Del.). 1984).
50. Rales v. Blasband, 634 A.2d 927, 934 (Del.). 1993).
51. Kahn v. Lynch Communications Sys., Inc., 638 A.2d 1110, 1120-21 (Del.). 1994).
52. Kahn v. Lynch Communications Sys., Inc., 669 A.2d 79, 84 (Del.). 1995);.
53. Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1162-63 (Del.). 1995);.
54. Nixon v. Blackwell, 626 A.2d 1366, 1375-76 (Del.). 1993).
55. Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 46-48 (Del.). 1993).
56. Committee on Corp. Laws, ABA, Corporate Director's Guidebook-1991 Edition, 49 Bus. Law. 1243 (1994);.
57. see also AUSTRALIAN INST, OF CO. DIRS. ET AL., CORPORATE PRACTICES AND CONDUCT (3d ed. 1995);.
58. LEGAL GUIDEBOOK FOR DIRECTORS OF NONPROFIT CORPORATIONS (George W. Overton, ed., 1993).
59. The GM guidelines, as adopted a few years ago in the wake of their corporate governance upheaval, include plainly stated principles which, on their face, are very helpful for the perception (and presumably the reality) of independence. For example:.
60. Mix of Inside and Outside Directors The Board believes that as a matter of policy, there should be a majority of independent Directors on the GM Board (as stipulated in By-law 2.12). The Board is willing to have members of Management, in addition to the Chief Executive Officer, as Directors. But, the Board believes that Management should encourage senior managers to understand that Board membership is not necessary or a prerequisite.
61. Dennis J. Block & Jonathan M. Hoff, Mergers and Acquisitions: Corporate Governance and Institutional Activism, N.Y. L. J., Jan. 18, 1996, at 5.
62. Kimberly Quillen, Court of Chancery Brings Incorporations to State, DEL. BUS. REV., June 12, 1995, at 1.
63. Block & Hoff, supra note 38, at 5;.
64. see a also Judith A. Dobrzynski, Board Members, Too, Are Getting Investor Scrutiny, N.Y. Times, Mar. 12, 1996, at Dl.
65. Chief Justice Joseph F. Baca, State of the Judiciary Address Before the 42d New Mexico Legislature, 2d Sess. 3 (Feb. 8, 1996) (on file with The Business Lawyer, University of Maryland School of Law);.
66. see also Paramount Communications, Inc. v. QVC Network; Inc., 637 A.2d 34, 51 (Del.). 1993) ("It is the nature of the judicial process that we decide only the case before us. .").
67. Sanjai Bhagat & Bernard S. Black, Do Independent Directors Matter? (The Center for Law and Economic Studies, Columbia University School of Law, Working Paper No. 112, 1996) (on file with The Business Lawyer, University of Maryland School of Law);.
68. see also Ronald J. Gilson, Corporate Governance and Economic Efficiency: When Do Institutions Matter? (The Center for Law and Economic Studies, Columbia University School of Law, Working Paper No. 113, 1996) (on file with The Business Lawyer, University of Maryland School of Law).
69. Nixon v. Blackwell, 626 A.2d 1366, 1375-79 (Del.). 1992).
70. Block & Hoff, supra note 38, at 5.
71. Id.
72. Id.
73. See DEL. CODE ANN. tit. 8, §§ 141(a), 141(d), 157 (1974);.
74. Moran v. Household Int'l, Inc., 500 A.2d 1346, 1351-53 (Del.). 1985).
75. 493 A.2d 946 (Del.). 1985).
76. 651 A.2d 1361 (Del.). 1995).
77. 637 A.2d 34 (Del.). 1993).
78. 506 A.2d 173 (Del.). 1985).
79. Committee on Corp. Laws, supra note 36, at 1262-74.
80. Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140, 1154 (Del.). 1989).
81. Williams v. Geier, 671 A.2d 1368, 1385 (Del.). 1996).
82. Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 50-51 (Del.). 1993).
83. Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1280-81 (Del.). 1988).
84. Kahn v. Lynch Communications Sys., Inc., 638 A.2d 1110, 1119, 1120-21 (Del.). 1994) (brackets in original) (quoting In re First Boston Inc. Shareholder Litig., C.A. 10338, 1990 WL 78836, at *15-*16 (Del.). Ch. June 7, 1990)).
85. See Rales v. Blasband, 634 A.2d 927, 934 (Del.). 1993);.
86. 2 R. FRANKLIN BALOTTI & JESSE A. FINKELSTEIN, THE DELAWARE LAW OF CORPORATIONS AND BUSINESS ORGANIZATIONS § 13.13 (1997 Supp.);.
87. DENNIS J. BLOCK ET AL., THE BUSINESS JUDGMENT RULE 891-915 (4 th ed. 1993) (discussing independence in the context of dismissal of derivative suits by special litigation committees).
88. Ira M. Millstein, The Professional Board, 50 bus. Law 1427, 1429-33 (1995);.
89. see also Ira M. Millstein, The Evolution of the Certifying Board, 48 Bus. Law. 1485, 1493-95 (1993).
90. See Lewis v. Fuqua, 502 A.2d 962, 965 (Del.). Ch. 1985).
91. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.7 cmt. 14(1996).
92. See Michael P. Dooley & E. Norman Veasey, The Role of the Board in Derivative Litigation: Delaware Law and Current ALI Proposals Compared, 44 BUS. Law. 503, 537 (1989) ("To advance this argument in favor of closer judicial review on loyalty matters is to assert that independent directors are more likely to risk their reputations to excuse cheating than to excuse carelessness.").
93. See Lewis, 502 A.2d at 967.