Disney in a comparative light

American Journal of Comparative Law

Volumn 55, Issue 3, 2007, Pages 453-492

  Gevurtz, Franklin A ^a  

^a UNIVERSITY OF THE PACIFIC   (United States)

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EID: 34548674006     PISSN: 0002919X     EISSN: None     Source Type: Journal    
DOI: 10.1093/ajcl/55.3.453     Document Type: Review

References (209)

1. 906 A.2d 27 (Del. 2006), affirming 907 A.2d 693 (Del. Ch. 2005). The Disney litigation produced three earlier published court opinions: In re The Walt Disney Company Derivative Litigation, 731 A.2d 342 (Del. Ch. 1998) (dismissing complaint);
2. Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (affirming dismissal, but holding that the plaintiffs should receive leave to amend);
3. and In re The Walt Disney Company Derivative Litigation, 825 A.2d 275 (Del. Ch. 2003) (denying motion to dismiss amended complaint).
4. BGH (Bundesgerichtshof [Federal Court of Justice]), 21.12.2005 - 3 StR 470/ 04, NJW (Neue Juristische Wochenschrift) 2006 p. 522 (F.R.G. 2005).
5. E.g., STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS 241-69 (2002);
6. Peter V. Letsou, The Implications of Shareholder Diversification on Corporate Law and Organization: The Case of the Business Judgment Rule, 77 CHI.-KENT L. REV. 179 (2001);
7. Franklin A. Gevurtz, The Business Judgment Rule: Meaningless Verbiage or Misguided Notion?, 67 S. CAL. L. REV. 287 (1994);
8. Larry D. Soderquist, The Proper Standard for Director's Negligence Liability, 66 NOTRE DAME L. REV. 37 (1990);
9. Bayless Manning, The Business Judgment in Overview, 45 OHIO ST. L.J. 615 (1984);
10. Stuart R. Cohn, Demise of the Directors' Duty of Care: Judicial Avoidance of Standards and Sanctions through the Business Judgment Rule, 62 TEX. L. REV. 591 (1983).
11. E.g., Laura Lin, The Effectiveness of Outside Directors as a Corporate Governance Mechanism, 90 NW. U.L. REV. 898 (1996);
12. Michael P. Dooley & E. Norman Veasey, The Role of the Board in Derivative Litigation: Delaware Law and the Current ALI Proposals Compared, 44 BUS. LAW 503, 535 (1989);
13. James D. Cox & Harry L. Munsinger, Bias in the Boardroom: Psychological Foundations and Legal Implications of Corporate Cohesion, 48 LAW & CONTEMP. PROBS. 83 (1985);
14. Note, The Propriety of Judicial Deference to Corporate Boards of Directors, 96 HARV. L. REV. 1894 (1983) [hereinafter Propriety of Deference];
15. Victor Brudney, The Independent Director - Heavenly City or Potemkin Village?, 95 HARV. L. REV. 597 (1982);
16. Myles L. Mace, Directors: Myth and Reality-Ten Years Later, 32 RUTGERS L. REV. 293 (1979).
17. E.g., LUCIAN A. BEBCHUCK & JESSE M. FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION (2004);
18. Stephen M. Bainbridge, Executive Compensation: Who Decides, 83 TEX. L. REV. 1615 (2005);
19. Mark J. Loewenstein, The Conundrum of Executive Compensation, 35 WAKE FOREST L. REV. 1 (2000);
20. Charles M. Yalblon, Bonus Questions: Executive Compensation in the Era of Pay for Performance, 75 NOTRE DAME L. REV. 271 (1999);
21. Charles M. Elson, Executive Overcompensation - A Board-Based Solution, 34 B.C. L. REV. 937 (1993);
22. Detlev F. Vagts, Challenges to Executive Compensation: For the Market or the Courts?, 8 J. CORP. L. 231 (1983).
23. E.g., Margaret M. Blair & Lynn A. Stout, Trust, Trustworthiness, and the Behavioral Foundations of Corporate Law, 149 U. PA. L. REV. 1735 (2001);
24. Lawrence E. Mitchell, Trust, Contract, Process, in PROGRESSIVE CORPORATE LAW 185 (Lawrence E. Mitchell ed., 1995);
25. Henry N. Butler & Larry E. Ribstein, Opting Out of Fiduciary Duties - A Response to the Anti-Contractarians, 65 WASH. L. REV. 1 (1990);
26. Melvin A. Eisenberg, The Structure of Corporation Law, 89 COLUM. L. REV. 1461 (1989);
27. James J. Hanks, Jr., Evaluating Recent State Legislation on Director and Officer Liability Limitation and Indemnification, 43 BUS. LAW 1207 (1988).
28. See also Alan W. Vestal, Fundamental Contractarian Error in the Revised Uniform Partnership Act of 1992, 73 B.U.L. REV. 523 (1993).
29. E.g., James D. Cox, The Social Meaning of Shareholder Suits, 65 BROOK. L. REV. 3 (1999);
30. Roberta Romano, The Shareholder Suit: Litigation without Foundation?, 7 J.L. ECON. & ORG. 55 (1991);
31. Daniel R. Fischel & Michael Bradley, The Role of Liability Rules and the Derivative Suit in Corporate Law: A Theoretical and Empirical Analysis, 71 CORNELL L. REV. 261 (1986);
32. Richard W. Dusenberg, The Business Judgment Rule and Shareholder Derivative Suits: A View from the Inside, 60 WASH. U.L.Q. 311 (1982);
33. John C. Coffee Jr. & Donald E. Schwartz, The Survival of the Derivative Suit: An Evaluation and a Proposal for Legislative Reform, 81 COLUM. L. REV. 261 (1981);
34. Thomas M. Jones, An Empirical Examination of the Resolution of Shareholder Derivative and Class Action Lawsuits, 60 B. U. L. REV. 542 (1980).
35. E.g., GERHARD WIRTH ET AL., CORPORATE LAW IN GERMANY 102 (2004);
36. Klaus J. Hopt, The German Two-Tier Board: Experience, Theories, Reforms, in COMPARATIVE CORPORATE G OVERNANCE-THE STATE OF THE ART AND EMERGING RESEARCH 247-48 (Klaus J. Hopt et al., eds., 1998);
37. Elmar Gerum & Helmut Wagner, Economics of Labor Co-Determination in View of Corporate Governance in id. at 348-51.
38. E.g., THOMAS R. HURST & WILLIAM A. GREGORY, CASES AND MATERIALS ON CORPORATIONS 560-61 (2d ed. 2005).
39. The highly positive stock market reaction to the announcement of Disney's hiring Ovitz precluded much of a claim that the directors made a mistake simply in hiring Ovitz.
40. In re The Walt Disney Company Derivative Litigation, 731 A.2d 342 (Del. Ch. 1998).
41. Brehm v. Eisner, 746 A.2d 244, 249 (Del. 2000).
42. In re The Walt Disney Company Derivative Litigation, 825 A.2d 275 (Del. Ch. 2003).
43. One interesting residual from the liability waiver in Disney's certificate of incorporation is that both the Chancery Court and Supreme Court opinions contain extended discussions of what it means for directors to not act in good faith. This all seems to be beside the point, given that both courts concluded the Disney directors did not even commit acts of gross negligence, let alone engage in the conscious acts of indifference that might equal bad faith. Nevertheless, as a final irony, these passages may end up being the most noted aspect of the Disney case from a doctrinal standpoint.
44. The following description of the Mannesmann case draws upon a translation found in FRANKLIN A. GEVURTZ, GLOBAL ISSUES IN CORPORATE LAW 97-104 (2006) (portions of the opinion translated by David Donald, Alexander Klauser, Klaus Linke & Katherina Pistor). Additional factual background comes from Theodore Baums,
45. The Mannesmann Case: A Study of Corporate Governance Practice in Germany, Working paper prepared for the Cambridge Conference on "EU Corporate Law Making: Institutional Structure, Regulatory Competition, and Regulatory Strategies,"
46. and from Edward Taylor, Deutsche Bank's Chief Faces a Retrial, WALL ST. J., Dec. 22, 2005, at A3.
47. Edward Taylor, Settlement Clears Path for Deutsche Bank CEO, WALL ST. J., Nov. 25-26, 2006, at A3.
48. E.g., Gevurtz, supra note 3, at 287.
49. 907 A.2d at 746. Interestingly, the Delaware Supreme Court's general invocation of the business judgment rule in Disney simply characterizes the "rule" as a presumption under which directors are not liable unless the plaintiff proves they breached their duty of care, duty of loyalty, or acted in bad faith-which, in effect, simply says that directors are only liable for breaching their duty if the plaintiff proves that the directors breached their duty.
50. Gevurtz, supra note 15, at 100.
51. E.g., Brehm v. Eisner, 746 A.2d 244 (Del. 2000);
52. Parnes v. Bally Entertainment Corporation, 722 A.2d 1243 (Del. 1999).
53. E.g., Adams v. Smith, 275 Ala. 142, 153 So.2d 221 (1963). A wag might note that this view of gratuities as constituting waste would be consistent with the fact that Germans traditionally did not tip waiters and waitresses.
54. Interestingly enough, the Mannesmann litigation produced an allegation that there was a more immediate benefit, at least for the Mannesmann shareholders who wanted to sell, obtained by paying the bonus. There was some evidence, albeit contested, to suggest that the representative of the holder of the largest block of Mannesmann stock going into the takeover, whose urging ultimately led the executive committee to award the bonus, had offered the bonus to Mannesmann's CEO during the final stages of the negotiation with Vodafone, and that this representative may have hoped that such an offer would prompt the CEO to close the deal with Vodafone rather than continue to resist the takeover. Seizing upon this aspect of the case, the German press characterized the bonus as a "bribe" to sell the company. The prosecutors, however, did not feel they could prove this charge in the face of the representative's denials, and did not make it part of the trial.
55. Peter Kolla, The Mannesmann Trial and the Role of the Courts, 5 GERMAN L.J. No. 7 at ¶ 10 (July 1, 2004), available at http://germanlawjournal.com/article.php?id=460.
56. In fact, had the "bribe" characterization been proven, this would have raised yet another possible contrast with Delaware law, in this instance regarding termination payments to executives to take place upon takeovers (so-called golden parachutes). Specifically, the rationale sometimes argued for upholding golden parachutes is that they will align the interests of senior executives with the shareholders in the event of a hostile tender offer, by providing a financial incentive for the executives to take, rather than resist, a deal that shareholders would like. E.g., Judith C. Machlin et al., The Effects of Golden Parachutes on Takeover Activity, 36 J. L. & ECON. 861, 862 (1993).
57. 907 A.2d at 763.
58. Id. at 762-63.
59. Id. at 760.
60. In a memo written at the time of Ovitz' discharge, Eisner characterized Ovitz as a "psychopath (doesn't know right from wrong), [who] cannot tell the truth." E.g., John J. Donohue III, The Discretion of Judges and Corporate Executives: An Insider's View of the Disney Case, Economists' Voice, www.bepress.com/ev (Oct. 2006).
61. 825 A.2d at 289.
62. E.g., Donohue, supra note 26 (discussing extensive evidence that Ovitz should have been fired for cause, the failure of the Disney directors to carefully consider this evidence, and the limited factual basis, years after the fact, for the Chancery Court to conclude that no cause existed for firing Ovitz).
63. E.g., Zupnick v. Goizueta, 698 A.2d 384 (Del. Ch. 1997) (liability for a disinterested decision is very rarely established by a shareholder plaintiff, because judicial inquiry ends if any reasonable person might conclude that the deal made sense);
64. Gagliardi v. TriFoods Intl., Inc., 683 A.2d 1049 (Del. Ch. 1996) (there have been no awards of money damages in Delaware against corporate officers or directors based upon the theory that their decision was so egregious as to fall outside the protection of the business judgment rule);
65. Steiner v. Meyerson, 1995 WL 441999 (Del. Ch. 1995) (decisions by disinterested directors that would be sufficiently one-sided as to constitute waste are so rare that they may, like "Nessie" [the Loch-Ness monster], be non-existent).
66. 698 A.2d 384 (Del. Ch. 1997).
67. E.g., York Schnorbus, Tracking Stock in Germany: Is German Corporate Law Flexible Enough to Adopt American Financial Institutions, 22 U. PA. J. INT'L ECON. L. 541, 612-13 (2001).
68. 175 Entscheiungen des Bundesgerichtshofs in Zivilsachen [BGHZ] 135, 244 (Bundesgerichtshof [Federal Court of Justice], F.R.G. 1997).
69. Translation in Gevurtz, supra note 15, at 81 (from a translation in Andreas Cahn & David C. Donald, COMPARATIVE COMPANY LAW (forthcoming)).
70. Id. at 83.
71. Id. at 84.
72. Aktiengesetz [AktG] [Stock Corporation Act] § 93(5). For an English translation of the Stock Corporation Act,
73. see Wirth et al., supra note 8.
74. E.g., Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985).
75. E.g., McMullin v. Beran, 765 A.2d 910, 916-17 (Del. 2000).
76. AktG § 93(2).
77. AktG § 93(1), para. 2, as added in 2005 (translation in Gevurtz, supra note 15, at 85).
78. E.g., Gevurtz, supra note 3, at 298-300.
79. E.g., Harold Baum, Change of Governance in Historic Perspective: The German Experience, in CORPORATE GOVERNANCE IN CONTEXT: CORPORATIONS, STATES, AND MARKETS IN EUROPE, JAPAN, AND THE U.S. 6-8 (Klaus J. Hopt, Eddy Wymeersch, Hideki Kanda & Harold Baum eds., 2005).
80. E.g., David M. Phillips, Priniciples of Corporate Governance: A Critique of Part IV, 52 GEO. WASH. L. REV. 653, 673-82 (1984) (outlining various market restraints, which ensure that directors act with care, and thereby lessen the need for judicial oversight of the duty of care).
81. It might be tempting to find evidence of a negative impact for the German approach to the business judgment rule in the relatively poorer economic performance in Germany versus the United States in recent years. Such an assertion, however, begs the question of whether earlier periods of higher economic growth in Germany (the 1950s through the 1980s) were the aberration, or whether the recent period of more stagnant growth (following the costly absorption of formerly Communist East Germany) is the aberration. Interestingly enough, Germany recently passed the United States to become the world's largest exporter. Come in Number One, Your Time is Up, THE ECONOMIST 12 (Apr. 14, 2007). More fundamentally, one would need to disentangle the impact of judicial review of business decisions from a host of more likely explanations for German economic and corporate performance.
82. See, e.g., Edmund S. Phelps, Entrepreneurial Culture, WALL ST. J., Feb. 12, 2007, at A15 (essay by a Nobel Prize winning economist, which attempts to explain lagging economic performance in Western Europe, including Germany).
83. See infra text accompanying notes 112 through 120.
84. See, e.g., Brian R. Cheffins & Bernard S. Black, Outside Director Liability Across Countries, 84 TEX. L. REV. 1385, 1431 (2006).
85. E.g., Gevurtz, supra note 3, at 290-303 (outlining four variations of the business judgment rule).
86. AktG § 76(1).
87. AktG § 105(1).
88. AktG § 111(1).
89. AktG § 112.
90. See, e.g., Klause J. Hopt, Corporate Governance in Germany, in CAPITAL MARKETS AND COMPANY LAW 304 (Klause J. Hopt & Eddy Wymeersch, eds., 2003).
91. E.g., Del. Code ann., tit. 8 § 144.
92. Id. Delaware law in this regard stands in contrast not only with German law, but also with stock exchange listing requirements.
93. E.g., NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL § 303A.05(a) (companies listed on the New York Stock Exchange must have a compensation committee composed entirely of independent directors).
94. Moreover, among the recipients of the bonuses approved by Mannesmann's executive committee apparently was one member of the committee itself (the predecessor to Mannesmann's CEO at the time of the takeover). E.g.. Kolla, supra note 22, at ¶ 9. The fact that this conflict-of-interest left only one disinterested director voting to approve the transaction, with the other disinterested directors either abstaining or not present, presumably would have tipped the scale under Delaware law against application of the business judgment rule.
95. See, e.g., Del. Code ann., tit. 8 § 144(a)(1) (curing a conflict of interest if a majority of the disinterested directors approve the transaction). The key passages of the Mannesmann opinion, however, ignore the conflict-of-interest of this one committee member-suggesting skepticism even as to a transaction involving just members of the management board.
96. See supra text accompanying note 32.
97. E.g., Cinerama v. Technicolor, Inc., 663 A.2d 1156 (Del. 1995) (business judgment rule will apply unless a majority of the board are interested in the transaction or are dominated or controlled by the interested directors, or the interested directors do not disclose the conflict);
98. Oberly v. Kirby, 592 A.2d 445, 467 (Del. 1991) (approval by a board, the majority of whose members are disinterested and independent, brings a conflict-of-interest transaction within the scope of the business judgment rule).
99. 907 A.2d at 760.
100. E.g., J. Robert Brown, Jr., Disloyalty without Limits: "Independent" Directors and the Elimination of the Duty of Loyalty, 95 KY. L. J. 53 (2006).
101. 845 A.2d 1040 (Del. 2004).
102. For a discussion of the requirement under Delaware law that the plaintiff in a derivative lawsuit must either first make a demand upon the board, or else plead that such a demand would be futile, see infra text accompanying notes 122-24.
103. E.g., Propriety of Deference, supra note 4.
104. E.g., Theodor Baums & Kenneth E. Scott, Taking Shareholder Protection Seriously? Corporate Governance in the United States and Germany, 53 AM. J. COMP. L. 31, 52 (2005).
105. E.g., Baum, supra note 42, at 15;
106. Henry Hansmann & Reiner R. Kraakman, The Basic Governance Structure, in THE ANATOMY OF CORPORATE LAW 69 (Reiner R. Kraakman et al. eds., 2004).
107. Betriebsverfassungsgesetz [Works Council Constitution Act] § 76.
108. See also Wirth et al., supra note 8, at 103.
109. Mitbestimmungsgesetz [Co-determination Act] §§ 1, 7 27, 29.
110. See also Wirth et al., supra note 8, at 103.
111. See supra text at page 461.
112. The union official purportedly made the comment that "a lady would have to knit a heck of a lot" to make so much money.
113. E.g., Brian R. Cheffins, The Metamorphosis of "Germany Inc.": The Case of Executive Pay, 49 AM. J. COMP. L. 497, 514-15 (2001).
114. The "Dilbert" cartoon strip humorously captures this attitude.
115. E.g., Cheffins, supra note 69, at 515.
116. See Gerum & Wagner, supra note 8 (discussing the various empirical studies of the impact of co-determination in Germany).
117. E.g., Cheffins, supra note 69, at 515.
118. 17 CFR 240.14a-8. This regulation, promulgated by the Securities Exchange Commission, gives shareholders in listed companies the right to demand that corporate management include, in the corporate proxy statement, proposals that the shareholders intend to make at the shareholders meeting.
119. E.g., William J. Holstein, Raising Labor's Hand at Annual Meetings, N.Y. TIMES, Oct. 26, 2006, at 3-1;
120. (interview with one of the architects of organized labor's effort to use corporate proxy machinery to alter compensation to CEOs);
121. David A. Katz & Laura A. McIntosh, Corporate Governance: Institutional Investors Ready Proxy Season "Wish Lists,' 236 N.Y.L.J., Nov. 10, 2006, at 5 (describing proxy proposals from union pension funds aimed at executive compensation).
122. E.g., Joann S. Lubin & Scott Thurm, Behind Soaring Executive Pay, Decades of Failed Restraints, WALL ST. J., Oct. 12, 2006, at Al.
123. E.g., Gerum & Wagner, supra note 8;
124. Hopt, supra note 8.
125. E.g., Cheffins, supra note 69.
126. E.g., John C. Coffee, Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reforms, 84 B.U. L. REV. 301, 330 n.86 (2004);
127. Susan J. Stabile, Enron, Global Crossing and Beyond: Implications for Workers, 76 ST. JOHNS L. REV. 815, 829 n.63 (2002).
128. While my focus in this article is on a comparison between the United States and Germany, a similar disparity in CEO compensation exists between the United States and other nations as well. Id.
129. E.g., Cheffins, supra note 69, at 508-09.
130. E.g., Mark Maremont & Charles Forelle, Bosses' Pay: How Stock Options Became Part of the Problem, WALL ST. J., Dec. 27, 2006, at Al.
131. See, e.g., I.R.C. § 162(m) (preventing corporations from deducting more than $1 million in compensation paid to a senior executive, unless paid as performance based compensation, such as stock options), § 422A (providing favorable tax treatment for incentive stock options under certain restrictions);
132. Treas. Reg. § 1.83-7 (creating the prospect of deferral of tax upon receipt of options for which there is no ascertainable value).
133. E.g., Lubin & Thurm, supra note 76 (before 2003, "options remained a favorable tool for an important reason-they were essentially free, [in that] options granted at or above the market price of a stock did not have to be recorded as a company expense in financial results").
134. E.g., Loewenstein, supra note 5, at 8 ("much of the dramatic increase in CEO compensation is a direct result of the increase in incentive compensation in the form of stock options, which, in turn, were implemented by corporate boards in response to demands that CEO compensation be more closely linked to shareholder returns").
135. E.g., Stefan Prigge, A Survey of German Corporate Governance, in COMPARATIVE CORPORATE GOVERNANCE, supra note 8, at 943, 967.
136. Cath Blackledge, Euroland Bonanza, EUROPEAN, June 8, 1998, at 20.
137. See also Cheffins, supra note 69, at 513-16;
138. Kolla, supra note 22, at ¶ 15.
139. E.g., Umfrage: Gerechtigkeit vor Freiheit, Zeit online, Tagesspiegel, http://www.zeit.de/news/artikel/2006/12/02/83097.xml (Dec. 2, 2006)
140. [hereinafter, Survey] (article reporting on a survey by the German newspaper, Welt am Sonntag, which found that a majority of Germans (58% versus 34%) prefer "social justice" - i.e., income equality - to economic freedom).
141. E.g., Wilderman v. Wilderman, 315 A.2d 610 (Del. Ch. 1974).
142. E.g., Lewis v. Vogelstein, 699 A.2d 327, 339 (Del. Ch. 1997) ("option grants to directors of this size seem . . . sufficiently unusual to require the court to refer to evidence before making an adjudication of their validity and consistency with fiduciary duty");
143. E. Norman Veasey, State-Federal Tension in Corporate Governance and the Professional Responsibilities of Advisors, 28 J. CORP. L. 441, 447 (2003) (it is a myth that there are no "limits" to executive compensation under the law).
144. 906 A.2d at 58 ("[t]he [compensation] committee members knew that by leaving CAA and coming to Disney, Ovitz would be sacrificing 'booked' CAA commissions of $150 to $200 million - an amount that Ovitz demanded as protection against the risk that his employment relationship with Disney might not work out.").
145. E.g., Andreas Ransiek, Anerkennungsprämien und Untreue - Das "Mannesmann"-Urteil des BGH, NJW (Neue Juristische Wochenschrift) 2006 Heft 12, p. 814 (traditional parting gifts to corporate officials remain acceptable under German law despite Mannesmann).
146. AktG § 87(1).
147. E.g., Cheffins, supra note 69, at 526.
148. E.g., Troy A. Paredes, Too Much Pay, Too Much Deference: Behavior Corporate Finance, CEOs and Corporate Governance, 32 FLA. ST. U. L. REV. 673, 707 (2005) (proponents of the view the U.S. senior executives are overpaid often point out that managers in Europe and Asia are paid much less than their U.S. counterparts and, the argument seems to imply, are sufficiently industrious).
149. E.g., David Brooks, The American Way of Equality, N. Y. TIMES, Jan. 14, 2007, at 4-14 (reviewing the work of sociologist, Seymour Lipset, whose studies of American exceptionalism contrast the willingness of persons in the United States, as opposed to persons in other western societies, to accept income equality);
150. Survey, supra note 87;
151. Martin Conyon & Kevin Murphy, The Prince and the Pauper? CEO Pay in the US and the UK, 110 ECON. J. F640, F667-68 (2000);
152. Ronald Dore, Comment: Papers on Employees and Corporate Governance, 22 COMP. LAB. L. & POL'Y J. 159, 160-61 (2000).
153. E.g., Kolla, supra note 22, at ¶ 2.
154. E.g., Cheffins, supra note 69, at 497-98.
155. E.g., Lucian A. Bebchuck et al., Managerial Power and Rent Extraction in the Design of Executive Compensation, 69 U. CHI. L. REV. 751, 795-834 (2002).
156. Del. Code ann., tit. 8 § 102(b)(7).
157. Faced with the waiver, the plaintiffs in Disney concocted a series of arguments that barely, if at all, pass the straight face test. The first was to assert that proof of the defendants' gross negligence-even if ultimately futile in establishing liability because of the waiver-was nevertheless relevant because it would flip the burden of proof to the defendants to establish the fairness of Ovitz' contract. Only thereafter, once the defendants failed to prove the fairness of the contract, would the court need to deal with the waiver. Presumably recognizing, however, that this reasoning only delayed their need to overcome the liability waiver, the plaintiffs then sought to equate a lack of good faith with gross negligence. Acceptance of this equation, however, would render liability waivers entirely pointless, since the business judgment rule in Delaware precludes liability in the absence of gross negligence in any event. E.g., Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985). Not surprisingly, therefore, the Delaware Supreme Court rejected this interpretation. Of course, the failure of the plaintiffs to establish gross negligence would seem to render this whole tangent rather moot. Still, the necessity for the plaintiffs to assert such far fetched positions did not help their credibility on other issues, such as whether the defendants were grossly negligent.
158. AktG § 93(4).
159. E.g., In re Wheelabrator Tech., Inc. Shareholders Litig., 663 A.2d 1194, 1203 (Del. Ch. 1995);
160. Gottlieb v. Heyden Chem. Corp., 33 Del. Ch. 177, 91 A.2d 57, 58 (1952).
161. Cf Honigman v. Green Giant Co., 208 F. Supp. 754, 762 (D. Minn. 1961), aff'd, 309 F.2d 667 (8th Cir. 1962) ("the court cannot ignore the persuasive fact that the holders of 92.3 percent of all outstanding Class B stock concluded that the plan was fair to them and likewise to the corporation").
162. See supra text accompanying note 42.
163. See supra text accompanying note 35.
164. Of course, the fact that the plaintiffs in Disney ultimately lost after an expensive trial might suggest that the Disney liability waiver was a wise provision; yet, the fact that the case went thorough the expensive trial despite the provision suggests that all the provision accomplished was to further complicate and thereby add to the expense of the litigation.
165. E.g., JEFFREY D. BAUMAN ET AL., CORPORATIONS LAW AND POLICY. MATERIALS AND PROBLEMS 157-58 (5th ed. Supp. 2006).
166. See, e.g., Bernard S. Black et al., Outside Director Liability, 58 STAN. L. REV. 1055, 1131 (2006) (no criminal prosecution pursuant to federal securities laws has been brought against an outside director for oversight failures);
167. Lisa M. Fairfax, Spare the Rod, Spoil the Director? Revitalizing Directors' Fiduciary Duty through Legal Liability, 42 HOUS. L. REV. 393, 394 (2005) (over the last 20 years there has been a virtual elimination of legal liability, including criminal liability, on corporate directors who breach their duty of care).
168. E.g., JAMES D. COX ET AL., CORPORATIONS 398-99 (1997).
169. E.g., Kamen v. Kemper Financial Services, Inc., 908 F.2d 1338, 1349-50 (7th Cir.),
170. rev'd on other grounds, 500 U.S. 90 (1991).
171. E.g., Jonathon R. Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. CHI. L. REV. 1, 7-8 (1991).
172. AktG § 112.
173. AktG § 147(1).
174. E.g., Kristoffel Grechenig & Michael Sekyra, No Derivative Shareholder Suits in Europe: A Model of Percentage Limits, Collusion and Residual Owners, (Columbia University Center for Law and Economics Studies, Working Paper No. 312, 2006), available at SSRN: http://ssrn.com/ abstract=933105.
175. AktG § 147(3).
176. See, e.g., HANS C. HIRT, THE ENFORCEMENT OF DIRECTORS' DUTIES IN BRITAIN AND GERMANY: A COMPARATFVE STUDY WITH PARTICULAR REFERENCE TO LARGE COMPANIES 304 (2004) (the five percent or 500,000 euros threshold for bringing a shareholder action remains a formable barrier in practice).
177. AktG § 148.
178. See also Baums & Scott, supra note 63, at 52.
179. E.g., Cheffins & Black, supra note 46, at 1425.
180. AktG § 147(4).
181. See also Hirt, supra note 116, at 302-03, 305, 309 (loser pays rule provides the ultimate deterrent to shareholder actions under German law).
182. E.g., Angelika Hoche, The Legal System, in 1 BUSINESS TRANSACTIONS IN GERMANY § 4.05[3] (Dennis Campbell et al. eds., 2005).
183. E.g., Romano, supra note 7.
184. E.g., Del. Code ann., tit. 8 § 145(c) (corporation must indemnify its directors for their legal expenses when they prevail in an action arising out of their positions).
185. E.g., Grimes v. Donald, 673 A.2d 1207 (1996).
186. E.g., FRANKLIN A. GEVURTZ, CORPORATION LAW 403 (2000).
187. E.g., Aronson v. Lewis, 473 A.2d 805 (Del. 1984).
188. E.g., Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (allegations that the board approved a compensation package, which amounted to waste because it paid the retired CEO even if he was unable to work, and that the board was not independent of the retired CEO, as evidenced by the facts that he owned 47 percent of the outstanding stock, picked each board member, and had received favorable treatment from the board, were insufficient to excuse demand);
189. Levine v. Smith, 591 A.2d 194 (Del. 1991) (allegation that the directors "did nothing" to inform themselves prior to rejecting the plaintiffs demand was insufficient to plead that the directors took no action to inform themselves prior to rejecting the plaintiffs demand).
190. E.g., In re Ebay, Inc., 2004 Del. Ch. Lexis 4, (2004) (allegations that the corporation's stock option plan gave the directors an incentive to retain their positions and thus made them beholden to prospective defendants, who held less than half of the outstanding stock, were sufficient to excuse demand in a case involving spinning of IPO shares);
191. Parnes v. Bally Entertainment Corporation, 722 A.2d 1243 (Del. 1999) (allegation that various payments were made to the CEO in exchange for his support of a merger was sufficient to excuse demand).
192. 746 A.2d at 267.
193. 825 A.2d at 287-91.
194. E.g., Gevurtz, supra note 124, at 432.
195. E.g., Bruce Orwall & Joann S. Lublin, Entertainment: The Rich Rewards of a Hollywood Exit, WALL ST. J., Dec. 16, 1996, at B-1.
196. See supra text at page 461.
197. E.g., Allan Hall, Defendants "Likely to be Let Off the Hook" in Mannesmann Trial, EVENING STANDARD, July 21, 2004, at 35 (quoting a German business consultant, who stated that the Mannesmann prosecution was in many ways politically motivated and supported by the German chancellor to appease the unions).
198. E.g., John C. Roper, For Prosecution No Sure Route to Lay's Estate, HOUS. CHRON., Aug. 20, 2006, at 1.
199. E.g., Brooke A. Masters, Ebber's Prosecutors Questioned on Tactics, WASH. POST, Jan. 31, 2006, Business Section.
200. E.g., Associated Press, Adelphia Founder John Rigas Found Guilty, http://www.msnbe.msn.com/id/5396406.
201. Compare John C. Coffee, Does "Unlawful" Mean "Criminal"?: Reflections on the Disappearing Tort/Crime Distinction in American Law, 71 B.U. L. REV. 193 (1991) (should limit criminalization),
202. with Harry V. Ball & Lawrence M. Friedman, The Use of Criminal Sanctions in the Enforcement of Economic Legislation: A Sociological View, 17 STAN. L. REV. 197 (1965) (supporting criminalization of conduct condemned for economic policy reasons).
203. See also Christine Hurt, "The Uncivilization of Corporate Law" (Feb. 2007), University of Illinois Legal Working Paper Series. University of Illinois Law and Economics Working Papers. Working Paper 71. http://law.bepress.com/uiuclwps/papers/art71.
204. E.g., Kolla, supra note 22, at ¶ ("[a]lthough it would be a legitimate use of state power to criminalize excessively large executive salaries, the location of the line in the sand between legal and criminal salaries is extremely contentious");
205. Ransiek, supra note 91;
206. Michael Kort, Mannesmann: Das "Aus" fur nachtraglich vorgesehene Vorstandsvergutungen ohne Anreizwirkung?, NZG 2006 Heft 4, p. 131.
207. E.g., Jill E. Fisch, The Peculiar Role of the Delaware Courts in the Competition for Corporate Charters, 68 U. CIN. L. REV. 1061, 1078 (2000).
208. StPO § 261; BGH, NStZ (Neue Zeitschrift fur Strafrecht) 1985, 15.
209. Henry Hansmann & Reiner R. Kraakman, The End of History for Corporate Law, 89 GEO. L. J. 439 (2001).