Unconscious bias and the limits of director independence

University of Illinois Law Review

Volumn 2009, Issue 1, 2009, Pages 237-294

  Page, Antony ^a  

^a INDIANA UNIVERSITY   (United States)

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EID: 61449207084     PISSN: 02769948     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (412)

1. See Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950-2005: Of Shareholder Value and Stock Market Prices, 59 STAN.L. REV. 1465, 1535-40 (2007).
2. See infra Part II.
3. See NYSE, Inc., Listed Company Manual § 303A.01-.02 (2004), available at http://www.nyse.com/Frameset.html?nyseref=htttp://www.nyse. ∞m/regulation/nyse/118250812422.htm&displyPage=/lcm/lcm-section.html [hereinafter NYSE Listed Company Manual] (defining "independent director" for purposes of listing on the NYSE); NASDAQ, Inc., Manual: Marketplace Rules § 4200(a)(15) (2008), available at http://wallstreet.cch.com/NASDAQTools/Bookmark.asp?id=nasdaq-rule-43 manual=/nasdaq/main/nasdaq-equityrules/ [hereinafter NASDAQ Manual] (defining "independent director" for NASDAQ listing purposes). The American Law Institute has likewise endorsed the majority independent director standard. AM. LAW INST., PRINCIPLESOF CORPORATE GOVERNANCE: ANALYSIS AND RECOMMENDATIONS § 3A.01 (1994) ("The board of every large publicly held corporation ... should have a majority of directors who are free of any significant relationship... with the corporation's senior executives---").
4. See NYSE Listed Company Manual, supra note 3, § 303A.04-.07; NASDAQ Manual, supra note 3, § 4350(c)(3)(A)-(B), (c)(4)(A), (d)(2). The NASDAQ also permits a company to select director nominees and approve CEO compensation by a majority vote of independent directors. Id.
5. See infra Parts II.A & II.B.
6. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004).
7. See infra notes 56-60 and accompanying text.
8. Dolly Chugh et al., Bounded Ethicality as a Psychological Barrier to Recognizing Conflicts of Interest, in CONFLICTS OF INTEREST: CHALLENGES AND SOLUTIONS IN BUSINESS, LAW, MEDICINE, AND PUBLIC POLICY74, 74-75 (Don A. Moore et al. eds, 2005) [hereinafter CONFLICTS OF INTEREST].
9. See infra Parts IV.B-D.
10. See infra notes 276-88 and accompanying text.
11. See infra Part IV.C
12. The use of particular decision-making and deliberation strategies as a means to better fulfill a board's duty of loyalty will be explored in a subsequent article, Process Matters: Directors, Decision- Making, and the Duty of Loyalty.
13. See infra notes 55-61 and accompanying text.
14. Emily Pronin et al., The Bias Blind Spot: Perceptions of Bias in Self Versus Others, 28 PERSONALITY &Soc. PSYCHOL. BULL. 369, 369 (2002).
15. See, e.g., NYSE Listed Company Manual, supra note 3; NASDAQ Manual, supra note 3.
16. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in sections of 11, 15, 18, 28, and 29 U.S.C.).
17. See, e.g., Lawrence A. Hamermesh, The Policy Foundations of Delaware Corporate Law, 106 COLUM. L. REV. 1749, 1749-50 (2006).
18. See, e.g., The Dow Chemical Co., Independent Director Standards, http://www.dow.com/about/aboutdow/standards/index.htm (last visited Nov. 12, 2008).
19. NYSE Listed Company Manual, supra note 3, § 303.02(b)(i)-(iv), (b)(v).
20. Id. at § 303A.02(a).
21. See NASDAQ Manual, supra note 3, § 4200(a).
22. See Sarbanes-Oxley Act of 2002 § 301, Pub. L. No. 107-204, 116 Stat. 745 (codified in sections of 11, 15, 18, 28, and 29 U.S.C.).
23. 15 U.S.C. § 78j-l(m)(3)(B) (2000 & Supp. V 2005).
24. See Role of Independent Directors of Investment Companies, Investment Company Act Release No. 33-7932, 17 C.F.R. §§ 239, 240, 270, 274 (2001).
25. See 15 U.S.C. § 80a-2(a)(19) (2000 & Supp. V 2005).
26. AM. LAWINST., supra note 3, § 1.23(a)(4).
27. RiskMetrics Group, ISS Governance Services, http://issproxy.com/ issgovernance.html (last visited Nov. 12, 2008).
28. INST. S'HOLDER SERVS.,ISS US CORPORATE GOVERNANCE POLICY2007 UPDATES5 (2006).
29. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049 (Del. 2004) ("Independence is a fact-specific determination made in the context of a particular case.").
30. Id.
31. Id. (quoting Aronson v. Lewis, 473 A.2d 805, 816 (Del. 1984)); Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993) (holding that the inquiry is "whether the board that would be addressing the demand can impartially consider its merits without being influenced by improper considerations"); see Brehm v. Eisner, 746 A.2d 244, 257 (Del. 2000) (stating that a director must not be "incapable, due to personal interest or domination and control, of objectively evaluating a demand" in order to be independent). Other states agree with this definition of independence. See, e.g., Desaigoudar v. Meyercord, 108 Cal. App. 4th 173, 190 (2003) (holding that the court must determine whether a director is "in a position to base his decision on the merits of the issue rather than being governed by extraneous considerations or influences").
32. Beam, 845 A.2d at 1050; see also Orman v. Cullman, 794 A.2d 5, 22 (Del. Ch. 2002) (stating that an independent director may not "have a financial interest in the transaction or [be] dominated or controlled by a materially interested director"). Other jurisdictions follow similar approaches. See, e.g., Park River Owners Corp. v. Bangser Klein Rocca & Blum, L.L.P., 703 N.Y.S.2d 465, 466 (2000) (defining a director's interest as "either self-interest in the transaction at issue or a loss of independence because a director with no direct interest in a transaction is controlled by a self-interested director"); MODELBus. CORP. ACT§ 8.60 (2008) (stating that a director is not independent if "he or a related person is a party to the transaction or has a beneficial financial interest in or is so closely linked to the transaction and of such financial significance to the director or a related person that the interest would be reasonably expected to exert an influence on the director's judgment if he were called upon to vote on the transaction").
33. Beam, 845 A.2d at 1049; see Aronson, 473 A.2d at 812 (holding that to be disinterested, "[d]irectors can neither appear on both sides of a transaction nor expect to derive any personal financial benefit from it in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally").
34. Rales, 634 A.2d at 936 (citations omitted).
35. Id.
36. A management buyout is a common illustration of this type of conflict of interest. Management is trying to buy the company, and naturally would prefer a lower price. For an example of management overreaching, see Dennis Berman & Henny Sender, Backstory of Kinder LBO Underscores Web of Ethical Issues Such Deals Face, WALL ST. J, Sept. 29, 2006, at C1, C4.
37. Grobow v. Perot, 539 A.2d 180, 189 (Del. 1988).
38. Beam, 845 A.2d at 1050 (quoting Rales, 634 A.2d at 936).
39. McMullin v. Beran, 765 A.2d 910, 923 (Del. 2000).
40. Courts will sometimes shift away from a strictly subjective standard because they are unwilling to prevent "regular folk," for whom directors' fees would be material, from serving as independent directors. See, e.g., In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 360 (Del. Ch. 1998), rev'd on other grounds, 746 A.2d 244 (Del. 2000) (noting that '"regular folks' would face allegations of being dominated by other board members, merely because of the relatively substantial compensation provided by the board membership compared to their outside salaries"); In re InfoUSA S'holders Litig., 953 A.2d 963, 992 (Del. Ch. 2007) (same).
41. 845 A.2d 1040.
42. Id. at 1044.
43. For example, if a shareholder wants company A to sue company B, a director who serves on both companies would have an obvious conflict. More commonly, a derivative suit seeks to sue the company's board, which is clearly counter to the board's interest.
44. Id. at 1046.
45. Id.
46. Id. at 1050.
47. Id. (citing cases where the courts found friendship too weak to create bias). Other courts have expressly followed the Beam approach. See, e.g., In re Sonus Networks, Inc., 499 F.3d 47, 68 (1st Cir. 2007) (stating that Beam's friendship standard is "demanding"); Connolly v. Gasmire, 257 S.W.3d 831, 847 (Tex. App. 2008) (noting that "friendship must be accompanied by substantially more" to rebut a presumption of director independence for presuit demand purposes).
48. Beam, 845 A.2d at 1053-54.
49. Id. at 1052, 1054.
50. Id. at 1055.
51. Id. at 1056-57. In theory, plaintiff could prevail if the director's compensation were of "such subjective material importance that its threatened loss might create a reason to question whether the director is able to consider the corporate merits of the challenged transaction objectively." Telxon Corp. v. Meyerson, 802 A.2d 257, 264 (Del. 2002). But cf. Beam, 845 A.2d at 1050.
52. Committees are also used to negotiate and approve self-dealing transactions such as management buyouts.
53. The SLC must also demonstrate that it "acted in good faith" and "had reasonable bases for [its] recommendations." In re Oracle Corp. Derivative Litig., 824 A.2d 917, 928 (Del. Ch. 2003).
54. Beam, 845 A.2d at 1055.
55. Id. at 1052.
56. Id. at 1049 (quoting Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993)).
57. Beam, 845 A.2d at 1050-51; see also Aronson v. Lewis, 473 A.2d 805, 815 n.8 (Del. 1984); Guttman v. Huang, 823 A.2d 492, 500 (Del. Ch. 2003); In re Pure Res. Inc. S'holders Litig., 808 A.2d 421, 444 (Del. Ch. 2002). In Zapata, a decision regarding an SLC's power, the Supreme Court noted that "we must be mindful that directors are passing judgments on fellow directors ... who ... [sometimes] designated them to serve both as directors and committee members." Zapata Corp. v. Maldonado, 430 A.2d 779, 787 (Del. 1981). In Unocal, a takeover case, the court as justification for invoking intermediate level scrutiny observed that there was a risk that directors might act solely or primarily to keep themselves in office. Unocal Corp. v. Mesa Petroleum, 493 A.2d 946, 955 (Del. 1985).
58. Beam, 845 A.2d at 1051.
59. Id. at 1052.
60. Id. (stating that a plaintiff must show that "the non-interested director would be more willing to risk his or her reputation than risk the relationship with the interested director").
61. Aronson, ATS A.2d at 815 n.8. The Delaware Supreme Court continued to acknowledge its critics without taking action in Beam. See Beam, 845 A.2d at 1051.
62. See, e.g., Charles M. Elson, Enron and the Necessity of the Objective Proximate Monitor, 89 CORNELLL. REV. 496, 498 (2004) (arguing that board independence is a "critical component of modern governance theory").
63. OECD PRINCIPLES OF CORPORATE GOVERNANCE 64-65 (2004).
64. See generally ADOLF A. BERLE & GARDINERC. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 69-118 (1932).
65. There is an extensive, albeit largely inconclusive, literature addressing the relationship between corporate performance and independent directors. See generally Sanjai Bhagat & Bernard Black, The Non-Correlation Between Board Independence and Long-Term Firm Performance, 27 J. CORP. L. 231 (2002); Sanjai Bhagat & Bernard Black, The Uncertain Relationship Between Board Composition and Firm Performance, 54 Bus. LAW. 921 (1999); Dan R. Dalton et al., Meta-Analytic Reviews of Board Composition, Leadership Structure, and Financial Performance, 19 STRATEGIC MGMT. J. 269 (1998); Gordon, supra note 1, at 1500-08 (2007); Laura Lin, The Effectiveness of Outside Directors as a Corporate Governance Mechanism: Theories and Evidence, 90 Nw. U. L. REV. 898 (1996) (describing studies).
66. See April Klein, Firm Performance and Board Committee Structure, 41 J.L. & ECON. 275, 275 (1998).
67. See, e.g., Elson, supra note 62, at 501 (observing that "most of [the Enron] directors would have been considered independent under then-existing Securities and Exchange Commission or New York Stock Exchange requirements"); Larry E. Ribstein, Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002, 28 J. CORP. L. 1, 26 (2002) (arguing that "board independence has done little to prevent past mismanagement and fraud").
68. Ribstein, supra note 67, at 26 (summarizing MYLES MACE, DIRECTORS: MYTH AND REALITY(1971)).
69. See, e.g., Daniel R. Fischel, The Corporate Governance Movement, 35 VAND. L. REV. 1259, 1282 (1982); Stephen M. Bainbridge, A Critique of the NYSE's Director Independence Listing Standards, FEDERALIST SOC'Y FORL. & PUB. POL'Y STUD. 22-23 (2002), available at http://www.fed-soc. org/doclib/20070324-NYSEStandards.pdf.
70. See, e.g., Fischel, supra note 69, at 1283; Roberta S. Karmel, The Independent Corporate Board: A Means to What End?, 52 GEO. WASH. L. REV. 534, 550-51 (1984); Julian Velasco, Structural Bias and the Need for Substantive Review, 82 WASH. U. L.Q. 821, 860 (2004).
71. See, e.g., Donald C. Langevoort, The Human Nature of Corporate Boards: Law, Norms, and the Unintended Consequences of Independence and Accountability, 89 GEO. L.J. 797, 812-13 (2001).
72. Victor Brudney, The Independent Director-Heavenly City or Potemkin Village?, 95 HARV. L. REV. 597, 613 (1982); see also Langevoort, supra note 71, at 801 (defining "an independent director [as] one who actually takes the monitoring task ... seriously").
73. quot;Structural bias," defined as an "inherent prejudice against any derivative action resulting from the composition and character of the board of directors," appears to have first been used by Mark A. Underberg in Note, The Business Judgment Rule in Derivative Suits Against Directors, 65 CORNELLL. REV. 600, 601 n.14 (1980). Since then the term has been used for a "wide variety of factors ... includ[ing] the CEO's and other corporate insiders' practical control over nominating new directors and removing incumbents; business relationships that may exist between outside directors and the corporation; the common cultural and professional background of many directors, and the frequent social ties among them ...." Kenneth B. Davis, Jr., Structural Bias, Special Litigation Committees, and the Vagaries of Director Independence, 90 IOWAL. REV. 1305, 1308 (2005) (citations omitted); see also Velasco, supra note 70, at 855 (describing three structural bias paradigms).
74. Kristina A. Diekmann et al., Self-interest and Fairness in Problems of Resource Allocation: Allocators Versus Recipients, 72 J. PERSONALITY & Soc. PSYCHOL. 1061, 1061 (1997).
75. Michael Healy & Victoria Romero, Ingroup Bias and Self-Esteem: A Meta-Analysis, 4 PERSONALITY & Soc. PSYCHOL. REV. 157, 157 (2000). Ingroup bias is also referred to as intergroup bias. See Miles Hewstone et al., Intergroup Bias, 53 ANN. REV. PSYCHOL. 575, 576 (2002) ("Intergroup bias refers generally to the systematic tendency to evaluate one's own membership group (the ingroup) or its members more favorably than a nonmembership group (the out-group) or its members.").
76. See, e.g., Diekmann et al., supra note 74, at 1071-72 (finding that participants judged unequal allocations that favored a member of their group to be "much fairer" than unequal allocations that favored a member of a different group).
77. Hewstone et al., supra note 75, at 576.
78. Henri Tajfel was the first to document what has become known as the minimal group paradigm. The original experiments are described in Henri Tajfel et al., Social Categorization and Intergroup Behavior, 1 EUR. J. Soc. PSYCHOL. 149, 172-77 (1971), and Michael Billig & Henri Tajfel, Social Categorization and Similarity in Intergroup Behavior, 3 EUR. J. Soc. PSYCHOL. 27, 37-48 (1973). See also Jerry M. Burger et al., What a Coincidence! The Effects of Incidental Similarity on Compliance, 30 PERSONALITY &Soc. PSYCHOL. BULL. 35, 35 (2004) (finding that subjects were more likely to respond positively to a stranger's request if they shared even a superficial match, such as shared names, birthdays, or fingerprint types); John F. Finch & Robert B. Cialdini, Another Indirect Tactic of (Self-) Image Management: Boosting, 15 PERSONALITY & Soc PSYCHOL. BULL. 222, 228-30 (1989) (finding that participants who were informed that they had the same birthday as Rasputin judged him more positively); Henri Tajfel, Cognitive Aspects of Prejudice, 25 J. Soc. ISSUES 79, 83-86 (1969) (describing perceptual effects of grouping). Burger and colleagues argue that these incidental similarities "most likely result[] in ... a fleeting sense of liking between the participant and the requester." Burger et al., supra, at 41.
79. Laurie A. Rudman, Social Justice in Our Minds, Homes, and Society: The Nature, Causes, and Consequences of Implicit Bias, 17 Soc. JUST. RES. 129, 139 (2004).
80. This position is akin to Chief Justice Roberts's statement that "[t]he way to stop discrimination on the basis of race is to stop discriminating on the basis of race." Parents Involved in Cmty. Sch. v. Seattle Sch. Dist. No. 1, 127 S. Ct. 2738, 2767 (2007) (plurality opinion).
81. For an example of implicit ingroup bias with real world consequences, see David M. Messick & Max H. Bazerman, Ethical Leadership and the Psychology of Decision Making, 37 SLOAN MGMT. REV. 9, 16 (1996) (arguing that ingroup bias is likely a common cause of discriminatory lending).
82. See, e.g., Jason P. Mitchell et al., Dissociable Medial Prefrontal Contributions to Judgments of Similar and Dissimilar Others, 50 NEURON 655, 660 (2006).
83. Nilanjana Dasgupta, Implicit Ingroup Favoritism, Outgroup Favoritism, and Their Behavioral Manifestations, 17 Soc. JUST. RES. 143, 146 (2004); see also Brian Mullen et al., Ingroup Bias as a Function of Salience, Relevance, and Status: An Integration, 22 EUR. J. Soc. PSYCHOL. 103, 117 (1992) (summarizing the research examining ingroup bias). Sometimes favoring members of one's own group takes the form of derogating the outgroup.
84. See generally John F. Dovidio et al., Contemporary Racial Bias: When Good People Do Bad Things, in THE SOCIAL PSYCHOLOGY OF GOOD AND EVIL 141 (Arthur G. Miller ed., 2004) (describing unconscious racism and ingroup bias and summarizing previous research).
85. See, e.g., Jennifer A Richeson & Nalini Ambady, Who's in Charge? Effects of Situational Roles on Automatic Gender Bias, 44 SEX ROLES 493 (2001).
86. See, e.g., Nilanjana Dasgupta & Anthony G. Greenwald, On the Malleability of Automatic Attitudes: Combating Automatic Prejudice with Images of Admired and Disliked Individuals, 81 J. PERSONALITY &Soc. PSYCHOL. 800, 800 (2001).
87. See, e.g., Melanie C. Steffens, Implicit and Explicit Attitudes Towards Lesbians and Gay Men, 49 J. HOMOSEXUALITY 39, 39-40 (2005).
88. See, e.g., Leslie Ashburn-Nardo et al., Implicit Associations as the Seeds of Intergroup Bias: How Easily Do They Take Root?, 81 J. PERSONALITY & Soc. PSYCHOL. 789, 790 (2001); David De- Steno et al., Prejudice from Thin Air: The Effect of Emotion on Automatic Intergroup Attitudes, 15 PSYCHOL. SCI. 319 (2004) (suggesting that some emotional states can lead to automatic bias toward outgroups); Charles W. Perdue et al., Us and Them: Social Categorization and the Process of Intergroup Bias, 59 J. PERSONALITY & Soc. PSYCHOL. 475, 475 (1990) (demonstrating that social categorization can occur unconsciously).
89. Daniel M. Wegner & John A. Bargh, Control and Automaticity in Social Life, in 1 HANDBOOKOF SOCIAL PSYCHOLOGY 446, 472 (Daniel T. Gilbert et al. eds., 4th ed. 1998) (emphasis in original).
90. Anthony G. Greenwald et al., Implicit Partisanship: Taking Sides for No Reason, 83 J. PERSONALITY & Soc. PSYCHOL. 367, 370, 377 (2002) (finding that participants who simply studied the names of four other people for less than a minute began to group the four names to themselves and to positive outcomes, without any conscious awareness that they were doing so); Rudman, supra note 79, at 136 (reporting that "people preferred the dominant group to the extent that it was culturally favored, but only at the automatic level").
91. For a recent example, see Stefan Stürmer et al., Empathy-Motivated Helping: The Moderating Role of Group Membership, 32 PERSONALITY & Soc. PSYCHOL. BULL. 943, 952 (2006), reporting that, in the minimal group paradigm, group members were more likely to help other ingroup members based on their perceived similarities. In general, it is likely that there is greater bias in collectiveoriented societies than individualistic-oriented societies, like the United States. See Steven J. Heine & Darrin R. Lehman, The Cultural Construction of Self-Enhancement: An Examination of Group- Serving Biases, 72 J. PERSONALITY & Soc. PSYCHOL. 1268, 1274 (1997). Nearly all of the studies cited here were performed with U.S. participants. Therefore, cultural factors are unlikely to weaken the conclusions.
92. Paul Thagard, The Moral Psychology of Conflicts of Interest: Insights from Affective Neuroscience, 24 J. APPLIED PHIL. 367, 374-75 (2007).
93. Robyn M. Dawes, Behavioral Decision Making and Judgment, in 1 HANDBOOK OF SOCIAL PSYCHOLOGY, supra note 89, at 497, 521; see also Eddie Harmon-Jones & John J.B. Allen, The Role of Affect in the Mere Exposure Effect: Evidence from Psychophysiological and Individual Differences Approaches, 27 PERSONALITY & SOC. PSYCHOL. BULL. 889, 889 (2001) (finding physical evidence based on cheek muscle activity in favor of the exposure effect); Rudman, supra note 79, at 138 (stating that it has become an "axiom that proximity leads to attraction"); Robert B. Zajonc & Hazel Markus, Affective and Cognitive Factors in Preferences, 9 J. CONSUMER RES. 123, 125 (1982) (referring to the exposure effect as a "basic process in preference and attitude formation and change"); Robert B. Zajonc, Attitudinal Effects of Mere Exposure, 9 J. PERSONALITY & SOC. PSYCHOL., June 1968, at 1 (defining the exposure of the individual effect as "mere repeated exposure to a stimulus is a sufficient condition for the enhancement of his attitude toward it"). See generally Robert F. Bornstein, Exposure and Affect: Overview and Meta-Analysis of Research, 1968-1987, 106 PSYCHOL. BULL. 265 (1989) (analyzing 208 studies and finding strong support for the exposure effect, including for social stimuli).
94. See Robert F. Bornstein et al., The Generalizability of Subliminal Mere Exposure Effects: Influence of Stimuli Perceived Without Awareness on Social Behavior, 53 J. PERSONALITY & Soc. PSYCHOL. 1070, 1074,1077 (1987) (finding that "subliminal exposure to the image of a person would increase positive affect toward that person" and concluding that subliminal effects likely have an impact in real life interpersonal situations); William Raft Kunst-Wilson & R.B. Zajonc, Affective Discrimination of Stimuli that Cannot Be Recognized, 207 SCI. 557, 557-58 (1980) (finding that people preferred polygons that experimenters had previously presented to them, even though they could not recognize them); Piotr Winkielman et al., Subliminal Affective Priming Resists Attributional Interventions, 11 COGNITION & EMOTION 433, 433 (1997) (finding reliable shifts in affect resulting from subliminal primes).
95. See Rudman, supra note 79, at 136 (noting that this bias applies to a host of different status variables, including one particularly relevant to a board of directors, socioeconomic status); Itesh Sachdev & Richard Y. Bourhis, Power and Status Differential in Minority and Majority Group Relations, 21 EUR. J. SOC. PSYCHOL. 1, 22 (1991); see also Marilynn B. Brewer & Rupert J. Brown, Intergroup Relations, in 2 HANDBOOK OF SOCIAL PSYCHOLOGY, supra note 89, at 554, 544-94 (reviewing studies); Diekmann et al., supra note 74, at 1073 (finding that advantaged recipients were more likely to rationalize benefits to members of their own group (and more likely to violate an equality norm) than less advantaged recipients with respect to members of the less advantaged recipients' group).
96. See Guido Hertel & Norbert L. Kerr, Priming In-Group Favoritism: The Impact of Normative Scripts in the Minimal Group Paradigm, 37 J. EXPERIMENTAL Soc PSYCHOL. 316, 321, 322 (2001) (finding that when experimenters primed loyalty there were greater amounts of ingroup favoritism, due to the "rather unconscious" application of social scripts).
97. See Yechiel Klar & Eilath E. Giladi, No One in My Group Can Be Below the Group's Average: A Robust Positivity Bias in Favor of Anonymous Peers, 73 J. PERSONALITY & Soc. PSYCHOL. 885, 885 (1997) (finding that subjects judged nearly all anonymous members of an ingroup as superior to the other ingroup members); Yechiel Klar et al., Nonunique Invulnerability: Singular Versus Distributional Probabilities and Unrealistic Optimism in Comparative Risk Judgments, 67 ORGANIZATIONAL BEHAV. & HUM. DECISION PROCESSES 229, 229 (1996) (finding that peers were judged less likely to suffer future negative events than the average of the peer group); Yechiel Klar, Way Beyond Compare: Nonselective Superiority and Inferiority Biases in Judging Randomly Assigned Group Members Relative to Their Peers, 38 J. EXPERIMENTAL Soc. PSYCHOL. 331, 331 (2002) (finding that members of a small peer group systematically judged randomly selected members of the group as superior to the group average and median on socially desirable traits such as intelligence and friendliness); see also Eilath E. Giladi & Yechiel Klar, When Standards Are Wide of the Mark: Nonselective Superiority and Inferiority Biases in Comparative Judgments of Objects and Concepts, 131 J. EXPERIMENTAL SOC. PSYCHOL. 538, 549-50 (2002) (finding that the foregoing superiority biases are likely cognitive and motivational in origin).
98. See Don A. Moore & George Loewenstein, Self-interest, Automaticity, and the Psychology of Conflict of Interest, 17 Soc JUST. RES. 189, 195 (2004) (citation omitted).
99. James D. Cox & Harry L. Munsinger, Bias in the Boardroom: Psychological Foundations and Legal Implications of Corporate Cohesion, 48 LAW &CONTEMP. PROBS. 83, 88 (1985).
100. Id. at 98, 102.
101. See Langevoort, supra note 71, at 797 (noting that "[i]nvitations to the board are based heavily on matters like compatibility and 'fit'").
102. See Cox & Munsinger, supra note 99, at 103-04.
103. Id. at 105-08.
104. Id. at 106. This was an improvement from the early 1960s, when fully 56 percent of directors were graduates of a mere fifteen colleges. Id.
105. A recent survey found that 71 percent of the directorships at the top one hundred companies were held by white males. Minorities made up 15 percent of the directorships and women were 17 percent. See ALLIANCE FOR BOARD DIVERSITY, WOMEN AND MINORITIES ON FORTUNE100 BOARDS6 (2008), http://www.proutgroup.com/ Resources/abdreportfinal2008.pdf. Another recent survey found similar results among the directors of the top two hundred companies. JULIE HAMBROCK DAUM ET AL., SPENCER STUART2006 BOARD DIVERSITY REPORT(2006), http://www.spencerstuart.com/research/ articles/955/. Diversity likely declines as one includes smaller companies. See Carol Hymowitz, In the U.S., What Will It Take to Create Diverse Boardrooms?, WALL ST. J., July 8, 2003, at B1 (reporting that minorities account for only 8.8 percent of directorships at the 1500 largest companies).
106. See David C. Matz & Wendy Wood, Cognitive Dissonance in Group: The Consequences of Disagreement, 88 J. PERSONALITY & Soc. PSYCHOL. 22, 35 (2005) ("[M]any aspects of group formation and interaction lead to attitudinal homogeneity among group members."); Richard L. Moreland, The Formation of Small Groups, in 8 GROUP PROCESSES: REVIEW OF PERSONALITY AND SOCIALPSYCHOLOGY 80, 81-103 (Clyde Hendrick ed., 1987).
107. Cox & Munsinger, supra note 99, at 99; see also LUCIAN BEBCHUK & JESSE FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION32 (2004) (arguing that a board's norms "tend to foster board cohesion"). Bebchuk and Fried quote a director who has served on several boards stating that "[i]t is hard to explain to a person who is not a director. It is in many ways a club." Id.
108. See, e.g., In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 356-60 (Del. Ch. 1998), rev'd on other grounds, 746 A.2d 244 (Del. 2000); NYSE Listed Company Manual, supra note 3, § 303A.02; NASDAQ Manual, supra note 3, § 4200(a)(15).
109. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985) (referring to the "omnipresent specter that a board may be acting primarily in its own interests" when it defends against a hostile takeover).
110. FREDERICW. COOK &Co., INC., DIRECTOR COMPENSATION:NASDAQ 100 vs NYSE 100 (2005), http://www.fwcook.com/ alertjetters/2005-directorscomp.pdf [hereinafter FREDERICW. COOK]. In 2002, mean director compensation at the two hundred largest U.S. companies was $152,000, and $116,000 at the 1,000 largest companies. See BEBCHUK & FRIED,supra note 107, at 25. Compensation can easily exceed $400,000. See, e.g., Occidental Petroleum Corp., Proxy Statement (Mar. 22, 2007), http://sec.edgar-online.com/ 2007/03/22/0000797468-07-000029/Section3.asp.
111. FREDERICW. COOK, supra note 110, at 6 (reporting median annual compensation of NYSE 100 compensation committee members at $177,817, audit committee members at $180,651, compensation committee chairs at $190,135, and audit committee chairs at $191,432).
112. BEBCHUK & FRIED,supra note 107, at 17; see JAYW. LORSCH & ELIZABETHM. MACIVER, PAWNS OR POTENTATES: THE REALITY OF AMERICA'SCORPORATE BOARDS24-25 (1989).
113. See, e.g., John Bishop, The Recognition and Reward of Employee Performance, 5 J. LAB. ECON. S36, S51-52 (1997) (citing studies examining the effect of merit-based pay on employee productivity).
114. BEBCHUK & FRIED,supra note 107, at 27-28 (stating that "[i]t has been common practice for companies to make charitable contributions to nonprofit organizations that employ or are headed by a director"); see also Biondi v. Scrushy, 820 A.2d 1148, 1157 (Del. Ch. 2003) (noting that the company had been generous to a foundation that was important to the challenged independent director).
115. PERMANENT SUBCOMM. ON INVESTIGATIONS, COMM. ON GOVERNMENTAL AFFAIRS, THE ROLEOF THE BOARD OF DIRECTORS IN ENRON'S COLLAPSE, S. REP. NO. 107-70, at 55 (2002), available at http://fll.findlaw.com/news.findlaw.com/hdocs/docs/enron/ senpsi70802rpt.pdf [hereinafter ENRON REPORT],
116. BEBCHUK & FRIED,supra note 107, at 27-28.
117. Lucian A. Bebchuk & Jesse M. Fried, Pay Without Performance: Overview of the Issues, 30 J. CORP. L. 647, 656 (2005).
118. JOHNC. COFFEE ET AL., KNIGHTS, RAIDERS, AND TARGETS: THE IMPACT OF THE HOSTILETAKEOVER 14 (1988) (quoting Warren Buffett).
119. Directors report that they are persuaded to sit on boards more by these nonfinancial rewards than by the financial compensation. See Lynne L. Dallas, Proposals for Reform of Corporate Boards of Directors: The Dual Board and Board Ombudsperson, 54 WASH. & LEEL. REV. 91, 109 (1997).
120. Cox & Munsinger, supra note 99, at 95.
121. Id. at 107.
122. There is research demonstrating that even so-called independent nominating committees often end up nominating candidates who are suggested or preferred by the incumbent CEO. See Michael Dorf, The Group Dynamics Theory of Executive Compensation, 28 CARDOZO L. REV. 2025, 2033 (2007); James D. Westphal & Edward J. Zajac, Who Shall Govern? CEO/Board Power, Demographic Similarity, and New Director Selection, 40 ADMIN. SCI. Q. 60 (1995) (showing that CEOs generally control director selection).
123. Robert B. Cialdini & Noah J. Goldstein, Social Influence: Compliance and Conformity, 55 ANN. REV. PSYCHOL. 591, 599,604 (2004) (noting that gifts are often reciprocated, even when they are unwanted by the participant).
124. BEBCHUK & FRIED,supra note 107, at 31 (citing Brian G. Main et al., The CEO, the Board of Directors and Executive Compensation: Economic & Psychological Perspectives, 4 INDUS. & CORP. CHANGE293 (1995)) (arguing that directors may not bargain hard over compensation with a CEO who brought them onto the board).
125. Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1052 n.32 (Del. 2004) (quoting Lynn A. Stout, On the Proper Motives of Corporate Directors (or, Why You Don't Want to Invite Homo Economicus to Join Your Board), 28 DEL. J. CORP. L. 1, 8-9 (2003)); see also William T. Allen, Independent Directors in MBO Transactions: Are They Fact or Fantasy?, 45 BUS. LAW. 2055, 2061-63 (1990) (arguing that it is a sense of duty that creates effective independent directors).
126. Diekmann et al., supra note 74, at 1061; see, e.g., Chugh et al., supra note 8, at 81-86 (pointing out that people want to see themselves as moral, competent, and deserving); Cialdini & Goldstein, supra note 123, at 604 ("Individuals are driven to be consistent not only with their trait selfattributions, but with their previous behaviors and commitments as well.").
127. Beam, 845 A.2d at 1052. For discussions of the role of reputation in shaping behavior, see Margaret M. Blair & Lynn A. Stout, Trust, Trustworthiness, and the Behavioral Foundations of Corporate Law, 149 U. PA. L. REV. 1735, 1793-97 (2001); David A. Skeel, Jr., Shaming in Corporate Law, 149 U. PA. L. REV. 1811, 1814-23 (2001); and Melvin A. Eisenberg, Corporate Law and Social Norms, 99 COLUM. L. REV. 1253, 1255-64 (1999).
128. Beam, 845 A.2d at 1043.
129. See Eugene F. Fama & Michael C. Jensen, The Separation of Ownership and Control, 26 J.L. & ECON. 301, 315 (1983) (arguing that an efficient labor market serves to control directors, as directors' reputations affect their chance for future board appointments); see also 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, 535 (1989) (dismissing the argument "that outside directors generally are more willing to risk reputation and future income than they are to risk the social embarrassment of calling a colleague to account"). But see Velasco, supra note 70, at 825 (arguing in favor of an intermediate standard of review for situations where the directors may have subtle conflicts of interest that are not powerful enough to warrant the entire fairness standard).
130. Velasco, supra note 70, at 859-60.
131. See Dorf, supra note 122, at 2032-33 ("Directors who wish to remain in office ... need to please whoever determines the composition of the corporation's slate of nominees.").
132. E. Norman Veasey, The Defining Tension in Corporate Governance in America, 52 Bus. LAW. 393, 405-06 (1997). Veasey goes on to state, however, that "directors must be aware of any appearance that they lack independence" and that "the better practice is that each director should be like Caesar's wife: above reproach." Id.; see also Dooley & Veasey, supra note 129, at 537 (arguing that asserting the "argument in favor of closer judicial review of board decisions on loyalty matters is to assert that independent directors are more likely to risk their reputations to excuse cheating than to excuse carelessness").
133. See infra Part IV.D.
134. See generally Moore & Lowenstein, supra note 98 (summarizing research); Jason Dana & George Lowenstein, A Social Science Perspective on Gifts to Physicians from Industry, 290 J. AM. MED. ASS'N 252 (2003).
135. Chugh et al., supra note 8, at 91.
136. See Emily Pronin & Matthew B. Kugler, Valuing Thoughts, Ignoring Behavior: The Introspection Illusion as a Source of the Bias Blind Spot, 43 J. EXPERIMENTAL Soc. PSYCHOL. 565, 575-76 (2007).
137. Robert J. MacCoun, Biases in the Interpretation and Use of Research Results, 49 ANN. REV. PSYCHOL. 259, 267-69 (1998).
138. Id. at 268.
139. Id.
140. Id. (describing both unintentional cognitive and motivational biases).
141. Id. at 269-73.
142. Emily Pronin et al., Objectivity in the Eye of the Beholder: Divergent Perceptions of Bias in Self Versus Others, 111 PSYCHOL. REV. 781, 784-88 (2004).
143. Cognitive processes "[refer] to all processes by which the sensory input is transformed, reduced, elaborated, stored, recovered, and used." ULRIC NEISSER, COGNITIVE PSYCHOLOGY4 (1967). By contrast, an approach beginning with motivations: "Instead of asking how a man's actions and experiences result from what he saw, remembered, or believed, the dynamic psychologist asks how they follow from the subject's goals, needs, or instincts." Id. The modern consensus is that both cognition and motivation interact to result in biased decision making. See Dan Simon, A Third View of the Black Box: Cognitive Coherence in Legal Decision Making, 71 U. CHI. L. REV. 511, 541 (2004) (reporting that "[t]he prevailing consensus is that motivations guide and interact with the cognitive system, influencing how people reason and perceive their environments"). For the purposes of this article we need not address precisely whether cognitive or motivational processes are at work. See also Susan T. Fiske, Intent and Ordinary Bias: Unintended Thought and Social Motivation Create Casual Prejudice, 17 Soc. JUST. RES. 117, 125 (2004) (suggesting that the distinction between motivation and cognition is absurd because our brains do not neatly distinguish these processes).
144. Moore and Loewenstein argue that the brain actually processes motives in different ways. In particular, they argue that a person's ethical and professional responsibilities (such as a director's obligation to fairly assess the merits of a derivative suit against a controlling shareholder) are more likely to be processed consciously, whereas a person's self interest (such as a director's desire to stay on the board of directors) tends to be processed automatically. See Moore & Loewenstein, supra note 98, at 190. Because automatic processing occurs unconsciously, "its influence on judgment and decision making is difficult to eliminate or completely correct. The consequence of this differential processing is that self-interest often prevails, even when decision makers consciously attempt to comply with the ethical mandates of their profession." Id. at 190-91.
145. Thagard, supra note 92, at 369.
146. See David M. Bersoff, Why Good People Sometimes Do Bad Things: Motivated Reasoning and Unethical Behavior, 25 PERSONALITY & Soc. PSYCHOL. BULL. 28, 38 (1999) (observing that "people commonly distort the moral implications of their desired behavioral response and end up acting contrary" to their motivations or morality, honesty, and personal integrity).
147. A director's attitude towards a derivative suit is also likely to be negative because directors fear personal liability and because they perceive few benefits to shareholders. See Robert B. Thompson & Randall S. Thomas, The Public and Private Faces of Derivative Lawsuits, 57 VAND. L. REV. 1747, 1748 (2004) (noting that "derivative suits are today regularly portrayed as nuisance suits whose 'principal beneficiaries ... are attorneys'") (citations omitted).
148. It is worth noting that the Enron board, when faced with the proposed transactions between Enron's CFO Andrew Fastow and Enron that ultimately led to Enron's implosion, knowingly suspended Enron's code of ethics as a necessary preliminary step before acceptance. See ENRON REPORT, supra note 115, at 24.
149. See, e.g., Erica Dawson et al., Motivated Reasoning and Performance on the Wason Selection Task, 28 PERSONALITY SOC. PSYCHOL. BULL. 1379 (2002); Peter H. Ditto & David F. Lopez, Motivated Skepticism: Use of Differential Decision Criteria for Preferred and Nonpreferred Conclusions, 63 J. PERSONALITY & Soc. PSYCHOL. 568, 569-70 (1992); Timothy D. Wilson et al., Mental Contamination and the Debiasing Problem, in HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE JUDGMENT185, 186-87 (Thomas Gilovich et al. eds., 2002).
150. Of course, even scientists do not necessarily follow this approach. See MacCoun, supra note 137, at 263-64, 279-81 (examining bias or perceived bias of social scientists in selecting and interpreting research evidence).
151. Roy F. Baumeister & Leonard S. Newman, Self-Regulation of Cognitive Inference and Decision Processes, 20 PERSONALITY & Soc. PSYCHOL. BULL. 3, 3 (1994); see also Jonathan Haidt, The Emotional Dog and Its Rational Tail: A Social Intuitionist Approach to Moral Judgment, 108 PSYCHOL. REV. 814, 820 (2001) ("The reasoning process is more like a lawyer defending a client than a judge or scientist seeking truth.").
152. MICHAELS. GAZZANIGA, THE ETHICAL BRAIN161 (2005) ("Humans are belief-formation machines. We form beliefs fast and firmly, and then deepen them.... We become beholden to them and will adhere to them even in the face of information to the contrary.").
153. John A. Bargh & Tanya L. Chartrand, The Unbearable Automaticity of Being, 54 AM. PSYCHOL. 462, 475 (1999) (noting that "our preferences and many other judgments may be made literally before we know it").
154. Samuel D. Bond et al., Information Distortion in the Evaluation of a Single Option, 102 ORG. BEHAV. & HUM. DECISIONPROCESSES 240, 240 (2007) (testing "the idea that individuals, having not yet committed to a particular course of action, bias their interpretation of new information to support an initial disposition").
155. Eldar B. Shafir, Choosing Versus Rejecting: Why Some Options Are Both Better and Worse than Others, 21 MEMORY & COGNITION 546, 548-50 (1993); see also Amos Tversky & Itamar Gati, Studies of Similarity, in COGNITION AND CATEGORIZATION79, 83 (Eleonor Rosch & Barbara B. Lloyd eds., 1978) (finding that subjects would conclude that East and West Germany were more or less different than Nepal and Sri Lanka depending on whether they were asked which countries were more similar or which countries were more different).
156. Shafir, supra note 155, at 549.
157. Id. at 553-54. Shafir concluded that "[w]hether we end up choosing or rejecting often seems an accident of fate." Id. at 554.
158. Tobias Greitemeyer & Stefan Schulz-Hardt, Preference-Consistent Evaluation of Information in the Hidden Profile Paradigm: Beyond Group-Level Explanations for the Dominance of Shared Information in Group Decisions, 84 J. PERSONALITY & Soc. PSYCHOL. 322, 323 (2003) ("[S]everal lines of research show that people are somehow reluctant to revise initial judgments, choices or beliefs.").
159. William B. Swann, Jr. & Toni Giuliano, Confirmatory Search Strategies in Social Interaction: How, When, Why, and with What Consequences, 5 J. SOC. & CLINICAL PSYCHOL. 511, 522 (1987).
160. See Daniel T. Gilbert, How Mental Systems Believe, 46 AM. PSYCHOL. 107, 107 (1991).
161. Id. at 107 (describing understanding followed by acceptance or rejection as Cartesian).
162. Id. at 107-08 (describing understanding and acceptance as simultaneous, possibly to be followed by "unaccepting," as Spinozan). Or as William James described Spinoza's view, "All propositions ... are believed through the very fact of being conceived." Id. at 108 (quoting WILLIAM JAMES, THE PRINCIPLES OF PSYCHOLOGY136 (1890)).
163. Daniel T. Gilbert et al., Unbelieving the Unbelievable: Some Problems in the Rejection of False Information, 59 J. PERSONALITY & Soc. PSYCHOL. 601, 603 (1990).
164. Gilbert, supra note 160, at 115.
165. Tom Pyszczynski & Jeff Greenberg, Toward an Integration of Cognitive and Motivational Perspectives on Social Inference: A Biased Hypothesis-Testing Model, in 20 ADVANCES IN EXPERIMENTAL SOCIAL PSYCHOLOGY297, 305 (Leonard Berkowitz ed., 1987) (observing that "[a] great deal of information processing occurs at a level beneath conscious awareness").
166. Id. at 330 ("A self-serving bias is likely to intrude on the selection of hypotheses for testing, the generation of inference rules, the search for attribution-relevant information, the evaluation of the information that one accesses, and the amount of confirmatory and disconfirmatory evidence that is required before an inference is made.").
167. Although to the author's knowledge no one has yet explained how the unconscious might affect independent directors' decision making, the means by which this might happen has been looked at in other contexts. For example, Judge Posner reached a similar conclusion regarding the impact of judicial biases: I doubt that any of the justices has so debased a conception of the judicial office as to try deliberately to swing the election to his preferred Presidential candidate. But the undeniable interest that a judge, especially a Justice of the U.S. Supreme Court, has in who his colleagues and successors will be is likely to have alerted the Justices to features of Bush v. Gore that might otherwise have eluded them. The conservative Justices may have been more sensitive to arguments based on Article II and the equal protection clause than they otherwise would have been, and the liberal Justices more sensitive to the weaknesses of those arguments than they otherwise would have been. RICHARDA. POSNER, BREAKING THE DEADLOCK: THE 2000 ELECTION, THE CONSTITUTION, AND THE COURTS 180 (2001). Jerome Frank, a leading legal realist who served on the United States Court of Appeals for the Second Circuit, also suggested the impact of unconscious bias, observing that "[f]acts ... are what the judge thinks they are," and not necessarily objective reality. JEROME FRANK, LAW AND THE MODERN MINDxviii (1930).
168. FRANCIS BACON, NOVUM ORGANUM26 (Joseph Devey ed., P.F. Collier & Sons 1902) (1620), available at http://oll.libertyfund.org/title/ 1432 (emphasis added).
169. See, e.g., Tanya L. Chartrand & John A. Bargh, Automatic Activation of Impression Formation and Memorization Goals: Nonconscious Goal Priming Reproduces Effects of Explicit Task Instructions, 71 J. PERSONALITY & Soc. PSYCHOL. 464, 464 (1996) (stating that it is today uncontroversial to say that a person's "[i]ntentions and goals affect not only what one considers important enough to pay attention to, but also how one uses, interprets, and subsequently remembers that information"); David Dunning et al., What the Commentators Motivated Us to Think About, 10 PSYCHOL. INQUIRY79, 79 (1999) (concluding that "[t]he debate over whether motivation influences judgment has been settled"); Arie W. Kruglanski, Motivated Social Cognition: Principles of the Interface, in SOCIAL PSYCHOLOGY: HANDBOOK OF BASIC PRINCIPLES493, 493 (E. Tory Higgins & Arie W. Kruglanski eds., 1996); Thagard, supra note 92, at 376 (noting that there is "abundant psychological evidence" of the impact motivation on people's beliefs).
170. Linguists Vote Truthiness' the Word of the Year, WASH. POST, Jan. 7, 2006, at E18. (Truthiness is also included in the Oxford English Dictionary.)
171. Ziva Kunda, The Case for Motivated Reasoning, 108 PSYCHOL. BULL. 480, 480 (1990). It is possible that a decision maker's motivation may be to make an accurate choice. There is evidence that decision makers motivated to be accurate (and with no reason to prefer one alternative to another) process information more carefully and follow more complex cognitive strategies. Id. at 482. In some circumstances, however, the goal to be accurate may in fact increase bias. Id. For example, accuracymotivated subjects were more likely to weight irrelevant information to moderate a prediction than those who were not motivated. See Philip E. Tetlock & Richard Boettger, Accountability: A Social Magnifier of the Dilution Effect, 57 J. PERSONALITY & Soc. PSYCHOL. 388, 397 (1989); see also Arie W. Kruglanski, Motivation and Social Cognition: Enemies or a Love Story?, 1 INT. J. PSYCHOL. & PSYCHOL. THERAPY33, 41 (2001) (defining a goal as "[a] desirable state of affairs attainable through one's actions").
172. An example is the classic study in which Dartmouth and Princeton fans watched a football game between the two schools, and were asked to report any infractions and rate their seriousness. The two fan groups, according to the study's authors, were so biased that they appeared to see vastly different games. David M. Messick & Keith Sentiss, Fairness, Preferences and Fairness Biases, in EQUITY THEORY: PSYCHOLOGICAL AND SOCIOLOGICAL PERSPECTIVES61, 83 (David M. Messick & Karen S. Cook eds., 1993) (citing A.H. Hastorf & H. Cantrill, They Saw a Game: A Case Study, 49 J. ABNORMAL & Soc. PSYCHOL. 129, 130 (1954)).
173. Lee Ross et al., Perseverance in Self-Perception and Social Perception: Biased Attributional Processes in the Debriefing Paradigm, 32 J. PERSONALITY & SOCIAL PSYCHOL. 880, 884 (1975); see also Lee Ross et al., Social Explanation and Social Expectation: The Effects of Real and Hypothetical Explanations upon Subjective Likelihood, 35 J. PERSONALITY & Soc. PSYCHOL. 817, 826 (1977). For more recent experiments, see, e.g., Lisa Sinclair & Ziva Kunda, Motivated Stereotyping of Women: She's Fine if She Praised Me but Incompetent if She Criticized Me, 26 PERSONALITY & SOC PSYCHOL. BULL. 1329, 1340 (2000) (finding that students who received lower grades from female professors were more likely to use negative stereotypes about female professors); Lisa Sinclair & Ziva Kunda, Reactions to a Black Professional: Motivated Inhibition and Activation of Conflicting Stereotypes, 77 J. PERSONALITY & Soc. PSYCHOL. 885, 902 (1999) (finding that people praised by an African-American were less likely to use negative African-American stereotypes).
174. See Samuel Issacharoff, Legal Responses to Conflicts of Interest, in CONFLICTS OF INTEREST, supra note 8, at 189, 190 (lawyers recommending that clients initiate lawsuits); Jerome P. Kassirer, Physicians' Financial Ties with the Pharmaceutical Industry: A Critical Element of a Formidable Marketing Network, in CONFLICTSOF INTEREST,supra note 8, at 133, 138-39 (doctors prescribing drugs manufactured by companies that have provided incentives to them); Mark W. Nelson, A Review of Experimental and Archival Conflicts-of-Interest Research in Auditing, in CONFLICTS OF INTEREST, supra note 8, at 41, 50-51 (describing factors that compromise the objectivity of accounting firms); Don A. Moore et al., Auditor Independence, Conflict of Interest, and the Unconscious Intrusion of Bias 6 (Harvard Bus. Sch., Working Paper No. 03-116, 2003) (describing auditors' bias in favor of their clients). Self-interested decision making is not limited to the professions. Academics who have studies accepted attribute their success to the quality of the article, whereas those who have studies rejected attribute the result to factors such as an unlucky choice of reviewers. Mary Glenn Wiley et al., Why a Rejection? Causal Attribution of a Career Achievement Event, Soc. PSYCHOL. Q. 214, 217-19 (1979).
175. Kunda, supra note 171, at 482-83 (1990) (proposing "that people motivated to arrive at a particular conclusion attempt to be rational and to construct a justification of their desired conclusion that would persuade a dispassionate observer").
176. Id. at 483 (arguing that "people do not realize that the [reasoning] process is biased by their goals").
177. Id. at 493.
178. Id. at 480.
179. Chartrand & Bargh, supra note 169, at 469-73 (demonstrating that goals could be activated and affect memories without the conscious awareness of participants); see also John A. Bargh et al., The Automated Will: Nonconscious Activation and Pursuit of Behavioral Goals, 81 J. PERSONALITY & SOC. PSYCHOL. 1014, 1024 (2001) (showing that people can have behavioral goals without conscious awareness of them, and that these nonconscious goals then operate and affect behavior in a similar way to consciously chosen goals); Bargh & Chartrand, supra note 153, at 462-64 (reviewing studies showing the automatic activation of goals); James S. Uleman, When Do Unconscious Goals Cloud Our Minds?, in 9 ADVANCES IN SOCIAL COGNITION165, 165-66 (Robert S. Wyer ed., 1996).
180. Chartrand & Bargh, supra note 169, at 465.
181. THOMAS GILOVICH, HOW WE KNOW WHAT ISN'T SO84 (1991).
182. See supra Part III.C.
183. ZIVA KUNDA, SOCIAL COGNITION224 (1999) (noting that "despite our best efforts to be objective and rational, motivation may nevertheless color our judgment"); Thagard, supra note 92, at 376 ("There is abundant psychological evidence that people's beliefs are determined in part by their motivations as well as by the available evidence.").
184. KUNDA, supra note 183, at 224.
185. BACON,supra note 168, at 23.
186. See generally Raymond S. Nickerson, Confirmation Bias: A Ubiquitous Phenomenon in Many Guises, 2 REV. GEN. PSYCHOL. 175 (1998). It has also been referred to as the "positive test strategy." See Joshua Klayman & Young-Won Ha, Confirmation, Disconfirmation, and Information in Hypothesis Testing, 94 PSYCHOL. REV. 211, 213 (1987). For an extensive bibliography of scholarly articles addressing the confirmation bias, see Confirmation Bias/Confirmatory Bias, http:// ¢onfirmationbias.behaviouralfinance.net/ (last visited Nov. 13, 2008).
187. J. Edward Russo et al., Predecisional Distortion of Information by Auditors and Salespersons, 46 MGMT. SCI. 13, 13 (2000); see also Stefan Schulz-Hardt et al., Biased Information Search in Group Decision Making, 78 J. PERSONALITY & SOC. PSYCHOL. 655, 659-60 (2000) (finding biased information processing in groups of midlevel managers).
188. Ditto & Lopez, supra note 149, at 570 ("An eclectic body of theory and research, therefore, supports the conclusion that information consistent with a preferred judgment conclusion is less likely to initiate intensive cognitive analysis than is information inconsistent with that conclusion.").
189. See Robert A. Olsen, Desirability Bias Among Professional Investment Managers: Some Evidence from Experts, 10 J. BEHAV. DECISION MAKING65, 70-71 (1997); see also Brent L. Cohen & Thomas S. Wallsten, The Effect of Constant Outcome Value on Judgments and Decision Making Given Linguistic Probabilities, 5 J. BEHAV. DECISION MAKING53, 53-55 (1992) (finding that people overestimated the likelihood of positive outcomes).
190. See Olsen, supra note 189, at 66.
191. Aaron L. Brownstein, Biased Predecision Processing, 129 PSYCHOL. BULL. 545, 548, 559 (2003) (reviewing seven major theories and forty years of empirical studies on biased predecision processing, and concluding that many studies have "found biased processing before ... committing [a] consequential decision").
192. Id. at 561.
193. Id. Granted, there are some mechanisms at work that may reduce biased processing, such as when a decision will have to be justified to others.
194. Cox & Munsinger, supra note 99, at 88 (referring to the decision whether to continue a derivative suit as a "multifaceted, inherently complex choice").
195. Schulz-Hardt et al., supra note 187, at 666; see also Brownstein, supra note 191, at 561 ("[W]hen decision making occurs in a group setting, group members are more likely to selectively search for information favorable to a preliminary favorite than individuals making private decisions."). Whether groups are more or less biased than the people composing the groups, depends on the nature and strength of the bias, the decision process, and the distribution of individual preferences in the group. Norbert L. Kerr et al., Bias in Judgment: Comparing Individuals and Groups, 103 PSYCHOL. REV. 687, 693 (1996) (concluding that there is no simple answer to the question whether groups are more biased than individuals).
196. Schulz-Hardt et al., supra note 187, at 666.
197. Id.
198. Part III has described why it is likely that independent directors will have theories or beliefs biased in favor of the group or themselves.
199. Dieter Frey et al., Information Seeking Among Individuals and Groups and Possible Consequences for Decision Making in Business and Politics, in 2 UNDERSTANDING GROUP BEHAVIOR: SMALL GROUP PROCESSES AND INTERPERSONAL RELATIONS 211, 212-20 (Erich H. Witte & James H. Davis eds., 1996) (reviewing studies in both individual and group contexts); Eva Jonas et al., Confirmation Bias in Sequential Information Search After Preliminary Decisions: An Expansion of Dissonance Theoretical Research on Selective Exposure to Information, 80 J. PERSONALITY & Soc. PSYCHOL. 557, 557 (2001) ("When people seek new information, these information search processes are often biased in favor of the information seeker's previously held beliefs, expectations or desired conclusions."); Kunda, supra note 171, at 494 ("[P]eople are biased toward seeking instances that are consistent with a hypothesis that they are testing rather than instances that are inconsistent with it."); see also Sharon R. Lundgren & Radmila Prislin, Motivated Cognitive Processing and Attitude Change, 24 PERSONALITY & Soc. PSYCHOL. BULL. 715, 722-23 (1998) (attitudes); Robin L. Pinkley et al., "Fixed Pie" a la Mode: Information Availability, Information Processing, and the Negotiation of Suboptimal Agreements, 62 ORG. BEHAV. & HUM. DECISION PROCESSES101, 105-06 (1995) (negotiations).
200. See, e.g., Arthur S. Elstein & Georges Bordage, Psychology of Clinical Reasoning, in HEALTH PSYCHOLOGY-A HANDBOOK333, 352-58 (George C. Stone et al. eds., 1979) (medicine); Nancy Pennington & Reid Hastie, The Story Model for Juror Decision Making, in INSIDE THE JUROR: THE PSYCHOLOGY OF JURY DECISION MAKING192, 192-96 (Reid Hastie ed., 1993) (law); Ryan D. Tweney, A Framework for the Cognitive Psychology of Science, in PSYCHOLOGY OF SCIENCE: CONTRIBUTING TOMETASCIENCE 342, 346-49 (Barry Gholson et al. eds., 1989) (science); see also Michael J. Mahoney, Publication Prejudices: An Experimental Study of Confirmatory Bias in the Peer Review System, 1 COGNITIVE THERAPY & RES. 161, 162 (1977) ("[T]he most costly expression of [confirmatory bias] may be among scientists themselves.").
201. See David E. Sanger, Report on Loss of Shuttle Focuses on NASA Blunders and Issues Somber Warning, N.Y. TIMES,Aug. 27, 2003, at Al.
202. George Loewenstein et al., Self-Serving Assessments of Fairness and Pretrial Bargaining, 22 J. LEGAL STUD. 135, 159 (1993) (finding that people exhibited self-serving biases even when paid to make accurate judgments).
203. Pyszczynski & Greenberg, supra note 165, at 319 (observing that "selective exposure to information consistent with a self-serving conclusion is one important means through which individuals maintain an illusion of objectivity concerning their attributions"). Several theories have been developed to explain this phenomenon. See, e.g., Shelly Chaiken et al., Heuristic and Systematic Information Processing Within and Beyond the Persuasion Context, in UNINTENDEDTHOUGHT 212 (James S. Uleman & John A. Bargh eds., 1989) (multiple motive heuristic systematic model); ARIE KRUGLANSKI, LAY EPISTEMICS AND HUMAN KNOWLEDGE (Elliot Aronson ed., 1989) (lay epistemics); Kunda, supra note 171 (motivated cognition).
204. Eva Jonas et al., supra note 199, at 557; see also Ziva Kunda et al., Directional Questions Direct Self-Conceptions, 29 J. EXPERIMENTAL SOC. PSYCHOL. 63, 63 (1993) (finding that subjects reached hypothesis-consistent conclusions based on a selective search for information).
205. Peter C. Wason, On the Failure to Eliminate Hypotheses in a Conceptual Task, 12 Q.J. EXPERIMENTAL PSYCHOL. 129, 130 (1960) [hereinafter Wason, Failure]; see also Peter C. Wason, Reasoning, in NEW HORIZONS IN PSYCHOLOGY135, 139-42 (Brian M. Foss ed., 1966) (conducting research demonstrating that subjects disproportionately seek evidence that confirms their hypotheses).
206. Wason, Failure, supra note 205, at 131-33.
207. Id.
208. Id.
209. See Jennifer Crocker, Biased Questions in Judgment of Covariation Studies, 8 PERSONALITY & Soc. PSYCHOL. BULL. 214, 217-18 (1982).
210. See Mark Snyder & William B. Swann, Hypothesis-Testing Processes in Social Interaction, 36 J. PERSONALITY & Soc. PSYCHOL. 1202, 1205 (1978) ("[I]ndividuals will systematically formulate confirmatory strategies for testing hypotheses about other people."); see also Richard B. Skov & Steven J. Sherman, Information-Gathering Processes: Diagnosticity, Hypothesis-Confirmatory Strategies, and Perceived Hypothesis Confirmation, 22 J. EXPERIMENTAL Soc. PSYCHOL. 93, 94 (1986).
211. See Skov & Sherman, supra note 210, at 96 (noting how the framing of a question about loud parties made all respondents seem introverted).
212. GILOVICH, supra note 181, at 56 (noting that "[e]very experimental psychologist I know is much more likely to run an additional experiment if the results of an initial study refute a favored hypothesis than if the results support it"); Baumeister & Newman, supra note 151, at 4-5; Ditto & Lopez, supra note 149, at 570 (using the phrase "asymmetrical quantity of processing"); Peter H. Ditto et al., Motivated Sensitivity to Preference-Inconsistent Information, 75 J. PERSONALITY & Soc. PSYCHOL. 53, 54 (1998) ("Information inconsistent with a preferred judgment... is more likely to initiate effortful cognitive analysis.").
213. BACON,supra note 168, Aphorism 46.
214. See generally GAZZANIGA, supra note 152, at 122 ("We are a self-concerned interpreter of all incoming information."). An illustration of this self-concerned interpretation is the stereotype threat studies in which Asian women who were reminded that they were Asian before a math test performed better than Asian women who were given the same math test without being reminded of anything, and both groups did better than Asian women reminded that they were women before the math test. See Margaret Shih et al., Stereotype Susceptibility: Identity Salience and Shifts in Quantitative Performance, 10 PSYCHOL. SCI. 80, 83 (1999); Margaret Shih et al., Stereotype Performance Boosts: The Impact of Self-Relevance and the Manner of Stereotype Activation, 83 J. PERSONALITY & SOC. PSYCHOL. 638, 638 (2002).
215. See GAZZANIGA,supra note 152, at 137 (observing that "we don't just neutrally add up incoming information").
216. Greitemeyer & Schulz-Hardt, supra note 158, at 324 (citing numerous studies); see also GAZZANIGA,supra note 152, at 135 ("Our brain is adapted for extreme efficiency; for that reason it distorts incoming information to fit in with our current beliefs about the world."); David Dunning et al., Ambiguity and Self-Evaluation: The Role of Idiosyncratic Trait Definitions in Self-Serving Assessments of Ability, 57 J. PERSONALITY & SOC. PSYCHOL. 1082, 1089 (1989) (providing evidence of how ambiguous criteria are interpreted in a self-serving manner).
217. See Emily Balcetis & David Dunning, See What You Want to See: Motivational Influences on Visual Perception, 91 J. PERSONALITY & SOC. PSYCHOL. 612, 615-16 (2006).
218. Balcetis & Dunning, supra note 217, at 621.
219. Id. at 621 (emphasis added).
220. LEON FESTINGER, CONFLICT, DECISION, AND DISSONANCE153-58 (1964); see also LEON FESTINGER,A THEORY OF COGNITIVE DISSONANCE(1957). Cognitive dissonance does not, of course, explain initial decision making because of its ex post etiology. For a review of psychological theories of cognitive consistency, see Dan Simon & Keith J. Holyoak, Structural Dynamics of Cognition: From Consistency Theories to Constraint Satisfaction, 6 PERSONALITY & Soc. PSYCHOL. REV. 283, 283-86 (2002); Wendy Wood, Attitude Change: Persuasion and Social Influence, 51 ANN. REV. PSYCHOL. 539 (2000).
221. Simon & Holyoak, supra note 220, at 283 (citations omitted).
222. BEBCHUK & FRIED,supra note 107, at 33.
223. See, e.g., Brownstein, supra note 191, at 566 (concluding that research demonstrates that biased information processing can occur both before the decision maker commits to a decision or even reaches an internal decision); Keith J. Holyoak & Dan Simon, Bidirectional Reasoning in Decision Making by Constraint Satisfaction, 128 J. EXPERIMENTAL PSYCHOL. 3, 4 (1999) ("[T]he pressure to achieve coherence guides the decision-making process itself, rather than simply providing post hoc rationalizations.").
224. Dan Simon et al., The Redux of Cognitive Consistency Theories: Evidence Judgments by Constraint Satisfaction, 86 J. PERSONALITY & Soc. PSYCHOL. 814, 814 (2004); see also Nickerson, supra note 186, at 196 ("Observation and prediction were linked in a circle of mutual confirmation rather than being independent of each other as we would expect according to the conventional idea of an experimental test." (quoting HARRY COLLINS & TREVOR PINCH, THE GOLEM: WHAT EVERYONE SHOULD KNOW ABOUT SCIENCE45 (1993))).
225. See Nickerson, supra note 186, at 186; Simon et al., supra note 224, at 816.
226. See Kurt A. Carlson & J. Edward Russo, Biased Interpretation of Evidence by Mock Jurors, 7 J. EXPERIMENTAL PSYCHOL.: APPLIED91, 91 (2001); Simon et al., supra note 224, at 832.
227. See Pyszczynski & Greenberg, supra note 165, at 313 (arguing that people will have asymmetrical evidentiary requirements because "people are generally better able to make use of information" that supports the hypothesis); Yaacov Trope & Akiva Liberman, Social Hypothesis Testing: Cognitive and Motivational Mechanisms, in SOCIAL PSYCHOLOGY: HANDBOOK OF BASIC PRINCIPLES,supra note 169, at 239, 262.
228. See Pyszczynski & Greenberg, supra note 165, at 313.
229. Asymmetrical evidentiary requirements are not per se evidence of bias. As Trope and Liberman note, because there may be different costs associated with accepting or rejecting a desired hypothesis, "symmetry is not the hallmark of objectivity." Trope & Liberman, supra note 227, at 264.
230. Id.
231. See supra notes 159-64 and accompanying text.
232. See, e.g., Charles G. Lord et al., Biased Assimilation and Attitude Polarization: The Effects of Prior Theories on Subsequently Considered Evidence, 37 J. PERSONALITY & Soc. PSYCHOL. 2098, 2098 (1979). See generally RICHARDE. NISBETT & LEED. ROSS, HUMAN INFERENCE: STRATEGIES AND SHORTCOMINGS OF SOCIAL JUDGMENT(1980).
233. Messick & Sentiss, supra note 172, at 70-72 (finding that participants will often apply either equity (rewards allocated in accordance with efforts or performance) or equality (rewards allocated equally) in self-serving ways).
234. Linda Babcock et al., Biased Judgments of Fairness in Bargaining, 85 AM. ECON. REV. 1337, 1341-42 (1995) (finding that in a simulation people's assigned roles affected their view of the fairness of a settlement and their prediction of the magnitude of a judicial award); Kimberly A. Wade-Benzoni et al., Egocentric Interpretations of Fairness in Asymmetric, Environmental Social Dilemmas: Explaining Harvesting Behavior and the Role of Communication, 67 ORG. BEHAV. & HUM. DECISION PROCESSES111, 114 (1996) (finding self-serving biases among participants contributing to overfishing).
235. Ditto & Lopez, supra note 149, at 569; Greitemeyer & Schulz-Hardt, supra note 158, at 336 (finding "strong and stable biases in favor of the initially preferred alternative"); Russo et al., supra note 187, at 13; J. Edward Russo et al., Predecisional Distortion of Product Information, 35 J. MARKETING RES. 438, 439 (1998); J. Edward Russo et al., The Distortion of Information During Decisions, 66 ORG. BEHAV. & HUM. DECISION PROCESSES102, 107 (1996).
236. Lindsley G. Boiney et al., Instrumental Bias in Motivated Reasoning: More When More Is Needed, 72 ORG. BEHAV. & HUM. DECISION PROCESSES 1, 12-14 (1997); Diekmann et al., supra note 74, at 1071-72 (finding that participants weighted criteria differently so as to justify unequal allocations); Messick & Sentiss, supra note 172, at 76-79 (observing that participants tend to believe inputs that they provide are more important than others' inputs); see also Ziva Kunda, Motivated Inference: Self-Serving Generation of Causal Theories, 53 J. PERSONALITY & Soc. PSYCHOL. 636, 640 (1987) (finding that subjects generated self-serving attributions regarding causes of divorce); Leigh Thompson & George Loewenstein, Egocentric Interpretations of Fairness and Interpersonal Conflict, 51 ORG. BEHAV. & HUM. DECISION PROCESSES176, 178-79 (1992).
237. Boiney et al., supra note 236, at 12.
238. Dan Simon et al., The Emergence of Coherence over the Course of Decision Making, 27 J. EXPERIMENTAL PSYCHOL.: LEARNING, MEMORY & COGNITION1250, 1250 (2001) (finding "that the decision-making process was accompanied by a systematic change in the evaluation of the inferences towards a pattern of coherence with the emerging decision"); see also Carlson & Russo, supra note 226, at 91-92 (finding distortion of evidence); Lorraine Hope et al., Understanding Pretrial Publicity: Predecisional Distortion of Evidence by Mock Jurors, 10 J. EXPERIMENTAL PSYCHOL.: APPLIED111, 113 (2004) (finding that following exposure to a biased newspaper account of a murder, subjects evaluated the evidence in the trial that was consistent with the pretrial publicity as more persuasive). In a subsequent study Simon and his colleagues found that the legal decision makers' views on the evidence and arguments become consistent with the emerging verdict just from merely thinking about the case, without requiring any overt commitment to the verdict. Simon et al., supra, at 1257-58. In these studies, if as seems likely the participants did not have particular motivations to reach one verdict or the other, it indicates the importance of cognitive biases, or alternatively the importance of a coherence motivation. See also Dan Simon et al., Construction of Preferences by Constraint Satisfaction, 15 PSYCHOL. SCI. 331, 335 (2004) [hereinafter Simon, Construction] (finding that as subjects "processed the decision task, their preferences for the attributes of the alternative that was ultimately chosen increased, while their preferences for the attributes of the to-be-rejected choice decreased").
239. Holyoak & Simon, supra note 223, at 21-23.
240. Id. at 23.
241. Nigel Harvey et al., Using Advice and Assessing Its Quality, 81 ORG. BEHAV. & HUM. DECISION PROCESSES252, 253 (2000).
242. See Simon, Construction, supra note 238, at 335.
243. Holyoak & Simon, supra note 223, at 23 (finding "an apparent tendency to believe that whatever one now believes, one has always (to some degree) believed").
244. See, e.g., Christopher K. Hsee, Elastic Justification: How Tempting but Task-Irrelevant Factors Influence Decisions, 62 ORG. BEHAV. & HUM. DECISIONPROCESSES 330 (1995); Christopher K. Hsee, Elastic Justification: How Unjustifiable Factors Influence Judgments, 66 ORG. BEHAV. & HUM. DECISION PROCESSES122 (1996).
245. Itamar Simonson, Choice Based on Reasons: The Case of Attraction and Compromise Effects, 16 J. CONSUMER RES. 158, 160-61 (1989).
246. Id. at 161.
247. See Simon, Construction, supra note 238, at 335 ("[0]ne piece of strong evidence ... triggers changes in the evaluation of unrelated attributes ....").
248. J. Edward Russo et al., Choosing an Inferior Alternative, 17 PSYCHOL. SCI. 899, 899 (2006).
249. Perhaps the simplest explanation of this is Mill's "choice certainty" theory. He argued that because people want to make the best decision, they try to maximize their certainty that they are making the right decision. A wider spread in evaluations helps reassure people that they are making the correct choice. Judson Mills, Interest in Supporting and Discrepant Information, in THEORIES OF COGNITIVE CONSISTENCY:A SOURCE BOOK771, 775-76 (Robert P. Abelson et al. eds., 1968).
250. Ditto & Lopez, supra note 149, at 581-82; Kari Edwards & Edward E. Smith, A Disconfirmation Bias in the Evaluation of Arguments, 71 J. PERSONALITY & Soc. PSYCHOL. 5, 5 (1996); Geoffrey D. Munro & Peter H. Ditto, Biased Assimilation, Attitude Polarization, and Affect in Reaction to Stereotype-Relevant Scientific Information, 23 PERSONALITY & Soc. PSYCHOL. BULL. 636, 636 (1997); see also Jonathan J. Koehler, The Influence of Prior Beliefs on Scientific Judgments of Evidence Quality, 56 ORG. BEHAV. & HUM. DECISION PROCESSES28 (1993).
251. Greitemeyer & Schulz-Hardt, supra note 158, at 324.
252. See Lord et al., supra note 232, at 2100.
253. Id.
254. Id. at 2101-03.
255. Id. at 2104.
256. Id. at 2106-07. Similar results were found in Tom Pyszczynski et al., Maintaining Consistency Between Self-Serving Beliefs and Available Data: A Bias in Information Evaluation, 11 PERSONALITY & SOC. PSYCHOL. BULL. 179, 184-85 (1985). Interestingly, in a subsequent study, when experimenters affirmed subjects' self-worth before they evaluated evidence on capital punishment that was contrary to their beliefs, the subjects were more persuaded by that contrary evidence. See Geoffrey L. Cohen et al., When Beliefs Yield to Evidence: Reducing Biased Evaluations by Affirming the Self, 26 PERSONALITY &Soc. PSYCHOL. BULL. 1151, 1161 (2000). The study suggests that people are motivated to maintain their self-image. Id.
257. Ditto & Lopez, supra note 149, at 574-76 (experiment two).
258. Id.
259. Id. at 576.
260. Id. at 575-76.
261. See Drew Westen et al., Neural Bases of Motivated Reasoning: An fMRI Study of Emotional Constraints on Partisan Political Judgment in the 2004 U.S. Presidential Election, 18 J. COGNITIVE NEUROSCIENCE1947, 1955 (2006) (demonstrating through functional magnetic resonance imaging that the confirmation bias can occur at an unconscious level and is affected by emotions). Because this study was performed only on men, it may not be generalizable to women. Id. at 1956. Given, however, that 83 percent of directors are male, it can still shed some light in the corporate context. See supra note 105 and accompanying text.
262. Westen et al., supra note 261, at 1947-49, 1955.
263. Id. at 1955.
264. Id. at 1956.
265. See MSNBC.com, Political Bias Affects Brain Activity, Study Finds, http://www.msnbc.msn.com/id/11009379/ (last visited Sept. 30, 2008) (quoting Drew Westen).
266. GAZZANIGA,supra note 152, at 127 (finding half of subjects were "substantially wrong in their memory reports" of the 1986 Challenger crash) (citation omitted).
267. Id. at 122.
268. Id. at 121 (noting that this view has much support).
269. See id. at 120 ("[Remembering is] an imaginative reconstruction, or construction, built out of the relation of our attitude towards a whole active mass of past experience." (quoting SIRFREDERIC C. BARTLETT, REMEMBERING: A STUDY IN EXPERIMENTAL AND SOCIAL P SYCHOLOGY213 (1932))).
270. Chugh et al., supra note 8, at 80 (quoting GEORGE ORWELL,1984 215 (Harcourt 1949)).
271. See Kunda, supra note 171, at 493-94 (listing examples of subjects' self-reported behaviors and memories that supported subjects' desired self-concepts, attitudes, or beliefs) (citations omitted).
272. Thompson & Loewenstein, supra note 236, at 176.
273. Id. (citations omitted).
274. Id.
275. See, e.g., Jonathan Baron, Myside Bias in Thinking About Abortion, 7 THINKING & REASONING221, 221 (1995) (reporting that people remember evidence that supports their views more readily than evidence that does not); Kunda, supra note 171 (reviewing studies). For a more recent study, see Michael J. Marks & R. Chris Fraley, Confirmation Bias and the Sexual Double Standard, 54 SEX ROLES19, 19 (2006), which found that people were more likely to remember information supporting their views of male and female sexuality than information that did not support their views. See also Holyoak & Simon, supra note 223, at 4 (showing that consistently increasing "shifts in beliefs and attitudes trigger correlated shifts in memory"). But see Alice H. Eagly et al., The Impact of Attitudes on Memory: An Affair to Remember, 125 PSYCHOL. BULL. 64, 66 (1999) (finding evidence that subjects were just as likely to remember information inconsistent with their personal beliefs as consistent information); Allyson L. Holbrook et al., Attitude Importance and the Accumulation of Attitude-Relevant Knowledge in Memory, 88 J. PERSONALITY & Soc. PSYCHOL. 749, 766 (2005) (same).
276. Veronika Denes-Raj & Seymour Epstein, Conflict Between Intuitive and Rational Processing: When People Behave Against Their Better Judgment, 66 J. PERSONALITY & Soc. PSYCHOL. 819, 819 (1994) (arguing that "humans can respond rationally (in the sense of engaging their deliberative, rational system in an objective, unbiased manner) only to the degree to which they are aware of and can therefore compensate for their experientially influenced thoughts and response tendencies").
277. Thagard, supra note 92, at 373-74.
278. Dan Simon, A Third View of the Black Box: Cognitive Coherence in Legal Decision Making, 71 U. CHI. L. REV. 511, 545 (2004) (referring to the "robust body of literature demonstrating that people have a general tendency to perceive objectivity in their reasoning processes").
279. See Washington Week with Gwen Ifill (PBS television broadcast July 27, 2001), transcript available at http://www.pbs.org/weta/ washingtonweek/transcripts/transcript010727.html (quoting George W. Bush). The aphorism commonly attributed to Mark Twain is equally applicable: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." BrainyQuote, Mark Twain Quotes, http://www.brainyquote.com/quotes/authors/rn/mark-twain.html (last visited Nov. 13, 2008).
280. Pyszczynski & Greenberg, supra note 165, at 302 (arguing that when motives influence judgment "they do so in ways that enable one to maintain an illusion of objectivity concerning the manner in which these inferences were derived. To maintain such an illusion, the perceiver must control the information that he or she brings to bear on the inference in question.").
281. Id. at 317.
282. See Pronin et al., supra note 14, at 369-70.
283. Pyszczynski & Greenberg, supra note 165, at 302.
284. Joachim Krueger & Richard A. Mueller, Unskilled, Unaware, or Both? The Better-than- Average Heuristic and Statistical Regression Predict Errors in Estimates of Own Performance, 82 J. PERSONALITY &Soc. PSYCHOL. 180, 186-87 (2002) (finding that self-enhancement bias can benefit the perceiver more often than not); Kerr et al., supra note 195, at 687 (noting that people show consistent biases in judgment, stemming in part from self-enhancing motives).
285. Chugh et al., supra note 8, at 84 ("In a conflict of interest, competence is often viewed as sufficient for avoiding suboptimal decision-making.").
286. Id. at 81.
287. Id. at 87-90 (discussing invisible conflicts of interest).
288. See Anne E. Tenbrunsel & David M. Messick, Ethical Fading: The Role of Self-Deception in Unethical Behavior, 17 Soc. JUST. RES. 223, 225 (2004) ("[Self deception] is common, normal, and accepted as constant and pervasive in individuals' lives. We are creative narrators of stories that tend to allow us to do what we want and that justify what we have done. We believe our stories and thus believe that we are objective about ourselves."); Thagard, supra note 92, at 375 ("The reason that people frequently succumb to self-deception is that belief acceptance is determined not just by coherence with other beliefs including the relevant evidence, but also by emotional attachments to personal goals such as maintaining self esteem.").
289. See infra Part IV.D.4.
290. Pronin et al., supra note 142, at 781 (quoting Matthew 7:3 (King James)).
291. Pronin et al., supra note 142, at 785-88 (reviewing extensive evidence of people's views of others as more likely to be biased than themselves).
292. See, e.g., Diekmann, supra note 74, at 1073 (finding that participants believed that other participants would show greater ingroup bias than they would); Joachim I. Krueger, Enhancement Bias in Descriptions of Self and Others, 24 PERSONALITY & Soc. PSYCHOL. BULL. 505, 513-15 (1998); Dale T. Miller & Rebecca K. Ratner, The Disparity Between the Actual and Assumed Power of Self-interest, 74 J. PERSONALITY &Soc. PSYCHOL. 53, 60 (1998) (finding that subjects both deny the impact of selfinterest on their own decision making and overestimate the impact of self-interest on others).
293. See Linda Babcock et al., supra note 234, at 1337 (finding that even when informed of cognitive and perceptual biases, most people believe that others have such biases but that they do not); James Friedrich, On Seeing Oneself as Less Self-Serving than Others: The Ultimate Self-Serving Bias?, 23 TEACHING OF PSYCHOL. 107, 108-09 (1996) (finding that subjects believe themselves less susceptible to bias than others, even after learning of the better-than-average bias); Pronin et al., supra note 14, at 369 (finding that subjects overwhelmingly believed that they were much less likely to have cognitive and motivational biases than the average person, even after researchers described the bias whereby people see themselves as better than average).
294. Fortunately, it appears as though the special litigation context is "the 'only instance in American Jurisprudence where a defendant can free itself from a suit by merely appointing a committee to review the allegations of the complaint."' Einhorn v. Culea, 612 N.W.2d 78, 91 (Wis. 2000) (quoting Lewis v. Fuqua, 502 A.2d 962, 967 (Del. Ch. 1985)).
295. Trope & Liberman, supra note 227, at 264 ("It is difficult to tell whether people-including ourselves-are objective.").
296. See Bond et al., supra note 154, at 240; see also Chugh et al., supra note 8, at 84 (noting that "individuals who are paid to make sound decisions are unlikely to doubt their own competence in doing so").
297. See Justin Kruger, Lake Wobegon Be Gone! The "Below-Average Effect" and the Egocentric Nature of Comparative Ability Judgments, 77 J. PERSONALITY & Soc. PSYCHOL. 221, 221 (1999) (concluding that "most of us appear to believe that we are more athletic, intelligent, organized, ethical, logical, interesting, fair-minded, and healthy-not to mention more attractive-than the average person"); Justin Kruger & David Dunning, Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments, 77 J. PERSONALITY & Soc PSYCHOL. 1121, 1121 (1999) (reporting on many studies showing that people overestimate their abilities); see also Nicholas Epley & David Dunning, Feeling "Holier than Thou": Are Self-Serving Assessments Produced by Errors in Selfor Social Prediction?, 79 J. PERSONALITY &Soc. PSYCHOL. 861, 861 (2000) (more virtuous); Michael McCall & Katherine Nattrass, Carding for the Purchase of Alcohol: I'm Tougher than the Other Clerks Are!, 31 J. APPLIED SOC. PSYCHOL. 2184, 2184 (2001) (more principled); Don A. Moore et al., Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions, 79 ORG. BEHAV. & HUM. DECISION PROCESSES95, 110-12 (1999) (investing); Janet Polivy & C. Peter Herman, If at First You Don't Succeed: False Hopes of Self Change, 57 AM. PSYCHOLOGIST 677, 677 (2002) (overestimates of one's own performance).
298. See W.B.G. Liebrand et al., Why We Are Fairer than Others: A Cross-Cultural Replication and Extension, 22 J. EXPERIMENTALSoc. PSYCHOL. 590, 591 (1986); David M. Messick et al., Why We Are Fairer than Others, 21 J. EXPERIMENTAL Soc. PSYCHOL. 480, 481 (1985).
299. Moore & Loewenstein, supra note 98, at 195-96 (explaining that people like to believe not only that they are better than they actually are but also better than others); Pronin & Kugler, supra note 136, at 576 (showing that participants were "overly prone to deny their own bias").
300. Timothy D. Wilson & Nancy Brekke, Mental Contamination and Mental Correction: Unwanted Influences on Judgments and Evaluations, 116 PSYCHOL. BULL. 117, 125 (1994).
301. Chugh et al., supra note 8, at 84.
302. See, e.g., Holyoak & Simon, supra note 223, at 21 (reporting that participants showed a great deal of confidence in their verdict for a simulated case despite the ambiguity of the case); Russo et al., supra note 248, at 903 (finding that decision makers were equally confident in their choices regardless of whether they chose the inferior or superior option).
303. Robert J. Robinson et al., Actual Versus Assumed Differences in Construal: "Naive Realism" in Intergroup Perception and Conflict, 68 J. PERSONALITY &Soc. PSYCHOL. 404, 404 (1995) (finding that both pro-choice and pro-life subjects believed that the other side's beliefs and assumptions were shaped more by political ideology and less by objective or rational concerns than their own views and assumptions). Naïve realism also implies that people fail to allow for the subjective construal of others when judging a person's behavior as well. Id. (referring to the "blindness to intersubjective differences in construal").
304. Id. at 413.
305. Id. at 405; see also Justin Kruger & Thomas Gilovich, "Naive Cynicism" in Everyday Theories of Responsibility Assessment: On Biased Assumptions of Bias, 76 J. PERSONALITY & Soc. PSYCHOL. 743, 743-44 (1999). We also think we have better interpersonal knowledge about others than they have about us. See Emily Pronin et al., You Don't Know Me, but I Know You: The Illusion of Asymmetric Insight, 81 J. PERSONALITY & Soc. PSYCHOL. 639, 650-52 (2001). We may even think that we not only know ourselves better than others do, but better than our peers know themselves. Id. at 645.
306. See, e.g., Geoffrey L. Cohen, Party over Policy: The Dominating Impact of Group Influence on Political Beliefs, 85 J. PERSONALITY & Soc. PSYCHOL. 808 (2003); Cynthia M. Frantz, I Am Being Fair: The Bias Blind Spot as a Stumbling Block to Seeing Both Sides, 28 BASIC & APPLIED Soc. PSYCHOL. 157 (2006); Pronin et al., supra note 305, at 640 (arguing that we perceive bias in others partly because of naive realism); Glenn D. Reeder et al., On Attributing Negative Motives to Others Who Disagree with Our Opinions, 31 PERSONALITY & Soc. PSYCHOL. BULL. 1498 (2005).
307. For a general discussion of this point, see Antony Page, Batson's Blind-Spot: Unconscious Stereotyping and the Peremptory Challenge, 85 B.U. L. REV. 155, 229-35 (2005).
308. Pronin & Kugler, supra note 136, at 575-76.
309. Daniel T. Gilbert et al., The Peculiar Longevity of Things Not So Bad, 15 PSYCHOL. SCI. 14, 16-18 (2004) (emotions); Justin Kruger & Thomas Gilovich, Actions, Intentions, and Self Assessment: The Road to Self-Enhancement Is Paved with Good Intentions, 30 PERSONALITY & Soc. PSYCHOL. BULL. 328, 334 (2004) (future behavior); Emily Pronin et al., Everyday Magical Powers: The Role of Apparent Causation in the Overestimation of Personal Influence, 91 J. PERSONALITY & Soc. PSYCHOL. 218, 220 (2006) (causation); Daniel M. Wegner et al., Vicarious Agency: Experiencing Control over the Movements of Others, 86 J. PERSONALITY & Soc. PSYCHOL. 838, 839-40 (2004) (causation); Timothy D. Wilson & Elizabeth W. Dunn, Self-Knowledge: Its Limits, Value and Potential for Improvement, 55 ANN. REV. PSYCHOL. 493, 502-03 (2004) (attitudes); Timothy D. Wilson & Daniel T. Gilbert, Affective Forecasting, 35 ADVANCES EXPERIMENTAL SOC. PSYCHOL. 345, 347-49 (2003) (emotions).
310. See Joyce Ehrlinger et al., Peering into the Bias Blind Spot: People's Assessments of Bias in Themselves and Others, 31 PERSONALITY & Soc. PSYCHOL. BULL. 680, 681, 683, 689-90 (2005); Kruger & Dunning, supra note 297, at 1121 (arguing that subjects overestimated their performance relative to others because they lacked insight into their weaknesses); Pronin et al., supra note 142, at 794; Pronin & Kugler, supra note 136, at 572-73.
311. See, e.g., GAZZANIGA,supra note 152, at 161 ("We quickly lose insight into [our beliefs'] origins or their frequent strangeness and hold them to be meaningful, guiding presences in our lives.").
312. See Balcetis & Dunning, supra note 217, at 623 (finding that people fail to recognize certain self-serving biases because they take place outside conscious awareness).
313. See DANIELM. WEGNER, THE ILLUSION OF CONSCIOUS WILL28 (2002).
314. Id.; see also BENEDICTUSDE SPINOZA,ETHICS 144 (G.H.R. Parkinson ed. & trans., 2000) (1677) (claiming that "opinion... consists simply in the fact that they are conscious of their actions and ignorant of the causes by which those actions are determined"). Spinoza's observation is reflected in everyday notions of folk psychology. Thagard, supra note 92, at 379 (observing that "[f]olk psychology [assumes] that people's actions derive from their conscious beliefs and actions"). Folk psychology is defined as the "common-sense conceptual framework that we, as human beings, employ to understand, predict, and explain the behavior of other humans and higher animals." Dictionary of Philosophy of Mind, http://philosophy.uwaterloo.ca/MindDict/folkpsychology.html (last visited Nov. 14, 2008).
315. Tenbrunsel & Messick, supra note 288, at 225 (arguing that self-deception, "defined as being unaware of the processes that lead us to form our opinions and judgments," results in unethical decision making).
316. See Bond et al., supra note 154, at 240 ("[A]n abundant body of research has shown that our decisions are affected by a variety of factors that we are unable or unwilling to recognize."); Thagard, supra note 92, at 374 ("People naturally have personal goals that may conflict with their professional responsibilities, but lack a mental mechanism to detect such divergences.... Hence people usually remain unaware that they are acting immorally as the result of a conflict of interest.").
317. Haidt, supra note 151, at 814 (suggesting that "moral reasoning does not cause moral judgment; rather, moral reasoning is usually a post-hoc construction, generated after a judgment has been reached").
318. Paul D. Slovic et al., Analyzing the Use of Information in Investment Decision Making: A Methodological Proposal, 45 J. BUS. 283, 300 (1972).
319. Norman R.F. Maier, Reasoning in Humans: II. The Solution of a Problem and Its Appearance in Consciousness, 12 J. COMP. PSYCHOL. 181, 182 (1931).
320. Id. at 183.
321. Id. at 186.
322. Wilson & Brekke, supra note 300, at 129.
323. Richard E. Nisbett & Timothy D. Wilson, Telling More than We Can Know: Verbal Reports on Mental Processes, 84 PSYCHOL. REV. 231, 233 (1977); see also Timothy D. Wilson et al., Introspection, Attitude Change, and Attitude-Behavior Consistency: The Disruptive Effects of Explaining Why We Feel the Way We Do, in 19 ADVANCES IN EXPERIMENTAL SOCIAL PSYCHOLOGY123 (Leonard Berkowitz ed., 1986).
324. Richard E. Nisbett & Timothy DeCamp Wilson, The Halo Effect: Evidence for Unconscious Alteration of Judgments, 35 J. PERSONALITY & Soc. PSYCHOL. 250, 250 (1977).
325. See, e.g., Simmons v. United States, 390 U.S. 377, 382-83 (1968).
326. See Gary L. Wells et al., Eyewitness Identification Procedures: Recommendations for Lineups and Photospreads, 22 LAW &HUM. BEHAV. 603, 610,612 (1998).
327. Ap Dijksterhuis & Loran F. Nordgren, A Theory of Unconscious Thought, 1 PERSP. ON PSYCHOL. SCI. 95, 98 (2006) ("It may feel as if one is processing information with the goal of making a decision when what one really-unknowingly-is doing is processing information with the goal of confirming an expectancy.").
328. Wilson & Brekke, supra note 300, at 126.
329. Id. at 119.
330. Colin Camerer et al., The Curse of Knowledge in Economic Settings: An Experimental Analysis, 97 J. POL. ECON. 1232, 1232 (1989); Lee Ross et al., Perseverance in Self-Perception and Social Perception: Biased Attributional Processes in the Debriefing Paradigm, 32 J. PERSONALITY &Soc. PSYCHOL. 880, 880, 891 (1975) (finding that subjects continued to use information even when told expressly that the information was inaccurate); Daniel M. Wegner et al., The Transparency of Denial: Briefing in the Debriefing Paradigm, 49 J. PERSONALITY &Soc. PSYCHOL. 338, 344 (1985) (same); Robert S. Wyer, Jr. & Thomas Lee Budesheim, Person Memory and Judgments: The Impact of Information that One Is Told to Disregard, 53 J. PERSONALITY &Soc. PSYCHOL. 14, 14, 28 (1987) (same); Robert S. Wyer, Jr. & William H. Unverzagt, Effects of Instructions to Disregard Information on Its Subsequent Recall and Use in Making Judgments, 48 J. PERSONALITY & Soc. PSYCHOL. 533, 533 (1985) (same). See generally Wilson & Brekke, supra note 300.
331. Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCI. 1124, 1128 (1974).
332. Chris Guthrie et al., Inside the Judicial Mind, 86 CORNELL L. REV. 777, 788-89 (2001) (citing an unpublished study described in SCOTT PLOUS, THE PSYCHOLOGY OF JUDGMENT AND DECISION MAKING146 (1993)).
333. Id.
334. Wilson & Brekke, supra note 300, at 125-26.
335. Id. In the judicial context, the rules of evidence provide that juries may not hear certain kinds of information in part so that they will not be prejudiced unfairly.
336. Id. at 128 (citing Daniel M. Wegner et al., From Here to Uncertainty: Selective Exposure to Misleading Information, Paper Presented at the 100th Annual Convention of the American Psychological Association (Aug. 1992)).
337. See Norbert Schwarz et al., Metacognitive Experiences and the Intricacies of Setting People Straight: Implications for Debiasing and Public Information Campaigns, 39 ADVANCES IN EXPERIMENTAL SOC. PSYCHOL. 127, 147-52 (2007) (describing studies showing that familiar statements are more likely to be believed, even when the familiar statements are incorrect).
338. Wilson & Brekke, supra note 300, at 120. Wilson & Brekke list a series of steps that must occur in order to correct an unwanted bias. The decision maker must be aware of the unwanted mental processing and able to adjust the response. Id. at 119. "People are unaware of many of their cognitive processes, mental contamination often has no observable 'symptoms,' and people have limited control over their cognitive processes." Id. at 122.
339. Kunda, supra note 171, at 482-83.
340. Id. at 483 ("The biasing role of goals is thus constrained by one's ability to construct a justification for the desired conclusion: People will come to believe what they want to believe only to the extent that reason permits. Often they will be forced to acknowledge and accept undesirable conclusions, as they appear to when confronted with strong arguments for undesired or counterattitudinal positions.") (citation omitted).
341. Ronald Chen & Jan Hanson, Categorically Biased: The Influence of Knowledge Structures on Law and Legal Theory, 77 S. CAL. L. REV. 1103, 1203 (2004).
342. See, e.g., Hollinger Int 'l, Inc. v. Black, 844 A.2d 1022, 1022 (Del. Ch. 2004) ("[T]he most interesting corporate law cases involve the color gray, with contending parties dueling over close questions of law, in circumstances when it is possible for each of the contestants to claim she was acting in good faith.").
343. Max H. Bazerman & Deepak Malhotra, Economics Wins, Psychology Loses, and Society Pays, in SOCIAL PSYCHOLOGY AND ECONOMICS263,267 (David De Cremer et al. eds., 2006) (emphasis added) (citing to Moore et al., supra note 174).
344. See supra notes 65-70 and accompanying text.
345. See, e.g., Martin Lipton & Paul K. Rowe, The Inconvenient Truth About Corporate Governance: Some Thoughts on Vice-Chancellor Strine's Essay, 33 J. CORP. L. 63, 63 (2007) (arguing that the "director-centric governance system has created the most successful economy the world has ever seen").
346. See sources cited supra note 174; see also MAXH. BAZERMAN & MICHAELD. WATKINS, PREDICTABLE SURPRISES: THE DISASTERSYOU SHOULD HAVE SEEN COMING AND HOW TO PREVENT THEM(2004) (arguing that recent financial scandals were caused in significant part by auditors' lack of independence).
347. See supra note 57.
348. Bazerman & Malhotra, supra note 343, at 268 (arguing that an auditor can be truly independent only if he has no motivation at all to please the client).
349. Id.; see also Tenbrunsel & Messick, supra note 288, at 223 (arguing that the most promising explanation of and remedy for questionable corporate practices are "the psychological processes behind unethical decision making").
350. A subsequent article will explore in-depth how boards of directors in some situations could and should alter their decision-making and deliberation processes to better ensure unbiased decisions and to more clearly satisfy the duty of loyalty.
351. There are numerous proposals for corporate governance reform. See generally Ira M. Millstein & Paul W. MacAvoy, Proposals for Reform of Corporate Governance, in THE RECURRENT CRISIS IN CORPORATE GOVERNANCE95, 119 (2003). The following merely addresses those most relevant to the problem of unconscious bias discussed here.
352. In re Oracle Corp. Derivative Litig., 824 A.2d 917, 920 (Del. Ch. 2003).
353. Id. at 922-23.
354. Id. at 923-24.
355. Id. at 929.
356. Id. at 926-27.
357. One or more of the defendants had made donations to Stanford, held Stanford degrees, or was a professor at Stanford. In addition, two directors and one of the SLC directors were involved with the Stanford Institute for Economic Policy Research. Id. at 930-36.
358. Id. at 930.
359. Id. at 937, 947 (emphasis added).
360. Id. at 936.
361. Id. at 937.
362. Id. at 938 (quoting Parfi Holding AB v. Mirror Image Internet, 794 A.2d 1211, 1232 (Del. Ch. 2001)).
363. Id. at 947.
364. Strine conceded that the result was "in tension with the specific outcomes of certain other decisions." Id. at 939 n.55.
365. See supra notes 37-51 and accompanying text.
366. Oracle, 824 A.2d at 939 n.55.
367. See ENRON REPORT,supra note 115, at 54; see also Rachel A. Fink, Social Ties in the Boardroom: Changing the Definition of Director Independence to Eliminate "Rubber-Stamping" Boards, 79 S. CAL. L. REV. 455, 491-94 (2006) (proposing firms be required to hire board-rating agencies to evaluate the social ties among directors and that those whose ties are too strong should be ineligible to serve as independent directors).
368. See ENRON REPORT,supra note 115, at 54.
369. Ties between Enron and its independent directors included generous donations to the Anderson Cancer Center, for which two board members had served as president; to George Mason University, the employer of another board member; and to the American Council for Capital Formation, a nonprofit corporation chaired by a fourth director. See id. at 55-56.
370. Id. at 56.
371. See James D. Cox, Searching for the Corporation's Voice in Derivative Suit Litigation: A Critique of Zapata and the AL I Project, 1982 DUKE L.J. 959, 1008 (arguing in favor of more active judicial review); Claire A. Hill & Brett H. McDonnell, Disney, Good Faith, and Structural Bias, 32 J. CORP. L. 833, 834 (2007) (proposing an extension of the doctrine of good faith when the challenged decision occurred "within an environment of structural bias"); Velasco, supra note 70, at 860-65 (arguing in favor of an intermediate standard of review between the deferential business judgment rule and the entire fairness standard for director decisions in areas where structural bias is most likely to have an impact).
372. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954-55 (Del. 1985) (holding that to sustain anti-takeover measures, "directors must show that they had reasonable grounds for believing that a danger to corporate policy and effectiveness existed" and that the measures adopted were "reasonable in relation to the threat posed"). Blasius applies an even higher standard analogous to strict scrutiny in situations where the directors have acted with the primary motive of interfering with the shareholder franchise-a situation likely to pose a conflict of interest. See Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661 (Del. Ch. 1988).
373. Unocal, 493 A.2d at 954.
374. 818 A.2d 914 (Del. 2003).
375. Id. at 946 (Veasey, C.J., dissenting) (describing the case as "sui generis" and the facts as "unique").
376. See, e.g., In re Toys "R" Us, Inc., 877 A.2d 975, 1016 n.68 (Del. Ch. 2005) (referring to Omnicare as "aberrational"); David Marcus, Man of Steele, D&O ADVISOR,Sept. 2004, at 16, 16 (quoting Delaware Supreme Court Chief Justice Steele suggesting that Omnicare might have the "life expectancy of a fruit fly").
377. See, e.g., Stephen M. Bainbridge, The Business Judgment Rule as Abstention Doctrine, 57 VAND. L. REV. 83, 107-09, 117-24 (2004) (describing problems with judicial review of directors' decisions).
378. MacCoun, supra note 137, at 263.
379. Id. Naive realism, for example, discussed supra in Part IV.D.2, may "lead people to treat the viewpoints held and expressed by those who disagree with them about important... issues as evidence of subjective bias on the part of those opponents, bias not only in proceeding from evidence to conclusions but also in construing the evidence itself." Robinson, supra note 303, at 415.
380. Dynamics Corp. of Am. v. CTS Corp., 794 F.2d 250, 256 (7th Cir. 1986).
381. See generally Lucian A. Bebchuk, The Myth of the Shareholder Franchise, 93 VA. L. REV. 675, 732 (2007) (arguing that "[t]he shareholder franchise is largely a myth"). Target shareholders also have the right to vote on mergers, but only after the board has endorsed the transaction. See, e.g., MODELBus. CORP. ACT§ 11.04(6) (2008); DEL. CODE ANN. tit. 8, § 251(c) (2001).
382. See BEBCHUK & FRIED,supra note 107, at 210.
383. See Shareholder Vote on Executive Compensation Act, H.R. 1257,110th Cong. (2007).
384. Thompson & Thomas, supra note 147, at 1790.
385. Lynne Dallas has suggested creating a second board composed solely of independent directors that would perform conflicts monitoring. See Lynne L. Dallas, Proposals for Reform of Corporate Boards of Directors: The Dual Board and Board Ombudsperson, 54 WASH. &LEE L. REV. 91, 114 (2007); see also Millstein & MacAvoy, supra note 351, at 118 (arguing that an independent director rather than the company's CEO should serve as chair of the board in order to develop independent board leadership).
386. On the other hand, in some situations, an independent specialist might work well. For example, in an internal investigation typically a board uses in-house counsel or hires an outside law firm. As long as the company is not a client of the law firm that it hires, the risk of bias is reduced. There is, of course, a high risk of a biased investigation if the company is a significant client. See, e.g., In re Enron Corp. Sec., Derivative & ERISA Litig., 235 F. Supp. 2d 549, 668 n.103 (S.D. Tex. 2002). This approach is also reflected in the requirement that SLCs should hire their own legal and financial experts rather than use the company's.
387. See Dallas, supra note 119, at 130-37 (proposing the establishment of an ombudsperson as a source of information for independent decision makers); see also James D. Cox, Managing and Monitoring Conflicts of Interest: Empowering the Outside Directors with Independent Counsel, 48 VlLL. L. REV. 1077, 1082 (2003).
388. See Lucian Arye Bebchuk et al., Managerial Power and Rent Extraction in the Design of Executive Compensation, 69 U. CHI. L. REV. 751, 789-91 (2002) ("[M]anagers use compensation consultants primarily to justify executive pay, rather than to optimize it.").
389. See Joel Seligman, The Disinterested Person: An Alternative Approach to Shareholder Derivative Litigation, 55 LAW & CONTEMP. PROBS. 357, 362-65 (1992).
390. Id. at 358.
391. See MacCoun, supra note 137, at 275 (listing several debiasing techniques but noting "that none of these techniques provides 'silver bullet' solutions"); Thagard, supra note 92, at 378 (claiming that in situations where conflicts of interest are unavoidable, several strategies "may combine to reduce the prevalence of immoral decisions deriving from conflicts of interest").
392. See, e.g., Unocal v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (requiring that directors show "reasonable investigation"); Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985) (requiring that directors inform themselves "of all material information reasonably available to them").
393. See Kees van den Bos et al., When Do We Need Procedural Fairness? The Role of Trust in Authority, 75 J. PERSONALITY &Soc. PSYCHOL. 1449, 1449 (1998) (noting that "perceived procedural fairness positively affects how people react to the outcomes they receive from authorities" and is "one of the most frequently replicated findings" in social psychology).
394. See Tenbrunsel & Messick, supra note 288, at 226 (noting that "we need to acknowledge the pervasiveness of self-deception and its role in unethical decision making"). Jerome Frank captured this notion for judicial bias: "The conscientious judge will, as far as possible, make himself aware of his biases ... and, by that very self-knowledge, nullify their effect.... [T]he sunlight of awareness has an antiseptic effect on prejudices." Adam J. Hirsch, Cognitive Jurisprudence, 76 S. CAL. L. REV. 1331, 1369 (2003) (quoting In re J.P. Linahan, Inc., 138 F.2d 650, 652-53 (2d Cir. 1943) (Frank, J.)). Frank was also aware of the risks: "[O]ne of the subtlest tendencies which a conscientious judge must learn to overcome is that of 'leaning over backwards' in favor of persons against whom his prejudices incline him.... [S]ome men ... have been unjust in their efforts to exclude bias ...." Id.
395. See Pronin & Kugler, supra note 136, at 576 (demonstrating that explaining the shortcomings of introspection reduced participants' confidence in their objectivity); Thagard, supra note 92, at 367-79. One problem is that the kind of process evidence presented here is not the best kind to persuade decision makers to change. See Bazerman & Malhotra, supra note 343, at 274-76. Frequently decision makers have the view that "credible empirical evidence consists of outcome data, not of mechanism data." Id. at 274.
396. See, e.g., Pronin et al., supra note 14, at 378 (reporting studies that suggest "that knowledge of particular biases in human judgment and inference, and the ability to recognize the impact of those biases on others, neither prevents one from succumbing nor makes one aware of having done so"); Wilson & Brekke, supra note 300, at 130-33 (reporting that studies involving forewarning decision makers of potential biases have yielded mixed results).
397. Norbert L. Kerr & R. Scott Tindale, Group Performance and Decision Making, 55 ANN. REV. PSYCHOL. 623, 638 (2004).
398. Jonas et al., supra note 199, at 569 (claiming that a decision maker's focus will have been shifted at least somewhat from the decision to the information search).
399. Janis recommended the devil's advocate approach in his influential book. IRVING K. JANIS, GROUPTHINK 267-68 (1982). It has also been recommended by several scholars in the corporate context. See, e.g., COLIN B. CARTER & JAY W. LORSCH, BACK TO THE DRAWING BOARD: DESIGNING CORPORATE BOARDSFORA COMPLEX WORLD 175 (2004); Marleen A. O'Connor, The Enron Board: The Perils of Groupthink, 71 U. CIN. L. REV. 1233, 1304-06 (2003); cf. James A. Fanto, Whistleblowing and the Public Director: Countering Corporate Inner Circles, 83 OR. L. REV. 435, 443 (2004) (proposing directors with an "oppositional" attitude).
400. Daniel Kahneman & Amos Tversky, Choices, Values and Frames, 39 AM. PSYCHOLOGIST341,343(1984).
401. Adam D. Galinsky & Gordon B. Moskowitz, Counterfactuals as Behavioral Primes: Priming the Simulation Heuristic and Consideration of Alternatives, 36 J. EXPERIMENTAL Soc. PSYCHOL. 384, 384 (2000); Charles G. Lord et al., Considering the Opposite: A Corrective Strategy for Social Judgment, 47 J. PERSONALITY & Soc. PSYCHOL. 1231, 1234 (1984). The same appears to be true for groups. Researchers found that subjects exposed as a group to counterfactual thoughts were more likely to seek out disconfirming information. See Laura J. Kray & Adam D. Galinsky, The Debiasing Effect of Counterfactual Mind-Sets: Increasing the Search for Disconfirmatory Information in Group Decisions, 91 ORG. BEHAV. & HUM. DECISION PROCESSES69, 70 (2003). Follow-up research found that the positive effect of a counterfactual mindset on group decision making did not occur when only individual members of the group had the counterfactual mind set; the mind set had to be at the individual level. See Katie A. Liljenquist et al., Exploring the Rabbit Hole of Possibilities by Myself or with My Group: The Benefits and Liabilities of Activating Counterfactual Mind-Sets for Information Sharing and Group Coordination, 17 J. BEHAV. DECISION MAKING263, 263 (2004).
402. See Galinsky & Moskowitz, supra note 401, at 384.
403. See generally CONFLICT OF INTEREST IN THE PROFESSIONS(Michael Davis & Andrew Stark eds., 2001). Interestingly, the SEC in 1978 proposed that proxy statements should specify whether outside directors were "independent" or "affiliated. " See Shareholder Communications, Shareholder Participation in the Corporate Electoral Process and Corporate Governance Generally, Exchange Act Release No. 34-14,970, 15 SEC Docket 291 (July 18, 1978).
404. Sarbanes-Oxley Act of 2002, §§ 406(a), 407(a), 15 U.S.C. §§ 7264(a), 7265(a) (Supp. V 2005) (requiring a company to disclose whether it has a code of ethics and a financial expert on its audit committee rather than requiring these actions).
405. For example, in the United Kingdom, the Combined Code on Corporate Governance provides that boards should comply with guidelines requiring that directors are "independent in character and judgement" or explain why they do not comply. The board must also disclose whether the director had any "relationships ... which are likely to affect, or could appear to affect, the director's judgement." COMBINED CODE ON CORPORATE GOVERNANCE§ A.3.1 (2008) (U.K.), available at http://www.frc.irg.uk/corporate/combinedcode.cfm.
406. See generally In re Lear Corp. S'holder Litig., 926 A.2d 94, 98 (Del. Ch. 2007) (holding that "stockholders are entitled to know that the CEO harbored material economic motivations that differed from their own"); Paul M. Healey & Krishna G. Palepu, Information Asymmetry, Corporate Disclosure, and the Capital Market: A Review of the Empirical Disclosure Literature, 31 J. ACCT. & ECON. 405, 407-10 (2001).
407. See Daylian M. Cain et al., The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest, 34 J. LEGAL STUD. 1, 2-4 (2005) (discussing the perceived advantages of disclosure for resolving conflict of interest problems).
408. See Antony Page, Taking Stock of the First Amendment's Application to Securities Regulation, 58 S.C. L. REV. 789, 817-18 (2007) (discussing investors' difficulties with companies' disclosures).
409. Cain et al., supra note 407, at 7 (moral-licensing). Monin and Miller have used a similar term, "self-licensing," to describe the phenomenon that people are more likely to express possibly prejudicial attitudes if they have previously established their credentials as nonprejudiced. See Benoît Monin & Dale T. Miller, Moral Credentials and the Expression of Prejudice, 81 J. PERSONALITY & Soc. PSYCHOL. 33, 41-42 (2001); see also Joseph Nocera, Disclosure Won't Tame C.E.O. Pay, N.Y. TIMES, Jan. 14, 2006, at Bl (arguing that disclosure may in fact increase executive compensation).
410. Thagard, supra note 92, at 374.
411. See Jonathan H. Gabriel, Misdirected? Potential Issues with Reliance on Independent Directors for Prevention of Corporate Fraud, 38 SUFFOLKU. L. REV. 641, 646-47 (2005); Gordon, supra note 1, at 1471 (reporting that the "fraction of independent directors for large public firms has shifted from approximately 20% in the 1950s to approximately 75% by the mid-2000s").
412. Zapata Corp. v. Maldonado, 430 A.2d 779, 787 (Del. 1981).