THE BUSINESS LAWYER - May 2005, VOLUME 60, NUMBER 3 Corporate Officers and the Business Judgment Rule: A Reply to Professor Johnson Lawrence A. Hamermesh and A. Gilchrist Sparks III 60(3): 865–876 (May 2005) With increased attention to potential liability of non-director officers for breach of fiduciary duty, the largely neglected question of the appropriate standard of judicial review of their conduct is finally getting broad attention. In the February 2005 issue of The Business Lawyer, 60 BUS. LAW. 439, Professor Lyman P.Q. Johnson questions court rulings adopting the business judgment rule and a deferential standard of care. In this reply, however, the authors urge that those rulings—as well as the ALI Principles of Corporate Governance and the Official Comment to the Model Business Corporation Act—have been correct. The same policies that justify judicial deference to director action likewise justify such deference to actions of corporate officers, at least when they act, without conflict of interest, in carrying out their delegated discretionary authority. A more demanding standard, the authors argue, would impinge upon the ability of the board of directors to delegate its decision-making authority as well as encourage officers to place more decisions in the hands of the board and to take fewer, less-risky initiatives on their own. If Corporate Action Is Lawful, Presumably There Are Circumstances in Which It Is Equitable to Take That Action: The Implicit Corollary to the Rule of Schnell v. Chris-Craft Leo E. Strine, Jr. 60(3): 877–906 (May 2005) Delaware has a broad, enabling corporate law statute that provides directors with a wide variety of means by which to pursue business advantage on behalf of the corporations they manage. Recognizing that this type of statute could lead to abuse if it were not supplemented with additional protections designed to ensure that directors use their capacious statutory authority only for purposes that serve the interests of the corporation, and not for selfish reasons inimical to the corporation's well-being, the Delaware courts have long held that simply because directors complied with the literal terms of the statute did not mean that their actions were equitable. In other words, mere technical adherence to the statute does not insulate directors from a finding that they breached their equitable duties of loyalty and care. Thirty-five years ago, the important case of Schnell v. Chris-Craft Indus., Inc. made clear that this principle remained a central tenet of Delaware law. In this article, Vice Chancellor Strine highlights, through a consideration of the evolution of Delaware law over the years since Schnell was decided, the implicit corollary to the maxim that simply because the corporate code permits certain action does not mean that that action is equitable. That corollary involves the proposition that, if the legislature has, through the statute, decided that certain conduct is permissible as a matter of statute (i.e., law), then there must be circumstances when it would be equitable for directors to undertake that conduct. Vice Chancellor Strine points out the risk to the wealth-creating function of the corporation law if courts determine that legislatively authorized conduct is in all circumstances forbidden. By doing so, the courts might unwisely limit the managerial freedom granted to directors acting in carefully and in good faith, thereby overriding a legislative judgment to the possible detriment of stockholders and blur the proper role of the statute and of the equitable concepts of fiduciary duty. However difficult it sometimes is, there is utility to judicial recognition that the question of whether challenged conduct is lawful, in the sense of being consistent with the statute and the governing instruments of the corporation, and the narrower question of whether the directors who engaged in that conduct acted with fidelity and due care, should be recognized as importantly distinct. Toward a National Legal Opinion Practice: The California Remedies Opinion Report Opinions Committee of the California State Bar Business Law Section 60(3): 907–941 (May 2005) For too long, too much emphasis has been given to perceived regional differences in practice related to third-party legal opinions given in connection with the closing of business transactions. In a time when multi-state transactions are common, unwarranted regional differences in opinions practice are counterproductive. Third- party closing opinions are inherently complex. When lawyers from different parts of the country approach them in different ways, their complexity and cost increase, often needlessly. Apparent regional differences in opinions practice should be re- examined to determine whether they reflect real differences in approach and, if so, whether they are justified. This article describes how a report of the California State Bar Business Law Section helps foster a national legal opinion practice. The report does so by explaining the concept of "customary practice," showing how that concept can be used to guide the preparation of remedies opinions, and using that concept to defuse a historic disagreement about the meaning and scope of the remedies opinion. The report also addresses the factors that should be considered in determining whether to request or give a remedies opinion in a particular transaction and provides a cost-benefit framework to assist in that determination. REPORTS Changes in the Model Business Corporation Act—Amendments Relating to Chapters 1, 7, 8 and 14 Committee on Corporate Laws, ABA Section of Business Law 60(3): 943–958 (May 2005) Report and Recommendations of the Task Force on Private Placement Broker-Dealers ABA Task Force on Private Placement Broker-Dealers, ABA Section of Business Law 60(3): 959–1028 (May 2005) Report of the American Bar Association's Task Force on the Attorney-Client Privilege ABA Task Force on the Attorney-Client Privilege 60(3): 1029–1068 (May 2005) SURVEY Annual Review of the Law on Legal Opinions Committee on Legal Opinions, ABA Section of Business Law 60(3):1057 (May 2005) Annual Review of Federal Securities Regulation Subcommittee on the Annual Review, Committee on Federal Regulation of Securities, ABA Section of Business Law 60(3):1069 (May 2005)
