Volume 66 - Number 1

The Business Lawyer

November 2010 Issue, Vol. 66 No. 1 By ABA Business Law Section

Complete Collection for November 2010

Essay

One Fundamental Corporate Governance Question We Face: Can Corporations Be Managed for the Long Term Unless Their Powerful Electorates Also Act and Think Long Term?

By Leo E. Strine, Jr.

66(1): 1?26 (November 2010)
This essay poses the question of how corporations can be managed to promote long-term growth if their stockholders do not act and think with the long term in mind. To that end, the essay highlights the underlying facts regarding how short a time most stockholders, including institutional investors, hold their shares, the tension between the institutional investors' incentive to think short term and the best interests of not only the corporations in which these investors buy stock, but also with the best interests of the institutional investors' own clients, who are saving to pay for college for their kids and for their own retirement.

Articles

Restoring the Balance of Power in Corporate Management: Enforcing an Officer's Duty of Obedience

By Megan Wischmeier Shaner

66(1): 27?60 (November 2010)
The issue of corporate officers' fiduciary duties has been a neglected area of Delaware law for over seventy years. This is surprising given the power and authority that these individuals wield over a corporation's business and affairs. The transgressions that took place at large public corporations such as Enron and WorldCom serve as reminders, even after all these years, of how officer misconduct can dramatically affect a corporation's fortunes. Following the scandals that occurred in corporate America in the beginning of the twenty?first century, as well as those that emerged in the recent financial crisis, there has been a renewed focus in certain quarters on rethinking the officer?centric model of corporate management that has come to exist.

Viewed as an effective means of achieving good corporate governance, much of the discussions surrounding increasing officer accountability pertain to the appropriate model for officer fiduciary duties and the standard of liability for such duties. This article discusses the application to officers of the duty of obedience that exists in agency law and asserts that emphasizing this duty of officers would be an effective step toward restoring the proper balance of power in corporate management. Based on the concept that certain persons are not only subject to the authority and direction of others in an organization's hierarchy, but have an affirmative duty to implement those directions, the duty of obedience exemplifies the relationship between directors and officers contemplated by corporate statutes and case law. Accordingly, this article asserts that focusing on enforcing the fiduciary duty of obedience would advance efforts to distinguish more clearly the governance responsibilities of officers from those of directors as well as increase officer accountability.

Precision's Counterfeit: The Failures of Complex Documents, and Some Suggested Remedies

By Howard Darmstadter

66(1): 61?84 (November 2010)
Contracts and other transaction documents are frequently said to be complex and difficult to read in order to avoid ambiguity and mistakes. I argue that such complexity has not solved these problems, and may have exacerbated them. Moreover, the problems are likely more widespread than generally appreciated. I examine some typical provisions of a revolving credit agreement that seem secure but that on closer examination (as might be given in litigation) contain potentially serious ambiguities and mistakes. These problems are not isolated instances of bad drafting but symptoms of a systemic problem. I suggest some partial remedies, some simple to implement but others requiring a more radical rethinking as to how a document should work.