May 14, 2020

Corporate Governance (1985–1989)

Corporate Governance (1985—1989)

Reflections and Practical Tips on Life in the Boardroom After Van Gorkom
      Bayless Manning, 41(1): 1–14 (Nov. 1985)
The decision of the Delaware Supreme Court in Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), imposed personal liability on outside directors of Trans Union Co., finding that they had agreed to a merger of the company without having adequately made an evaluation of Trans Union stock. The result of the case has been severely criticized. The doctrinal position of the court's opinion, however, can be fitted into the long development of the law governing corporate directors and, on close reading, the court's opinion will be found to contain a number of practical tips and valuable pointers for the corporate practitioner.

Bondholders and Corporate Governance
      Morey W. McDaniel, 41(2): 413–60 (Feb. 1986)
Contrary to popular belief, indentures do not have numerous, detailed covenants to protect bondholders. Other legal and market constraints on stockholder gain at bondholder expense are ineffective. Therefore, directors should have fiduciary duties to protect bondholders as well as stockholders.

Smith v. Van Gorkom: The Business of Judging Business Judgment
      Leo Herzel and Leo Katz, 41(4): 1187–93 (Aug. 1986)
In Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), the Delaware Supreme Court failed to appreciate that, except for intentional wrongs, the market is usually better at judging managerial performance than the courts, that directors usually need to be encouraged to take risks, that good decisionmaking cannot be codified, and that the distinction between the product and the process of board deliberations is difficult.

The ALI Corporate Governance Project in Midstream
      Roswell B. Perkins, 41(4): 1195–1235 (Aug. 1986)
Several important parts of the ALI's project "Principles of Corporate Governance: Analysis and Recommendations" have been tentatively approved by the ALI's membership. This Article principally summarizes these segments of the project with personal commentary by the author on certain features of the current drafts. The Article does not seek to catalog or respond to criticisms of the project but primarily reports on its progress to date.

The ALI Corporate Governance Project: Of the Duty of Due Care and the Business Judgment Rule, a Commentary
      Charles Hansen, 41(4): 1237–53 (Aug. 1986)
At its May 1985 meeting, the ALI tentatively adopted a version of the duty of care and the business judgment rule as part of its Corporate Governance Project. This Article suggests that the formulation of the duty of care is not an accurate statement of the law as applied by the courts and that the formulation of the business judgment rule is similarly flawed but to a lesser degree.

Boardroom Jitters: Corporate Control Transactions and Today's Business Judgment Rule
      Herbert S. Wander and Alain G. LeCoque, 42(1): 29–64 (Nov. 1986)
This Article analyzes recent judicial decisions refining the application of the business judgment rule in corporate control contests. The authors discuss the traditional rule and then review the new trends toward shifting the burden of proof in applying the rule and increasing the emphasis on the board's duty to exercise due care and follow appropriate procedures. The Article concludes with a discussion of the business judgment rule's application to specific defensive measures, such as defensive charter amendments and other shark repellents, poison pills, multiple vote common stock, white squire arrangements, lock-ups, golden parachutes, greenmail, standstill agreements, no-shop clauses and exclusive merger agreements, and the Pac-man defense.

A Snapshot of the Law Being Carved in Stone
      John T. Subak, 42(3): 761–69 (May 1987)
The Corporate Governance Project of the ALI is an excellent analysis of traditional areas of corporate law. When the project turns to such newly developing areas as the law involving unfriendly takeovers, it provides instant solutions that will not stand the test of time.

The Emerging Role of the Special committee—Ensuring Business Judgment Rule Protection in the Context of Management Leveraged Buyouts and Other Corporate Transactions Involving Conflicts of Interest
      Scott V. Simpson, 43(2): 665–90 (Feb. 1988)
In an era of complex corporate transactions, the role of a board of directors is often further complicated by conflicts of interest involving some or all of the members of the board. Recent judicial decisions also indicate that the actions taken by directors may not be upheld in the courtroom unless certain procedural steps are observed in the boardroom. The special committee, consisting of disinterested directors and advised by independent legal and financial experts, has evolved as a mechanism capable of facilitating a careful review of complex issues while at the same time minimizing the effects of actual or potential conflicts of interest. In appropriate circumstances, establishing a special committee may represent the most significant procedural step that a board of directors can take to ensure that its actions will withstand judicial scrutiny.

The Role of the Board in Derivative Litigation: Delaware Law and the Current ALI Proposals Compared
      Michael P. Dooley and E. Norman Veasey, 44(2): 503–42 (Feb. 1989)
This Article analyzes the derivative suit reforms proposed in Part 7 of the ALI's Corporate Governance Project, including a point-by-point comparison of the proposals with Delaware law. The authors critically examine the theoretical case made in Part 7 to support the proposals and find it unpersuasive. They conclude that the ALI proposals are inferior to existing law, inconsistent with other aspects of the corporate governance scheme, and likely to prove excessively costly if implemented.