Corporate Governance (1990—1992)
The Role of the Business Judgment Rule in Shareholder Litigation at the Turn of the Decade
Dennis J. Block, Stephen A. Radin, and James P. Rosenzweig, 45(2): 469–510 (Feb. 1990)
This Article examines the unprecedented developments in the law surrounding the business judgment rule in shareholder derivative litigation in the 1980s, both in the context of when a prelitigation demand is required and the scope of judicial review of board decisions to refuse a shareholder's demand that litigation be commenced. Particular attention is devoted to the pending proposals to codify the law in these areas in the Model Business Corporation Act and Principles of Corporate Governance: Analysis and Recommendations.
Independent Directors in MBO Transactions: Are They Fact or Fantasy?
William T. Allen, 45(4): 2055–63 (Aug. 1990)
There is marked dissonance between that degree of independence that commentators say we can expect from outside directors on corporate boards and that degree that the formal manifestations of our law— particularly corporation law statutes—imply. This Article reviews some cases that suggest the promise, and some cases that reflect the breaking of the promise, that committees of outside directors offer. The role of the lawyer-advisor is identified as critical.
The Role of Disinterested Directors in "Conflict" Transactions: The ALI Corporate Governance Project and Existing Law
Charles Hansen, John F. Johnston, and Frederick H. Alexander, 45(4): 2083–2103 (Aug. 1990)
The Reporters for the ALI Corporate Governance Project, although claiming that their treatment of conflict transactions represents current law, continue to advance a view of the law that is in fact inconsistent with the holdings of the cases. This Article outlines current law and then contrasts it with the claims of the Reporters.
An Answer to the Public Perception of Corporations: A Corporate Ombudsperson?
Victor Futter, 46(1): 29–56 (Nov. 1990)
This Article suggests the appointment of a corporate ombudsperson to whom all inside and outside the corporation could complain of suspected wrongdoing. The Article proposes a corporate ombudsperson as a response to the low esteem in which corporations are held and as a better device for assuring corporate responsibility and accountability than either the derivative suit or the threat of a takeover. Such an ombudsperson would come from the ranks of former CEOs, general counsels, and government officials and would be expected to work closely with the current CEO but would report to the board of directors and, if need be, beyond the board. The ombudsperson would provide an early warning device and thus serve to avoid the substantial costs of a major disaster and, by forestalling the same, improve the corporate image.
Michigan's Independent Director
Cyril Moscow, Margo Rogers Lesser, and Stephen H. Schulman, 46(1): 57–66 (Nov. 1990)
This Article reviews an innovation in the Michigan Business Corporation Act which allows corporations to designate a director meeting statutory standards of independence and competence as an " independent director." Once designated, an independent director has special powers in such areas as dismissal of derivative suits. The Michigan sponsors hope that this experiment will lead to an improvement in corporate governance and reduce litigation.
Corporate Governance and American Competitiveness: A Statement of the Business Roundtable
The Business Roundtable, 46(1): 241–52 (Nov. 1990)
"Corporate Governance and American Competitiveness" is a position paper that examines the role of the modern American corporation in society, which was developed by The Business Roundtable's Corporate Governance Task Force, chaired by H. Brewster Atwater, Jr., Chairman and Chief Executive Officer of General Mills. The Statement emphasizes the link between innovation, risk-taking, and competitive success and points out the importance of crafting a flexible governance system that will support and sustain the kinds of decisions that lead to competitively successful performance over the long haul. It also outlines the chilling effects of excessive control on the vital process of innovation and risk-taking. Finally, it describes the basic functions of the board of directors and gives a series of guidelines as to the sound operation of boards.
Two Models of Corporate Governance
Michael P. Dooley, 47(2): 461–527 (Feb. 1992)
This Article describes the basic elements that must be included in any model for the governance of publicly held corporations. It argues that the ALI's proposed Corporate Governance Project differs so fundamentally from the model represented by existing law as to constitute a wholly new model of corporate governance. It then describes the differences in outcomes that can be expected from applying each of these competing models to four pivotal areas of corporation law. The Article concludes that the ALI model imposes excessive costs on corporate decisionmaking and predicts that the Governance Project will not make a lasting impression on U.S. corporation law.
The Untenable Status of Corporate Governance Listing Standards Under the Securities Exchange Act
Douglas C. Michael, 47(4): 1461–1504 (Aug. 1992)
In Business Roundtable v. SEC, 905 F.2d 406 (D.C. Cir. 1990), the court invalidated SEC rule 19c-4, the so-called one share, one vote rule but sought in dictum to ensure the validity of other corporate governance listing standards. This Article surveys the history and law of these standards and concludes that they are neither contemplated nor authorized under the regulatory scheme of the Exchange Act. The author argues that the SEC should seek to have them repealed.
A Modest Proposal for Improved Corporate Governance
Martin Lipton and Jay W. Lorsch, 48(1): 59–77 (Nov. 1992)
This Article presents a proposal for improved corporate governance that could be implemented voluntarily by business corporations and their boards without relying on changes in laws, regulations, court decisions, or shareholder behavior. The central elements of the proposal involve: limiting board size; setting a two-to-one ratio of independent to inside directors; increasing the time directors spend on board matters, including an annual two or three day strategy session; annual evaluation of the CEO by the outside directors; selecting a lead outside director; improving the flow of information to the board; systematically reviewing corporate and management performance against goals; creating an annual forum for the board to meet with major shareholders; and providing a special report to shareholders, and access to the proxy statement for major shareholders, in the event of unsatisfactory long-term results.