Corporate Governance(1994—2001)
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.
Corporate Director's Guidebook—1994 Edition
Committee on Corporate Laws, 49(3): 1243–89 (May 1994)
The Corporate Director's Guidebook, published in 1978, has proven to be an insightful and useful road map for directors of publicly held corporations. This second edition revises and expands the Guidebook, including coverage of the operations of committees of the board. To a great extent, corporate directors constitute the targeted audience; however, lawyers should find the revised Guidebook helpful in educating clients and in reviewing recent developments in corporate law and practice.
The ALI Principles of Corporate Governance: A Tainted Process and a Flawed Product
Alex Elson and Michael L. Shakman, 49(4): 1761–92 (Aug. 1994)
The Principles of Corporate Governance depart significantly from the ALI tradition of fair, unbiased statements of the law. In major areas, such as the field of mergers, sales, and acquisitions, and the derivative action, the Principles do not state the law nor the original positions of the Reporters but instead reflect the successful efforts of corporate lawyers representing corporate management to politicize ALI processes.
The Professional Board
Ira M. Millstein, 50(4): 1427–43 (Aug. 1995)
The role of a director, especially of a major corporation, should demand time, energy, and intelligent comprehension of the corporation's affairs. Among other things, directors should have a serious understanding of what underlies major policy decisions, strategic plans, and the mechanisms for incentivizing performance from the boardroom to the factory floor. To perform such functions, directors are being transformed from amateur to professional status. The author discusses the need for and implications of professionalism.
The Defining Tension in Corporate Governance in America
E. Norman Veasey, 52(2): 393–406 (Feb. 1997)
Corporations are governed by a textured fabric of enabling legislation, private ordering, independent directors, good counseling, and judge-made fiduciary duties. The tension in corporate governance today is between judicial deference to directors' decisions and the scope of judicial review. That tension is often defined by the nature of the issue: whether it is an enterprise, ownership, or oversight issue. There are some common threads and some analytical differences between the interests of investors in enhancing corporate performance and the focus of courts in liability adjudication. Yet, consistent, good corporate governance practices and the emphasis on the independence of directors is clearly a common denominator. This Article explores the defining tension and the interplay of the aspirations of sound corporate governance practices with the reality of the court's examination of directorial conduct in adjudicative settings.
The Responsible Board
Ira M. Millstein, 52(2): 407–18 (Feb. 1997)
In this third Article in a series on the role of corporate boards, the author asserts that boards have an important role in ensuring that management endeavors, where possible, integrate societal demands with the polestar of shareholder gain. See The Evolution of the Certifying Board, 48 BUS. LAW. 1485 (1993); The Professional Board, 50 BUS. LAW. 1427 (1995). Careful and conscientious performance of this balancing act is central to a prosperous economy, to the corporation's continued freedom to act, and to the perpetuation of the private sector.
From Kahn to Carlton: Recent Developments in Special Committee Practice
Gregory V. Varallo, William M. McErlean, and Russell C. Silberglied, 53(2): 397–427 (Feb. 1998)
Recent case law has contributed to a better understanding of practice with special committees assigned to negotiate corporate transactions and so-called special litigation committees as well. This developing case law has made clear that committees formed to negotiate corporate transactions should be rigorously independent and design their negotiation strategy so as to attempt to simulate arm's-length bargaining. Likewise, a recent series of decisions in the special litigation committee area have elucidated the "second step" of Delaware's Zapata test and answered a number of previously unanswered questions that arise in connection with such committees.
An Economic Rationale for Judicial Decisionmaking in Corporate Law
E. Norman Veasey, 53(3): 681–700 (May 1998)
This Article is prepared from various speeches given in early 1998 by Chief Justice Veasey. The thrust of these speeches is that stockholders have expectations that directors and courts should honor. From the courts' perspective, it is important that there be an economic rationale as a point of departure in judicial decisionmaking. In addition, courts have obligations to be clear, prompt, balanced, and stable in their decisionmaking. Directors have an obligation to direct the management of the company in accordance with a strategic plan they developed and to monitor the performance of the managers against that plan with honesty, care, and loyalty. The author offers aspirational paradigms to boards and courts in furtherance of these goals.
Director Ownership, Corporate Performance, and Management Turnover
Sanjai Bhagat, Dennis C. Carey, and Charles M. Elson, 54(3): 885–919 (May 1999)
One of the goals of the corporate governance movement has been to replace current procedurally based duty of care with an equity-based model. For such an approach to be viable, a linkage between better director management monitoring and heightened board equity ownership must be demonstrated. This Article finds such a linkage empirically. The authors report that, based upon an examination of a substantial number of public companies, the greater the dollar value of the outside director equity ownership (i) the better the company's overall performance and (ii) the more likely in a poorly performing company there will be a disciplinary-type CEO turnover.
The Uncertain Relationship Between Board Composition and Firm Performance
Sanjai Bhagat and Bernard Black, 54(3): 921–63 (May 1999)
The authors survey the evidence on the relationship between board composition and firm performance. Boards of directors of U.S. public companies that have a majority of independent directors behave differently in a number of ways than boards without such a majority. Some of these differences appear to increase firm value; others may decrease firm value. Overall, within the range of board compositions present today in large public companies, there is no convincing evidence that greater board independence correlates with greater firm profitability or faster growth. In particular, there is no empirical support for current proposals that firms should have "supermajority-independent boards" with only one or two inside directors. To the contrary, there is some evidence that firms with supermajority-independent boards are less profitable than other firms. This suggests that it may be useful for firms to have a moderate number of inside directors (say three to five on an average-sized eleven member board). The authors offer some possible explanations for these results, based upon board dynamics, the informational advantages possessed by inside (and, often, affiliated) directors, and the value of interaction between different types of directors who bring different strengths to the board.
Corporate Governance Out of Focus: The Debate Over Classified Boards
Richard H. Koppes, Lyle G. Ganske, and Charles T. Haag, 54(3): 1023–55 (May 1999)
Corporate governance activists have become increasingly critical of classified boards. This Article examines the arguments for and against the use of classified boards, arguing that their use is not necessarily inconsistent with good corporate governance. The Article begins by reviewing the legal framework surrounding classified boards, focusing on applicable (i) state corporate statutes, (ii) directors' fiduciary duties, and (iii) federal securities laws. After a review of the debate over classified boards, the Article suggests that activists' general attacks on classified boards are misplaced and that these boards may be used effectively as part of a well-run corporate governance program.
Introduction to the Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
Ira M. Millstein, 54(3): 1057–66 (May 1999)
In February 1999, the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees released its Report which advances practical recommendations for enhancing audit committee oversight of corporate financial reporting. As co-Chair of the Committee, the author introduces a reprint of the Report by reviewing its focus on "process." Because Generally Accepted Accounting Principles leave wide areas of discretion, "quality" financial reporting cannot be dictated by precise accounting rules and strictures. Therefore, the recommendations focus on ways to improve the process by which the audit committee monitors how this unavoidable discretion is exercised by management and viewed and reviewed by the independent auditors. The author also addresses the issue of how to define "quality" financial reporting and the misconception that the Report may lead to increased audit committee liability.
Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees
Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, 54(3): 1067–95 (May 1999)
How to Really Make Audit Committees More Effective
John F. Olson, 54(3): 1097–1111 (May 1999)
The Blue Ribbon Committee on Improving the Effectiveness of Audit Committees has made ten recommendations to the major securities markets and the SEC. This Article puts these recommendations in context with twenty years of governmental and private sector efforts to improve corporate financial reporting and reduce financial fraud. It questions whether the focus of the recommendations on formal qualification and certification requirements for auditing committees will result in better financial reporting or simply increase liability risks for committee members. Based upon his own experience in counseling boards and audit committees, the author offers ten practical suggestions for making substantive improvements in the functioning of audit committees.
Corporate Director's Guidebook
Corporate Laws Committee, 56(4): 1571 (Aug. 2001)
Preemption as Micromanagement
Larry Ribstein, 65(3): 789–798 (May 2010)