Directors and Officers (1990—1992)
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.
Duty of Loyalty: The Criticality of the Counselor's Role
E. Norman Veasey, 45(4): 2065–81 (Aug. 1990)
A corporate director's fiduciary responsibilities include a duty-of-care and a duty-of-loyalty component. Duty of loyalty is an elusive concept with many facets. This Article touches on a few applications of the duty and explores some of the diverse legal and practical issues which demonstrate the critical need for good counseling.
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, while 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.
Other Constituencies Statutes: Potential for Confusion
Committee on Corporate Laws, 45(4): 2253–71 (Aug. 1990)
The Committee on Corporate Laws continuously reviews legislative and judicial developments in corporation law and the provisions of the Revised Model Business Corporation Act to determine whether the Act gives appropriate recognition to evolving developments in corporation law. This Report addresses the Committee's review of so-called other constituencies statutes, enacted in a number of states, that generally authorize directors to take into account the interests of other constituencies=mpersons or groups other than shareholders=min performing their duties, including the making of change-of-control decisions. After discussing the historical development of these statutes, and the rationale underlying them, the Committee determined that the Act should not be amended to include such a provision.
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 which 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.
Changes in the Revised Model Business Corporation Act—Amendment Pertaining to Liability of Directors
Committee on Corporate Laws, 46(1): 319 (Nov. 1990)
The Committee on Corporate Laws developed, and, from time to time, proposes changes in, the Revised Model Business Corporation Act. This Report states that the proposed amendment to section 2.02(b) relating to limitation of liability of directors has been adopted by the Committee.
Other Constituency Statutes: A Search for Perspective
Charles Hansen, 46(4): 1355–76 (Aug. 1991)
This Article attempts to bring into focus the possible impact of the adoption of "other constituency" statutes by a large number of states. It reviews the law of "other constituencies" absent statute, the legislative history of the statutes, classifies and analyzes the statutes by type, and then, based upon this review, suggests how the various types of statutes will be interpreted by the courts.
Corporate Reorganizations in the 1990s: Guiding Directors of Troubled Corporations Through Uncertain Territory
Lewis U. Davis, Jr., M. Bruce McCullough, Eleanor P. McNulty, and Ronald W. Schuler, 47(1): 1–32 (Nov. 1991)
This Article discusses the state of the law regarding the fiduciary duties of directors of financially troubled companies, the varying schools of thought as to whom such duties are owed, and the impact of fiduciary duty on the decisions that directors make to resolve the financial problems of such companies. The Article includes a discussion of various large bankruptcy reorganizations.
Virginia Bankshares, Inc. v. Sandberg: The Golden Rule of Section 14(a)
Eric G. Orlinsky, 47(2): 837–62 (Feb. 1992)
In Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), the Supreme Court held that false or misleading statements of opinion or belief by corporate directors may be actionable under rule 14a-9. Nevertheless, the Court rejected the respondents' claim by holding that minority shareholders, whose votes are not required to approve a transaction, cannot prove causation of injury in a section 14(a) implied private right of action. This Note concurs with the former conclusion but criticizes the latter causation holding as an insupportable attempt to constrict the implied private right of action under section 14(a). It concludes that courts may use the Sandberg decision to restrict unjustifiably other implied private rights under the federal securities laws.
The Fiduciary Duties of Insurgent Boards
John M. Olson, 47(3): 1011–29 (May 1992)
Many recent corporate takeover attempts have employed the combination of a tender offer and a proxy contest. This Article analyzes the fiduciary duties of directors elected through the efforts of tender offerors and suggests that there may be problems in combining the two takeover methods.
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; conducting an 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.
Common Law Duties of Non-Director Corporate Officers
A. Gilchrist Sparks, III and Lawrence A. Hamermesh, 48(1): 215–37 (Nov. 1992)
This Article focuses upon nondirector officers and their duties and liabilities to the corporation. It addresses the question of when officers have a duty to inform the board of matters calling for board oversight attention and includes an analysis of whether and when the business judgment rule applies to nondirector officers.
Fiduciary Obligations of Directors of the Financially Troubled Company
Gregory V. Varallo and Jesse A. Finkelstein, 48(1): 239–55 (Nov. 1992)
Recent decisions of the Delaware Court of Chancery have examined the nature of the fiduciary duties owed to creditors of the insolvent (and nearly insolvent) Delaware corporation. These decisions may have opened the "flood gates" to a new variety of litigation. This Article traces the evolution of the so-called trust fund doctrine and concludes that the doctrine should be critically reevaluated in light of modern bankruptcy and insolvency statutes.