Leveraging Information Forcing in Good Faith

Abstract

Leveraging Information Forcing in Good Faith, a chapter in Research Handbook on Law and Time, argues that the information-forcing-substance theory has a significant role to play both in how courts decide duty of good faith and oversight matters and in how active and engaged directors can add value in the boardroom. As explored in the chapter, by deploying the theory in corporate-law matters, the courts can reveal the information gaps between officers and directors and create pressure for better processes and discourse within the corporation. In turn, this can impact both the way in which fiduciaries interact with each other and on behalf of shareholders, as well as the substantive choices they make. This chapter uses case studies involving Boeing and McDonald’s to reveal how judges can use information forcing to develop more robust disclosure discourse in the good faith and oversight context and increase the creative friction vital to effective corporate governance. The chapter focuses first on how the evolution of the corporate form and the laws supporting it have impacted the growth of the law in the corporate fiduciary duty space, and the impact of the procedural posture and timing of litigation on the understanding of the duty. The chapter utilizes case studies based on the McDonald’s and Boeing litigation in Delaware, and examines them through the lens of the information-forcing-substance theory from federal securities regulation. The case studies illuminate how the courts have already used information-forcing-substance theory in practice (although not calling it by that name) to drive additional discourse within the board room and between directors and officers. The chapter, however, also highlights how the moment in time nature of the opinions and the procedural posture of litigation can stunt the growth of positive law for the duty of good faith and oversight. The chapter then explores how courts can further apply the theory to ensure that oversight actually occurs through more information forcing, disclosure, and discourse for directors and officers