Why Corporate Purpose Will Always Matter

Business persons and lawyers (and law professors) perennially struggle over the question whether a business corporation does or should have a purpose other than advancing the interests of shareholders. After briefly setting the stage by describing the dispute over what the positive law of corporate purpose really is and the normative argument over what corporate purpose should be, this short article takes a different turn. It addresses why, in a dynamic, democratic, pluralist society, the foundational issue of corporate purpose remains so important and will not (and should not) go away. However adamantly divergent descriptive and prescriptive positions are held, it is to be expected - and healthy - that, periodically at least, the debate will be revisited and disagreements aired. Neither corporate law nor business practice demands an unequivocal or uniform resolution. Different businesses will continue to answer the corporate purpose question differently

A Fresh Look at Director Independence : Mutual Fund Fee Litigation and Gartenberg at Twenty-Five

Today, the concept of the independent director is widely, if not universally, regarded as critical to the healthy governance of public corporations.\u27 The concept remains fiercely contested, however, in the governance of investment companies, including mutual funds. This resistance appears on two fronts, one of which is quite visible, while the other is often overlooked. The more obvious battle over director independence has occurred in response to the Securities and Exchange Commission\u27s ( SEC\u27s ) rulemaking effort to alter the standard for granting certain regulatory privileges under the Investment Company Act (the Act ).\u27 The SEC, among its other reforms, sought to limit privileges under the Act to companies where at least seventy-five percent of the directors and the board chairman are independent. Those rulemaking efforts have been struck down twice on procedural grounds. In late 2006, the SEC resolicited public comment on two studies addressing the costs and benefits of the proposals. Mutual fund fee litigation is the second area in investment company governance where, in striking contrast to the trend in corporate governance generally, the concept of director independence remains undeveloped. Section 36(b) of the Act deems an investment adviser of an investment company to owe a fiduciary duty with respect to the receipt of compensation for advisory services (i.e., management compensation). That section also creates an express, private right of action permitting a security holder, acting on behalf of the investment company, to sue the investment adviser or its affiliates for breach of that duty. The seminal section 36(b) case, decided twenty-five years ago, is Gartenberg v. Merrill Lynch Asset Management, Inc. The Second Circuit affirmed the district court\u27s dismissal of the complaint and articulated six factors ( Gartenberg factors ) to guide the determination whether an investment adviser\u27s fee is excessive

Law and Legal Theory in the History of Corporate Responsibility: Corporate Personhood

This Article, the first of a multipart project, addresses the nature of corporate personhood, one area where law has played a central role in the history of corporate responsibility in the United States.1 The treatment will be illustrative, not exhaustive. Consistent with the theme of the larger project, the Article serves to make the simple but important point that a full historical understanding of corporate responsibility requires an appreciation of the law’s significant, if ultimately limited, contribution to the longstanding American quest for more responsible corporate conduct. On one hand, the spheres of law and corporate responsibility, although clearly complementary, might be seen as distinct, in both theory and practice. Law, after all, mandates—with the state’s full sanctioning power behind it—compliance with specified standards of behavior. Apart from a decision to comply or disobey, there is no real exercise of discretion in choosing to abide by the law. “Responsible” conduct, on the other hand, presupposes the freedom to engage in or refrain from certain conduct. Viewed this way, corporate responsibility concerns can be seen as picking up precisely where legal strictures leave off. Consequently, a history of corporate responsibility could be written while being largely unmindful of law and legal theory

Enduring Equity in the Close Corporation

This Article develops the theme of change/sameness in corporate law. Written to commemorate the thirty-fifth anniversary of Wilkes v. Springside Nursing Home, Inc., the Article argues that the equitable fiduciary duties so central to Wilkes endure today in the close corporation precisely because equity, by its nature, is so exquisitely adaptive – under constantly changing circumstances − to the ongoing pursuit of a just ordering within the corporation. Unlike fixed legal rules – which are categorical, static, and do not take sufficient account of changes wrought by time or human arationality – equity is malleable and timely as it reckons with the flux and gray of business relationships. Consequently, equity continues to be necessary in modern corporate jurisprudence, even as it must continually elude law’s attempted subduction by rules. This argument is developed after the Article first places Wilkes in a larger milieu by highlighting similarities and differences between 1976 and the present, and sketching some facts about the city of Pittsfield, the nursing home industry, and the company itself – all of which changed