Corporate and Business Law (Annual Survey of Virginia Law)

This article reviews changes in Virginia corporate and business law for the period from June 2000 through May 2001. Part II ex- amines legislative changes in corporate and other business stat- utes (excluding public service corporation and insurance law is- sues) based on Virginia General Assembly action in the 2001 session. Part III reviews judicial decisions during the year, in- cluding decisions addressing agency law, partnership law, and corporate law issues and principles. This article describes these decisions and, in several instances, it also critically analyzes the outcomes. Part IV summarizes a May 25, 2001, Order of the Vir- ginia State Corporation Commission amending the Commission\u27s Securities Act Rules

Corporate Officers and the Business Judgment Rule

This article argues that the business judgment rule - a cornerstone concept in corporate law - does not and should not extend to corporate officers in the same broad manner in which it is applied to directors. The argument proceeds along both descriptive and normative lines. After first reviewing judicial decisions, the article concludes that, notwithstanding frequent, broad assertions to the contrary, application of the rule to corporate officers is not firmly established in case law. The article next examines the policy case by assessing three conventional rationales for applying the rule to directors and concluding, on balance, that the rationales do not fully translate into the officer context. The upshot is that courts should more closely scrutinize officer conduct than they now examine director performance. Those companies not wishing to expose officers to heightened liability risks may, by decision of the board of directors, refrain from asserting rightful claims ex post, or may contract around that risk ex ante, either by eliminating liability altogether or substantially reducing it

The Modest Business Judgment Rule

This article argues that Delaware mis-formulates and mis-uses the business judgment rule. Properly understood, the business judgment rule\u27s function in corporate law is quite modest. It is a narrowly-drawn judicial policy of nonreview which, in duty of care cases, shields the merits of board decisions from judicial scrutiny. The article contends that the business judgment rule, therefore, should be de-emphasized as an analytical construct in the law of director fiduciary duties and should be sharply differentiated from the broader-gauged duty of due care. Doing so will pave the way for Delaware courts to rethink the importance of articulating a robust, generally applicable ? but concisely formulated ? director duty of due care

Reality Check on Officer Liability

This article addresses the fiduciary duties of corporate officers. Responding to a critique that recent scholarly analyses of officers depart from reality, it argues that, on a variety of grounds, those analyses are more realistic than the critique and provide doctrinal coherence and advance the goal of meaningful executive accountability. The divergent governance functions of directing versus managing are described and it is argued that those disparate roles should matter for fiduciary duty analysis. No great outbreak of litigation should be expected if officers are held to a stricter duty of care than directors because boards of directors, not courts, likely will resolve the vast majority of disputes concerning officer breaches of duty. The ex-ante and ex post roles of fiduciary duties are emphasized, and the need for the Delaware legal community to more fully address officer duties is emphasized, lest the federal government emerge as the chief regulator of senior management, a role central to corporate governance

The Audit Committee\u27s Ethical and Legal Responsibilities: The State Law Perspective

This paper provides a state law perspective on the post-scandal, post-reform audit committee. Federal law, along with NYSE and Nasdaq (together, SRO ) rules, recently have made sweeping changes in corporate governance, including numerous provisions that bear on audit committees. These changes are unprecedented and dramatic, and rightly have received wide attention and careful study. Certain basic principles underlying the governance functions and duties of audit committees, however, originate in, and are still determined by, state law. Moreover, state law applies to all corporations; federal law and SRO rules on audit committees apply only to those companies coming under federal law or SRO coverage. This article describes how audit committees fit in to the governance arrangement ordained by state corporate statutes; how longstanding state fiduciary duties will affect post-reform audit committees; and how, on a variety of issues, federal law and SRO rules will interact with the pre-existing state law system to alter what audit committees do and how their conduct is assessed. It closes with some brief observations on how audit committee reforms dovetail with other reform efforts - such as the new SEC reporting up rule - to reflect a reconsideration of the lawyer\u27s ethical/legal role in corporate governance

Re-Enchanting the Corporation

This Essay begins with Max Weber’s observation that the condition of the modern world is “disenchanted” and goes on to argue that contesting the notion of disenchantment offers a promising framework for rethinking baseline issues in corporate law and corporate life more generally. After elaborating what disenchantment meant to Weber, this Essay offers two counter-observations. First, the world may not be better off as a result of disenchantment. Second, as an empirical matter the world may not really be “disenchanted” given the substantial number of people who both hold religious beliefs and consistently report that those beliefs influence how they live. Linking these observations to corporate law, the Essay notes that the field of corporate law has been examined from many disciplinary vantage points, including neoclassical and behavioral economics, sociology, history, feminism, and others, but only rarely from the perspective of religious belief. The Essay argues that corporate law scholars should probe the implications for contemporary, highly individualistic theories of corporateness if, in fact, significant numbers of people in the business world - including executives, directors, investors, and employees – remain “enchanted” by religious faith. The issue is not whether people should or should not have such beliefs. What matters is whether, and how, as an empirical matter, various beliefs actually influence, or potentially might influence, behavior in the business arena. Do we really know? Or do we simply make assumptions about human decisionmaking that may be unwarranted. An example is the simplistic assertion that people largely behave in a self-serving fashion. That premise of neoclassical economics is coming under attack from many scholarly quarters. It seems especially suspect when describing people with strong religious convictions. This Essay advocates a more behaviorally realistic understanding of corporate relations. The Essay then develops a number of ways in which religious conviction can positively influence corporate life and theory, whether one wishes simply to understand the corporation or also seeks to reform its conduct. It challenges the simplistic typology of “profit” and “not for profit” organizations, arguing instead for a more pluralistic approach to corporate objectives than the current either/or approach to profit pursuit. To demonstrate that there is space for the influence of religious beliefs in shaping management conduct, the Essay dispels the common notion that shareholder wealth must, legally, be maximized. Beliefs about institutional objectives stem not from law but from markets, social norms and business lore, all of which are malleable. The Essay also contends that introducing religious faith into corporate discourse opens the way to reform unhealthy business practices from within the private sector itself, without relying solely on government regulation as the agent of reform. The overall aim of the Essay is to invite exploration of how the seemingly disparate discourses of religious faith and business enterprises can be examined together. Much religious legal theory addresses the interplay between the individual and the state, while ignoring those intermediary institutions that, while “private,” nonetheless wield vast social influence. The corporation is one such institution

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