Why New Corporate Law Arises: Implications for the 21st Century

The corporate governance landscape is much different than a generation ago. Independent directors now hold a great majority of all board seats, institutional shareholders hold a supermajority of all shares in public corporations, and activist shareholders have become a recurring player in entity governance. In turn, other corporate stakeholders express increasing concern about shareholders’ use of their power for selfish reasons and the perceived pernicious impact of shareholder wealth maximization as a guide for corporate law. This chapter, part of a book on “The Corporate Contract in Changing Times” asks: Why does corporate law change and how it might change now? Corporate law changed regularly in the first half of our country’s history. A series of innovations followed one after another during the nineteenth century—limited liability; general incorporation statutes; a strong shift to director-centric corporate governance; authorization of corporations holding stock in other corporations; and the disappearance of ultra vires and other limits on corporate behavior. By the arrival of the twentieth century all the key economic elements of the modern corporation were in view and corporate law settled into a stable pattern we still see today. State law abandoned its prior regulatory approach and its continual change in favor of a director-centric structure with expansive room for private ordering that has remained remarkably stable. Federal law stepped in to restrain economic concentration (antitrust law), to protect employees and consumers against corporate power (done by industry regulation, employment and consumer laws not corporate governance), to limit corporate political contributions, and to make recurring, if sporadic and non-comprehensive, efforts to enhance the role of shareholders against managers. This chapter examines this history of change in corporate law in America, the dramatic and abrupt shift in the focus of state corporate law visible in last decade or so of the nineteenth century, the interactive pattern of state and federal law that has grown up over the second half of the country’s history and prominent theories explaining what leads to corporate law change. Together these various strands suggest there will be no fundamental change in state corporate law even in this time of visible stress to the now classic structure. Changes that we see is more likely to come from federal law or, as has been most visible in recent times, because of market and technological-driven changes outside of law

Anti-Primacy: Sharing Power in American Corporations

Prominent theories of corporate governance frequently adopt primacy as an organizing theme. Shareholder primacy is the oldest and most used of this genre. Director primacy has grown dramatically, presenting in at least two distinct versions. A variety of alternatives have followed—primacy for CEOs, employees, creditors. All of these theories can’t be right. This article asserts that none of them are. The alternative developed here is one of shared power among the three actors named in corporations statutes with judges tasked to keep all players in the game. The debunking part of the article demonstrates how the suggested parties lack legal or economic characteristics necessary for primacy. The prescriptive part of the article suggests that we can better understand the multiple uses of primacy if we recognize that law is not prescribing first principles for governance of firms, but rather providing a structure that works given the economic and business environment in place for modern corporations where there is separation of function and efficiencies of managers as a starting point. Thus the familiar statutory language putting all power in the board must be read against the reality of the discontinuous nature of the board (and shareholder) involvement in governance. Corporate governance documents of the largest American corporations, as discussed in the article, are consistent with this reality, assigning management to officers and using verbs like oversee, review and counsel as the director functions. The last part examines dispute resolution and the role of judges in such a world, with a particular focus on the shareholder/director boundary. At this boundary there are two distinct judicial roles, the traditional role focusing on use of fiduciary duty to check conflict and other director incapacity and the less-recognized role of protecting shareholder self-help. In this more modern context shareholders, because of market and economic developments, are able to effectively participate in governance in a way that wasn’t practical three decades ago, when the key Delaware legal doctrines were taking root. What is particularly interesting here is how courts, commentators and institutional investors act in a way that is consistent with a shared approach to power, as opposed to the primacy of any of the theories initially suggested

Preemption and Federalism in Corporate Governance: Protecting Shareholder Rights to Vote, Sell, and Sue

Thompson examines the changed roles of the state and federal governments since the enactment of the Securities Litigation Uniform Standards Act of 1998. He notes that these changes have created a greater dependence on federal law, a greater emphasis on the voting function of shareholders, and the likelihood of additional argument over traditional corporate issues

The Case for Iterative Statutory Reform: Appraisal and the Model Business Corporation Act

Appraisal may be the Model Business Corporation Act\u27s (MBCA) most distinctive and creative corporate law product in its sixty year history. Through a series of changes, beginning in the late 1970s and early 1980s, and continuing through revisions in 1999 and 2006, the MBCA has shown the value that can come from an ongoing revision process of corporate law. Thompson examines the challenges that have long plagued appraisal statutes, and then evaluating the product that has resulted from the MBCA approach

Bottom-up constructions of top-down transformational change : change leader interventions and qualitative schema change in a spatially differentiated technically-oriented public professional bureaucracy

In the face of knowledge deficits in and poor outcome assessments of Organisation Transformation (OT), there is a need for a better understanding of the relationship between change leader interventions and qualitative organisational schema change, the collective knowledge structures that must be replaced or significantly elaborated if OT is to be realised. Previous research on this relationship has (a) focused on imposed structural interventions and given little attention to large-scale human process interventions, (b) given little attention to the radical structural interventions frequently involved in the transformation of public organisations, (c) given little scrutiny to how organisational schema have been conceptualised, (d) given little scrutiny to recent propositions on schema change dynamics that may be contentious, and (e) given little consideration to the change management contexts in which leader influence may be neutralised. In the light of these gaps in the literature, this thesis investigates, from the perspective of change recipients, the relationship between complex large-scale change leader interventions and qualitative organisational schema change in change management contexts thought to be inimical to leader influence. In particular, how efficacious are change leader interventions in realising qualitative organisational schema change in such contexts? An interpretive longitudinal case study design was used to address this question. The case organisation is a spatially differentiated technically-oriented public Professional Bureaucracy located in Queensland. In this context, this thesis investigates, over a three-year period, the creation and evolution of three schema change contexts, or change trajectories, created by two temporally disconnected yet functionally inter-related change leader interventions. Data collection techniques included focus group interviews, semi-structured interviews, and secondary sources. Data were collected from several sites, including Head Office functions and Regional and District offices, across Queensland. Data were collected on four occasions across the three-year period from early 2000 to late 2002. The results reveal that (a) while there are no panaceas, public managers need more sophisticated intervention theories based on a knowledge of the relative efficacy of different interventions rather than relying on, predominantly, structural interventions, (b) viewing organisational schema in one-dimensional rather than multidimensional terms masks both the complexity of organisational schema change and the possibility of partial rather than configurational schema change, (c) while inter-schema conflict or dialectical processes were apparent, successful schema change was better explained by teleological processes than by dialectical processes, and (d) change leaders can have a powerful influence on OT in change management contexts thought to be inimical to change leader influence yet their influence is linked to high investments of time and effort

An analysis of schema change intervention

Successful organizational transformation relies on being able to achieve paradigm or collective schema change, and more particularly, the ability to manage the interplay between pre-existing schemas and alternative schemas required for new environments. This conceptual paper presents an analysis and critique of collective schema change dynamics. Two schema change pathways are reflected in the literature: frame-juxtapose-transition and frame-disengage-learning. Research findings in each pathway are limited and/or contradictory. Moreover, research on schema change focuses primarily on social dynamics and less on the relationship between social schema change dynamics and individual schema change dynamics. One implication of this lack of focus on individual schema change dynamics is the masking of the high level of cognitive processing and cognitive effort required by individuals to effect schema change. The capacity to achieve organizational transformation requires that more attention is given to managing these dynamics, which, in turn, requires significant investment in developing the change leadership capabilities of managers and the organizations they manage