Proceduralism: Delaware’s Legacy

This article examines the Delaware courts’ 1980s shift from managerialism to a theory I label proceduralism. I argue that managerialism, which justified corporate law’s deference to directors in the preceding fifty years, was corporate law’s response to social, political, and cultural concerns outside corporations. At the turn of the twentieth century, corporations and their managers were empowered to fight socialism by protecting the interests of workers, while in the midcentury, corporations became the first line of defense against the threats of totalitarianism and later the Cold War. Corporate directors were viewed as heroes and their power justified as necessary for the survival of American democracy. By the 1980s, however, in response to numerous hostile acquisitions, decisions of the Delaware Supreme Court appeared to discard managerialism as the Court used the fairness standard to review, and even invalidate, directors’ actions. Yet, as this Article demonstrates, the Court did not abandon its deference to corporate directors. Rather, the Court substituted proceduralism for managerialism as a theory justifying managerial power. Grounded in the concept of fairness, specifically fair dealing, proceduralism is the idea that certain procedures—for example, authorization by disinterested directors or ratification by shareholders— ensure maximization of value, and that corporate law should focus on incentivizing corporate directors to follow these procedures by assuring them that, when they so do, their actions will not be subject to judicial review. Proceduralism was cemented into law in the decades following the hostile takeover boom, as the Delaware Chancery Court enmeshed fair dealing, or fair procedure, with the presumption of the business judgment rule, assuring directors that if they followed the procedural frameworks suggested by the Court, their actions will receive the protection of the business judgment rule whether such actions offered their shareholders a fair price or a price at all. By the twentieth century’s end, Delaware corporate law became fixated on internal processes rather than discretion and expertise; proceduralism became Delaware’s legacy

From Pluralism to Individualism: Berle and Means and 20th-Century American Legal Thought

This article is an intellectual history of Adolf A. Berle, Jr. and Gardiner C. Means, The Modern Corporation and Private Property (1932). I argue that Berle and Means\u27s concern was not the separation of ownership from control in large pubic corporations, as many scholars have suggested, but rather the allocation of power between the state and a wide range of institutions. As I demonstrate, Berle and Means shared a legal pluralist vision of the modern state. Legal pluralism treated organizations as centers of power that had to be accommodated within the political and legal structure. Berle and Means viewed collective entities such as corporations as the foundation of the modern state, at the same time that their concern about the power that these entities could exercise led them to proclaim that corporate power (like sovereign power) should be exercised to benefit the community at large. The article further explores how Berle and Means\u27s legal pluralist vision was eclipsed in the second half of the twentieth century as the attention of lawyers, legal scholars, and government officials shifted from collective entities to the individual as the basis for legal and political analysis (postwar interest group pluralism reflected this shift). The article then shows how this transformation helped legitimate the view that corporate entities were nexuses of private, contractual relationships. Informed by neoclassical economics, advocates of this new vision of the firm emphasized the role of economic markets in regulating corporate power. With deregulation and free markets in mind, neoclassicists came to treat The Modern Corporation and Private Property as a book about the limited question of the effects of the separation of ownership from control on efficiency and profit maximization, not as a book about corporate power as Berle and Means had intended

Business as Usual: Hobby Lobby and the Purpose of Corporate Rights

This article explores the interdependence of the discourse of corporate rights and the law of corporate purpose. I argue that the history of corporate rights reflects changing reactions of the U.S. Supreme Court to social, political, and cultural concerns, each reaction offering a different purpose for corporations in our modern society. At the turn of the twentieth century, in response to fears about the advance of socialism, the Court used liberal assumptions to justify protecting the publicly held corporation’s property rights as derived from the rights of individual shareholders. In so doing, the Court helped turn the corporation, with its collective ownership, into the epitome of capitalism. In the 1940s, as fears about the potential impact of European totalitarianism on American democracy mounted, the Court drew on theories of pluralism, which focused on corporate power, to impose constitutional limitations on private entities and organizations. The corporation became the guardian of American democracy. Beginning in the 1970s, amidst concerns about the potential threat that large corporations posed to economic and political markets, the Court relied on the managerialist view that corporate managers were best suited to attend to the affairs of their corporations to rationalize the extension of First Amendment rights to corporations. Even when the Court acknowledged corporate management’s responsibility to the shareholders, it dismissed concerns about management’s usage of shareholder funds to promote corporate goals with which the shareholders might not agree. Questions about corporate rights and corporate purpose became questions of business judgment, and corporate managers became the mediators of American society’s social and cultural goals

Shareholders as Proxies: The Contours of Shareholder Democracy

This article explores the long-standing suspicion of the individual shareholder and the corresponding ambivalence about shareholder democracy as it is seen in conversations about the shareholder\u27s role in the modern public corporation throughout the twentieth century. The article examines two competing conceptions of the shareholder\u27s role in the corporation: one focuses on the role of shareholders as investors, the other emphasizes the role of shareholders as potential participants in corporate management. I argue that scholars and reformers who have conceived of shareholders as investors limited the locus of shareholder democracy to the market. The writings of Louis Brandeis, Henry Manne, and Chancellor Allen offer examples of this vision. At the same time, scholars and reformers who argued that shareholders should have a more active role in corporate management (including William Ripley, Adolf Berle, William Douglas, and the early New Dealers) were reluctant to give shareholders meaningful access to the corporate decision-making processes. They feared not only that shareholders were too passive to participate in corporate management, but also that they could not be trusted to make the correct decisions. For the most part, these scholars ended up using the rhetoric of shareholder democracy (and the shareholders) as a proxy to achieving other goals. In the course of the twentieth century, these scholars\u27 goals shifted from taming the power of the control group to constraining management to legitimating managerial power. More important, because they refused truly to empower shareholders, these scholars\u27 attempts presumably to promote shareholder democracy ultimately emptied the idea of shareholder democracy of content. Gradually, the rhetoric of democracy became an apology for the status quo

From Dodge to eBay: The Elusive Corporate Purpose

This article examines the history of the law of corporate purpose. I argue that the seemingly conflicting visions of corporate social responsibility and shareholder wealth maximization, which characterize contemporary debates about the subject, are grounded in two different paradigms for corporate law — a socio-political paradigm and an economic-financial one. Advocates of the socio-political paradigm have historically focused on the power that corporations could exercise in society, while those embracing the economic-financial paradigm expressed concerns about the power that the control group could exercise over the corporation’s shareholders. Over the course of the twentieth century, scholars have debated the merits of each of these paradigms and the concerns associated with them, while judges drew upon the academic and, more importantly, the managerial sentiments and concerns of the era to attach a purpose to corporate law’s doctrine, that is, the ultra vires doctrine in the early twentieth century, the enabling business judgment rule by mid-century, and the laws applicable to evaluating managerial responses to hostile takeovers at the century’s end. Ultimately, the cases seemingly addressing corporate purpose did not endorse wealth maximization or social responsibility as objectives. Rather, they empowered corporate managers to set corporate goals without interference from shareholders or the courts

Corporations Without Labor: The Politics of Progressive Corporate Law

This article examines how, in the course of the twentieth century, legal scholars and political theorists helped remove the interests of workers (as differentiated from shareholders, officers, and directors) from the core concerns of corporate law and theory. Specifically, the article demonstrates how scholars\u27 conversations about corporate entities and corporate power were influenced by a shared cultural and intellectual objection to Marxist class analysis with its focus on the proletariat. It further explores how the purging of the working class from the scholarly imagination paved a way, first, for the rise of the new classes of managers and owners and the shareholder-centered vision of corporate law and, then, for the emergence of a narrow, shareholder-wealth-maximization norm. The article uses class as a category of analysis to interpret major events in the history of corporate law: the debate about the personality of associations in the 1910s and 1920s, the publication of The Modern Corporation and Private Property, the debate between Adolf A. Berle, Jr. and E. Merrick Dodd, Jr. about the nature and scope of managerial duties, the rise of managerialism, and the ascent of the economic theory of the firm in the 1980s

Shareholders as Proxies: The Contours of Shareholder Democracy

This article explores the long-standing suspicion of the individual shareholder and the corresponding ambivalence about shareholder democracy as it is seen in conversations about the shareholder\u27s role in the modern public corporation throughout the twentieth century. The article examines two competing conceptions of the shareholder\u27s role in the corporation: one focuses on the role of shareholders as investors, the other emphasizes the role of shareholders as potential participants in corporate management. I argue that scholars and reformers who have conceived of shareholders as investors limited the locus of shareholder democracy to the market. The writings of Louis Brandeis, Henry Manne, and Chancellor Allen offer examples of this vision. At the same time, scholars and reformers who argued that shareholders should have a more active role in corporate management (including William Ripley, Adolf Berle, William Douglas, and the early New Dealers) were reluctant to give shareholders meaningful access to the corporate decision-making processes. They feared not only that shareholders were too passive to participate in corporate management, but also that they could not be trusted to make the correct decisions. For the most part, these scholars ended up using the rhetoric of shareholder democracy (and the shareholders) as a proxy to achieving other goals. In the course of the twentieth century, these scholars\u27 goals shifted from taming the power of the control group to constraining management to legitimating managerial power. More important, because they refused truly to empower shareholders, these scholars\u27 attempts presumably to promote shareholder democracy ultimately emptied the idea of shareholder democracy of content. Gradually, the rhetoric of democracy became an apology for the status quo