Good Faith Business Judgment: A Theory of Rhetoric in Corporate Law Jurisprudence

Abstract

This Article develops a theory of rhetoric in corporate law jurisprudence. It begins by examining a recent innovation in Delaware case-law: the emerging principle of "good faith." Good faith is an old notion in law generally, but it offers to bring significant change to corporate law, including realignment of the business judgment rule and a shift in the traditional balance between the authority of boards and the accountability of boards to courts. The Article argues, however, that good faith functions as a rhetorical device rather than a substantive standard. That is, it operates as a speech-act, a performance, as opposed to a careful method of analysis.

To explain the sudden appearance of good faith, this Article articulates a model of corporate law rhetoric. Courts invent rhetorical devices to loosen corporate law doctrine and increase judicial review of board decision-making in response to scandals and other extra-legal pressures operating upon the judiciary. These pressures stem largely from the twin threats of corporate migration and federal pre-emption, both of which imperil the primacy of the Delaware judiciary as a corporate law-maker. In periods of crisis and scandal, the judiciary employs rhetorical devices to reduce these pressures, typically with the effect of increasing board accountability, only to return, once the pressure recedes, to a position of board deference. After finding several examples of this pattern in corporate law history, this Article argues, ultimately, that regular movement back and forth along the authority/accountability spectrum is an essential feature of corporate law jurisprudence and that understanding the rhetorical devices that permit this movement is necessary to complete any account of what corporate law is and how it works.

Keywords: Good faith, fiduciary duty, loyalty, care, corporate law, jurisprudence, Delaware, shareholder litigation, disney, rhetoric, authority, accountability, thaumatrope

JEL Classification: K00, K22