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Abstract:
Shareholders have many legal rights, but they are not all of equal significance. This article will argue that two rights — the right to elect directors and the right to sell shares — are more important than any others, that these rights should be considered "the fundamental rights of the shareholder," and that, as such, they deserve a great deal of respect and protection by law.

The history of corporate law has been one of increasing flexibility for directors and decreasing rights for shareholders. Although the law seems to have coalesced around the norm of shareholder primacy, this is not necessarily reflected in the specific legal rights of the shareholder. The role of the director in the corporation is clearly defined, but the role of the shareholder is not. This imbalance has led to the marginalization of the shareholder. A better understanding of the role of the shareholder is needed. This article seeks to advance that understanding by means of an in-depth analysis of shareholder rights. The goal of this article is to establish that the shareholder rights to elect directors and to sell shares are indeed fundamental. It will do so by demonstrating the importance of these rights from a wide variety of perspectives, including two types of doctrinal analysis as well as the three major competing theories of the corporation. Because these two rights are important — indeed, the most important — rights from almost any point of view, they ought to be respected as the fundamental rights of the shareholder.

corporate governance, shareholder rights, shareholder primacy, voting, takeovers

Abstract:
The poison pill is the most powerful defense against hostile takeovers. It can render a company takeover-proof, or nearly so. Efforts at developing an antidote have focused largely on shareholder-adopted bylaws, but the legality of such proposals has been questioned by many. In any event, shareholder-adopted bylaws have not been very successful in eliminating poison pills thus far. In order to effect takeovers, hostile bidders cannot rely on the courts or the target company's shareholders; they can rely only on themselves. In this article, I propose a strategy for hostile bidders to counteract the poison pill and to consummate hostile takeovers without redemption of the poison pill rights. The proposed strategy involves a series of coordinated tender offers: an initial offer to trigger the poison pill rights, offering little or no consideration; and a subsequent offer in which the fully diluted value paid to all shareholders after the rights have been exercised. This antidote strategy allows the hostile bidder to respond to management's just say no defense with a just do it offense of triggering the poison pill without ingesting its economic poison. Moreover, it does not allow the hostile bidder to evade the legitimate, salutary effects of the poison pill. The antidote strategy merely seeks to restore to shareholders a right that should have been deemed inalienable: the right to sell their shares without management's consent.

poison pill, takeovers, corporate governance

Abstract:
The poison pill is the ultimate defense against a hostile takeover. From management's perspective, it is almost too good to be true. Originally, the poison pill was seen as a way to guard against the worst of hostile takeover tactics. It has been successful; the poison pill has virtually eliminated these tactics from the repertoires of hostile bidders. However, the poison pill is extremely potent, capable of preventing all hostile takeovers, regardless of their underlying merit. Thus, the poison pill eventually became the means to employ a "just say no" defense of resisting hostile takeovers, regardless of the interests of shareholders. The consequences of the poison pill to corporate governance have been tremendous. By severely restricting the market for corporate control, the poison pill has rendered management significantly less accountable to shareholders.

This Article argues that the courts should view the poison pill defense with far greater skepticism than they have thus far. At the time the poison pill was first considered, corporate law did not authorize corporations to employ poison pills. Even now, Delaware corporate law, fairly interpreted, does not authorize the use of the poison pill against typical contemporary hostile offers. In short, the poison pill was originally, and remains to this day, an illegitimate defense mechanism. Ultimately, the goal of this Article is to demonstrate that the poison pill is an illegitimate defense tactic that allows management to entrench itself at the expense of shareholders. While it is probably too late to expect the courts to strike down the poison pill, either on ultra vires grounds or otherwise, it is never too late for the courts to re-examine their deferential treatment of poison pills. If courts were to apply fairly the standards of review that they themselves have developed, the mischief currently caused by the poison pill would be greatly diminished.

poison pill, takeovers, corporate governance

Abstract:
The great corporate scandals of the recent past and the resulting push for legal reform have revived the role of the shareholder in the corporation as a subject of great debate. Those who favor an expanded role for shareholders in corporate governance tend to focus on developing new legal rights for shareholders, and their critics respond with reasons why such rights are unnecessary and inappropriate. While these issues certainly are worthy of consideration, issues concerning existing shareholder rights are more fundamental. If existing rights are adequate or could be improved, then new rights may not be necessary; but if existing rights cannot be salvaged, then efforts to add new rights may be equally unavailing. In this article, I argue that the traditional shareholder rights to vote and to sell their shares could be adequate but are undermined by other laws that impede their exercise. I assume that the traditional role of the shareholder in corporate governance is the appropriate one: the business and affairs of every corporation should be managed by or under the direction of the board of directors, and shareholder rights can and should be limited accordingly. Nevertheless, shareholder rights are important. Unfortunately, the law does a poor job of securing even these limited rights. In this article, I only seek to make traditional shareholder rights more meaningful; I do not seek to expand shareholder rights beyond the traditional core or to empower shareholders to intrude on the directors' managerial role. After demonstrating how the current law indirectly eviscerates explicit shareholder rights, I propose and defend a number of legal reforms to both state and federal law that would safeguard traditional shareholder rights.

corporate governance, shareholder rights, shareholder primacy, voting, takeovers

Abstract:
Historically, there were two main fiduciary duties in corporate law, care and loyalty, and only the duty of loyalty was likely to lead to liability. In the 1980s and 1990s, the Delaware Supreme Court breathed life into the duty of care, created a number of intermediate standards of review, elevated the duty of good faith to equal standing with care and loyalty, and announced a unified test for review of breaches of fiduciary duty. The law, which once seemed so straightforward, suddenly became elaborate and complex. In 2006, in the case of Stone v. Ritter, the Delaware Supreme Court rejected the triadic formulation and declared that good faith was a component of the duty of loyalty. In this and other respects, Delaware seems to be returning to a bifurcated understanding of the law of fiduciary duties. I believe that this is a mistake. The law is inherently complex and much too important to be oversimplified.

The current academic debate on the issue focuses on whether there should be two duties or three. In this article, I argue that the question is misleading and irrelevant, but that if it must be asked, the best answer is that there are five duties - one for each paradigm of enforcement. In defending this claim, I explain the true nature of fiduciary duties and provide a robust framework for the discussion, implementation, and development of the law.

fiduciary duties, corporate law, good faith, reasonableness, standards of review, corporate governance

Abstract:
According to the traditional view, the shareholders own the corporation. Until relatively recently, this view enjoyed general acceptance. Today, however, there seems to be substantial agreement among legal scholars and others in the academy that shareholders do not own corporations. In fact, the claim that shareholders do own corporations often is dismissed as merely a "theory," a "naked assertion," or even a "myth." And yet, outside of the academy, views on the corporation remain quite traditional. Most people - not just the public and the media, but also politicians, and even bureaucrats and the courts - seem to believe that the shareholders do, in fact, own corporations.

Why this disconnect? I believe that contemporary scholarship has done a better job of critiquing shareholder ownership than of disproving it. In this article, I provide a defense of the traditional view by evaluating many of the arguments commonly raised against shareholder ownership and showing how they fall short. I then explain why the issue matters. As a theoretical matter, the issue of ownership is necessary to a proper understanding of the nature of the corporation and corporate law. As a practical matter, it is an important consideration in the allocation of rights in the corporation: if shareholders are owners, then the balance of rights will tip more heavily in their favor, and against others, than if they are not. Ownership may not settle any specific question of corporate governance, but it will make a significant difference in the analysis. Because the issue of ownership has the potential to shape all of corporate law and direct the very purpose of corporations, it is of utmost importance.

corporate governance, shareholder rights, shareholder primacy, ownership, traditional view

Abstract:
One of the fundamental debates in corporate law pits the authority of the board of directors to make business decisions without judicial interference against the accountability of directors to shareholders for their decisions. The business judgment rule attests to the value ascribed to authority by providing only limited judicial review for claims of breach of the duty of care, while the entire fairness test demonstrates the value ascribed to accountability by providing far more exacting scrutiny for claims of breach of the duty of loyalty. In cases involving structural bias, however, neither doctrine is appropriate. Whenever the interests of directors are in conflict with those of shareholders, there is a justifiable concern that directors will pursue their own interests instead of those of shareholders. The interposition of "disinterested" directors is helpful but inadequate because no directors are truly disinterested; at the very least, all directors are inherently interested in issues of accountability. In certain situations involving structural bias, the courts have developed intermediate standards of review for breach of fiduciary duty, but these standards are inadequate. This article proposes and defends a standard that draws upon the insights of both the business judgment rule and the entire fairness test. The proposed standard calls for a moderate review of the merits of directors' decisions in cases involving structural bias. A review of the substantive merit of directors' decisions is necessary to guard against possible abuse by conflicted directors (whether conscious or unconscious), but such review must be limited in order to afford directors sufficient latitude for the exercise of business judgment. Only such an approach can provide the appropriate balance between directorial authority and accountability.

Corporate law, intermediate standard of review, reasonableness

Abstract:
This is the text of a presentation made at the Notre Dame Law School Spring 2009 Symposium, "The Future of Fiduciary Duties in Corporate Law", on Friday, March 27, 2009. An article is in the works. Comments are welcome.

fiduciary duties, corporate governance

Abstract:
The extent of Congress's authority to control the jurisdiction of the federal courts has been the subject of unending academic debate. The orthodox view long has been that Congress possesses nearly plenary authority to restrict federal court jurisdiction. There has been no shortage, however, of commentators who have taken exception to that view. The heart of the debate lies in whether Congress is authorized to remove specific subjects from the jurisdiction of federal courts when motivated by hostility to their substantive decisions. According to the traditional view, Congress is free to use its power in this manner. While most traditionalists believe this would be imprudent, some believe it could serve a legitimate function. This Article presents a defense of the traditional view. This Article analyzes the text as well as the history and structure of Article III in an attempt to set forth a comprehensive interpretation of Article III that reaffirms the traditional view. This Article shows that the modern assault on that position, while insightful, is fundamentally misguided.

federal jurisdiction, Article III