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Abstract:
PROFESSOR HAMERMESH: I'm here for the limited purpose of introducing the person here to introduce our keynote speaker. We're privileged to have Lieutenant Governor Ruth Minner with us at this seminar to welcome you and to welcome our keynote speaker. And without further ado, I'll turn the podium over to Lieutenant Governor Minner. Thank you for being here.
LIEUTENANT GOVERNOR MINNER: Thank you very much and good afternoon, everyone. What a wonderful, wonderful day. You know, as I was driving here, I could not help but think I was at Cauffiel House where we were doing a dedication of celebration for the coastal zone regulations. If you remember, that bill was passed in 1971 and it took us lo these many years to get the regulations in place. And my thoughts ran like this: If the Court of Chancery took as long as the administration and the people who have worked on that piece of legislation, this state would not be known as the place, not just in this country, but in many foreign countries as well, to do your incorporation. We thank all of you who are involved in that because it's what makes this state the special place that it is. I chose today to introduce our guest speaker a little more casually than I might because many of you know him. You know what he's done with his life. You know his education and his professional positions. But when I think of Chancellor Allen, I think of him a little differently. I've had the opportunity to work closely with him on some of the most complicated cases that came before the Delaware Board of Pardons. It's difficult, tedious work, but he made it so much easier for me when I started because some of us who serve as a constitutional requirement and do not have the availability of the background in the law that Chancellor Allen brought to us. He's done many, many wonderful things for the state of Delaware. He was one of the few who, instead of being just there, was there to help. He helped every member of our Board of Pardons, but more importantly, he tried to help some of the people who came before us who had serious problems and needed some good advice. It's normally the president's job to announce decisions, but on some of the more complicated ones, he was always willing to step in, bail me out and announce that decision for me. And when he did, he had a message to deliver to that individual, not just "get hold of your life," but "get hold of your family's life and make a difference." I sincerely appreciate what he did. If Wilmington is the place to be somebody, then in large part, because of William Allen, Delaware is the place to incorporate. It's because he felt that sincere dedication to this state and to our corporate laws. He's proudly served, diligently served, willingly served and excelled as he served the Court of Chancery of this state. From 1985 until 1997, he gave of himself to make sure that our state thrived. But he never rested on his laurels. Now he has accepted the challenge of becoming the director of the Center for Law and Business at New York University. As expected, his leadership is turning that unique group into a much better NYU, and it will be world class because of him. Bill, on behalf of not only the legal community but all of the residents of the state of Delaware, let me say it's indeed my pleasure to introduce a scholar, a teacher, a Chancellor, a gentleman and a very dear friend, Chancellor Allen.
CHANCELLOR ALLEN: Centennials are rare events. Many of our institutions and virtually all of us personally fail to satisfy the survival condition. But the Delaware General Corporation Law has survived and even though it is kept evergreen by careful annual amendment, it continues to reflect its original commitment to private ordering, flexibility, predictability and fairness. Undoubtedly this statute has been a remarkable success. It is certainly the nation's and indeed the world's leading organization law for large scale business enterprise. And, the Delaware General Corporation Law has never been more significant to the world of business or to the State of Delaware than it is today or more useful. Still a centennial party for a statute is a bit of a curiosity. The centennial of the Sherman Act ? that statute which is as much like a constitution as a rule ? passed without so far as I am aware glasses being raised or old lawyers growing sentimental. So why does the Delaware bar and Widener Law School sponsor this stimulating yet somehow celebratatory conference to mark this statutory birthday? Is it because the Delaware corporation law has for a century now made the professional lives of Delaware lawyers quite comfortable and lifted some part of the burden of government from Delaware taxpayers? One would I suppose be accused of naivete or worse were one to deny that the practical effect of this statute constituted any part of the motive for this conference and, more importantly, for the continuous attention paid to the statute. But this sort of calculus is not the entirety of the explanation for this event. Important too is the sense of professional pride and dedication that has accrued as generations of Delaware lawyers took their turn at designing, redesigning and interpreting provisions of this work. This statute and its administration is truly the work of a relatively small community of Delaware lawyers and public citizens who have operated cooperatively for a century. That community includes its processes of training young lawyers in the practices of interpretation of the community, it includes formal associations, such as the Bar Association's corporation law committee and informal ones. It has its heroes and in the choice of those heroes it projects the values that animates its members deeper search for satisfaction. Because I, in my turn, have carried a banner in this march through time, I am honored to speak at this centennial. I would like to do two things this afternoon, briefly. First, I want to address in a suggestive way, the question why is the Delaware corporation law successful. I suggest, not originally that the quality of the courts plays a critical part in this, but I go a little further to say that the legal culture of the state plays an important role in the continuation of this success. Second, I want briefly to focus upon the role of the judicial opinion in corporation law and make some predications about the evolution of the style of judicial opinion writing in this area.
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Abstract:
This essay is written for an audience comprised importantly of European scholars with an interest in comparative corporation law and governance. It is written by an American whose work has not been that of a scholar, but that of a judge. As a judge I, if I may switch to a personal voice, specialized in the corporation law of the State of Delaware, the body of law that more than any other acts as the authoritative corporation law in the U.S.
Part I of this essay provides general background information on the history and structure of the corporate law of the U.S. This part lays the predicate for the assertions (1) that the nature of the large, publicly financed corporation -- which dominate the production of wealth in the U.S. economy -- taken together with the search for efficient systems of wealth production, inevitably dictate that, managerial actions will not be meaningfully constrained by a pre-existing legal rule (meaning constrained with reasonable specificity); (2) that in such an open-textured governance environment non-contractual forms of ex post constraint on discretion -- such as the judicially created fiduciary duties of care and loyalty -- provide one plausible means to attempt to resolve the resulting tensions; but (3) this effort is inevitably pragmatic and imperfect because of limitations of cognition and information, as well of fundamental value conflicts among human actors holding power to effect ex post resolution.
Part II considers the role of the fiduciary duty in American corporation law, specifically the directors' duty of care. After a brief exposition of the structural reasons why negotiated ex ante rules are of limited utility in the governance of publicly financed corporations, and after a brief description of fiduciary duties under U.S. law, the corporate directors' duty of care is discussed. The duty of care, especially with respect to the duty to monitor corporate activities that may violate law or constitute inappropriate risk, is much noted: from Salomon Brothers to Metallgesellschaft, to Barings Bank, the duty of corporate managers or directors to be informed -- and losses that result from a failure to be informed -- are much in the news.
The assertion made here is that the corporate directors duty of care is characteristic of U.S. corporation law "rules", in that it cannot -- consistently with efficient operation over an indefinite term -- be highly specified and that moreover even as a vague statement of principle to be construed ex post, it has problematic cross-cutting efficiency effects. The judicially created doctrine of the business rule is explained (in a note entirely conventional way) as a response to those cross-effects. A recent U.S. case is discussed. An hypothesis is offered to account for the posited utility of the ambiguous disjunction between directors legal standard of duty with respect to care and the protective standard of judicial review.
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