Saints and Sinners: How Does Delaware Corporate Law Work?

Abstract

The paper provides a detailed examination of the evolution of Delaware corporate law in the regulation of management buyouts as a case study for understanding, more generally, how Delaware corporate law uses fiduciary duties to influence managers to act in the interests of shareholders. The goal of the paper is to understand better how corporate law works, that is, the mechanism by which corporate law constrains managers. The paper argues that the Delaware cases can best be understood as attempts to create social norms for senior managers, directors and the lawyers who advise them. The paper then sketches out (preliminarily) how these norms are transmitted to the principal actors (managers, directors and lawyers), drawing on the "A Memorandum to our Clients" genre, extrajudicial judicial utterances, and popular and trade press accounts. I then consider the implications of this reconceptualization for a variety of issues in corporate law, including: the consistency of the relative unpredictability of Delaware corporate law and its (presumed) superiority; the difference that the reconceptualization makes in how lawyers advise clients; and the role and value of shareholder litigation.

JEL Classification: G34, G38, K22