Flexibility in Determining the Role of the Board of Directors in the Age of Information
In the Cardozo Law Review, Vol. 19, No. 2, 1997.
Posted: 2 Oct 1998
Date Written: January 1998
Corporate law allocates to the board of directors the central role in the management of the American corporation. However, many boards meet only episodically, and are mostly comprised of outsiders nominated and influenced in various ways by the managers they are supposed to monitor. In this article we argue that shareholders should be able to contract around the necessity for board oversight of managerial decisionmaking. In particular, we propose that corporate law be clarified to allow shareholders (1) to give management a vote of "no confidence" at the annual meeting which would require boards to initiate a search in order to replace incumbent management; and (2) to allow shareholders to put up for sale the firms in which they own stock without the necessity of obtaining the prior approval of the board. We recognize that in a variety of situations, board involvement can enhance shareholder value. This is particularly true in the takeover context, where boards of directors can engage in a variety of tactics to ensure that shareholder value is enhanced. At the same time, we strongly favor an expanded approach to shareholder choice in corporate law. We advocate expanding the standard set of corporate charter provisions to permit shareholders to customize their corporate charters so as to permit shareholders to oust management or to sell their firm.
Suggested Citation: Suggested Citation