Strategic Governance

54 Pages Posted: 12 Jun 2008 Last revised: 7 Oct 2011

See all articles by Kelli Alces Williams

Kelli Alces Williams

Florida State University - College of Law

Date Written: 2008


Creditors exercise significant power over financially distressed corporations, thereby pushing corporate managers further into the realm of unprofitable risk aversion. The heavy hand of creditor power and the threats creditors are able to make to managers' professional stability and success misalign senior officers' incentives by undermining their freedom to make wealth-maximizing decisions on behalf of the corporation. The importance of independent managerial decision making is paramount in the law of corporate governance and that independence has been inefficiently undermined by the exertion of oppressive creditor control.

This article resolves the problem by creating a mechanism to balance shareholder and creditor influence over management so that no one constituent is able to dominate or undermine the independence of managerial decision making. A new shareholder representative called an" equity trustee" will represent shareholder interests during times of financial distress. The equity trustee gives voice to shareholder preferences in times when creditors are likely to dictate terms of governance so that the creditor voice does not grow too strong. The equity trustee should serve to balance competing preferences so that managers maintain independence and the ability to make value-maximizing decisions without fear of destructive retribution from either shareholders or creditors.

Keywords: corporate law, corporate governance, creditors, corporate debtors, corporate managers, shareholders

Suggested Citation

Williams, Kelli Alces, Strategic Governance (2008). Arizona Law Review, Vol. 50, p. 1053, 2008; FSU College of Law, Public Law Research Paper No. 335; FSU College of Law, Law, Business & Economics Paper No. 8-16. Available at SSRN:

Kelli Alces Williams (Contact Author)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

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