'Disney' Goes Goofy: Agency, Delegation & Corporate Governance

43 Pages Posted: 24 Apr 2009  

Marc I. Steinberg

Southern Methodist University - Dedman School of Law

Matthew D. Bivona

Southern Methodist University - Dedman School of Law

Date Written: April 17, 2008

Abstract

In the wake of the corporate debacles that have occurred in the last decade, there has been an increasing legislative and judicial focus on the reform of corporate governance standards. Such reforms, including the Sarbanes-Oxley Act, sing the praises of independent directors in effectuating meaningful corporate governance. The Delaware courts as well have emphasized the importance of independent directors in the corporate governance framework.

The Delaware Supreme Court’s decision in Disney seems to be a reaffirmance of the business judgment rule as applied to corporate directors; however, the court’s highly-publicized decision ignores a crucial component of the case: the Delaware Supreme Court implicitly holds that Michael Eisner, as CEO of Disney, had the authority to unilaterally terminate the number-two officer in the corporation and to authorize a severance payment of over $130 million without action from the board of directors. By expanding the unilateral power of the chief executive officer to bind the corporation to such extraordinary transactions, the Disney court’s holding thus slights independent director service on corporate boards. Indeed, under the court’s reasoning in Disney, the effect of independent directors on meaningful corporate governance is diminished.

Suggested Citation

Steinberg, Marc I. and Bivona, Matthew D., 'Disney' Goes Goofy: Agency, Delegation & Corporate Governance (April 17, 2008). SMU Dedman School of Law Legal Studies Research Paper No. 00-39. Available at SSRN: https://ssrn.com/abstract=1148266 or http://dx.doi.org/10.2139/ssrn.1148266

Marc I. Steinberg (Contact Author)

Southern Methodist University - Dedman School of Law ( email )

P.O. Box 750116
Dallas, TX 75275
United States

Matthew D. Bivona

Southern Methodist University - Dedman School of Law ( email )

Dallas, TX 75275
United States

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