Corporate Control and the Need for Meaningful Board Accountability
Michelle M. Harner
University of Maryland Francis King Carey School of Law
April 23, 2009
Minnesota Law Review, Vol. 94, p. 541, 2010
Corporations are vulnerable to the greed, self-dealing and conflicts of those in control of the corporation. Courts historically have regulated this potential abuse by designating the board of directors and senior management as fiduciaries. In some instances, however, shareholders, creditors or others outside of corporate management may influence corporate decisions and, in the process, extract corporate value. Courts generally address this type of corporate damage in one of two ways: they designate controlling shareholders as corporate fiduciaries and they characterize creditors, customers and others as contract parties with no fiduciary duties.
The traditional roles of corporate shareholders and creditors may support the courts’ willingness to treat the former, but not the latter, as corporate fiduciaries. But shareholders and creditors no longer are necessarily acting in accordance with their traditional roles. Institutional investors, led primarily by hedge funds and private equity firms, are pursuing activist agendas as both shareholders and debt holders and frequently are successful in their efforts to influence corporate affairs. These efforts, however, may not benefit the corporation or stakeholders generally. This article explores the increasing convergence in the rights and activism of shareholders and creditors and proposes an approach for governing their conduct that focuses on the constant in corporate transactions, i.e., the board.
Number of Pages in PDF File: 61
Keywords: corporate control, activist shareholder, controlling shareholder, activist investor, creditor control, distressed debt, fiduciary duty, business judgment rule, corporate governance
JEL Classification: G33, G34, K29, K10, K22
Date posted: April 24, 2009 ; Last revised: February 6, 2010