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The Life (and Death?) of Corporate Waste

45 Pages Posted: 2 Dec 2016 Last revised: 2 Feb 2017

Harwell Wells

Temple University - James E. Beasley School of Law

Date Written: November 30, 2016

Abstract

At first glance, corporate waste makes no sense. The very definition of waste — a transaction so one-sided that no reasonable business person would enter into it, an act equivalent to gift or “spoliation” — suggests that it would never occur, for what corporation would ever enter into a transaction so absurd? Yet waste claims are regularly made against corporate managers. Respected judges have called for waste’s abolition, deriding it as a “vestige,” “possibly non-existent,” the Loch Ness monster of corporate law; but waste survives. It is a remnant of ultra vires, a doctrine proclaimed largely dead for the last hundred years — but waste is not dead. It confounds our model of managerial responsibility; after decades in which corporate directors’ and officers’ duties have been focused into the fiduciary duties of care and loyalty, waste sits outside that framework, for historically waste isn’t a fiduciary duty at all. This article, the first modern survey of the corporate waste doctrine, essays waste’s origins, documents and explains its survival, and tentatively foresees its demise.

Keywords: corporations, corporate waste, executive compensation, fiduciary duties, good faith, ultra vires

JEL Classification: K22

Suggested Citation

Wells, Harwell, The Life (and Death?) of Corporate Waste (November 30, 2016). Washington and Lee Law Review, Vol. 74, (Forthcoming); Temple University Legal Studies Research Paper No. 2016-58. Available at SSRN: https://ssrn.com/abstract=2878091

Harwell Wells (Contact Author)

Temple University - James E. Beasley School of Law ( email )

1719 N. Broad Street
Philadelphia, PA 19122
United States
215-204-1183 (Phone)
215-204-1185 (Fax)

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