The Life (and Death?) of Corporate Waste

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

See all articles by Harwell Wells

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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