Equity, Majoritarian Governance, and the Oppression Remedy

Abstract

This chapter, forthcoming in Fiduciary Obligations in Business, examines two modalities of equitable intervention in corporate governance in cases of shareholder conflict. The first involves the extension of fiduciary duties to controlling shareholders, and the second judicial review on the grounds of oppression. Both forms of intervention are intended to be responsive to pathologies inherent in majoritarian governance in organizations featuring enfranchised members. Notwithstanding long-settled authority in Delaware and other American states for the proposition that controlling shareholders are fiduciaries of minority shareholders, I argue that fiduciary regulation is an inapt modality of equitable intervention given the nature of the problems generated by majority rule in corporations. By comparison, the oppression remedy – favored in commonwealth jurisdictions – enables more apt and effective tailored responses to these problems. I also explain the sense in which the choice between these modalities of intervention implicates a choice between equity’s supplemental contributions to first-order law and its corrective, second-order intervention in first-order law. The chapter concludes with some general reflections which trace implications for theoretical analysis of the place of equity in contemporary law.

Keywords: legal theory; private law theory; corporations; corporate governance; corporate law theory; majority rule; shareholder voting; equity; fiduciary law; fiduciary duties; shareholder oppression; oppression remedy

JEL Classification: K00, K10, K11, K12, K13, K20, K22