Substance and Process in Corporate Law

Abstract

The central purpose of corporate law is to facilitate the relationship between the shareholders who provide the corporation’s equity capital and the managers who make the bulk of corporate decisions. Although select aspects of corporate law consider the economic merits of those decisions (“substance”), the bulk of corporate law regulates the procedures by which a corporation’s managers reached those decisions (“process”). Moreover, recent judicial decisions have tended to push corporate law even further toward process-centered considerations. Courts have defended such tendencies on the basis that the courts charged with reviewing disputed corporate decisions are often better at evaluating process than engaging in financial analysis, an argument with which this Article largely agrees.

That said, the courts have often overlooked the difficulties with analyzing process and the complex relationship between process and substance, which are sometimes inseparable as a practical matter. This has led to doctrines and rules that have failed to deliver on promises of more straightforward judicial review, unintentionally redirected courts back into substantive analyses of business decisions, burdened defendants with unexpected costs, and left plaintiffs without a meaningful remedy despite plain misconduct. As this Article contends, there is significant room for improvement in our understanding of the interactions between substance and process and thus throughout corporate law’s various legal standards.

Keywords: Delaware law, corporate law, shareholder suits, fiduciary law, business law, company law

JEL Classification: K20, K22, K40, K41