SUSAN N. GARY, University of Oregon - School of Law
Email: sgary@law.uoregon.edu

Acting as prudent investors, pension managers should consider financially material factors that affect the risk/return profile of funds. Material environmental, social, and governance (ESG) factors may affect financial performance by identifying opportunities and risk, so it would seem prudent to consider those factors when making decisions in the best interests of plan beneficiaries. In June 2020 the Department of Labor (DOL) proposed a rule that appeared to be an attempt to curtail consideration of ESG factors. The proposal was based on a misunderstanding of current investment strategies, and it could have had a detrimental effect on the security of retirement funds. After receiving hundreds of negative comments, the DOL revised the proposal and issued a final rule (the 2020 Rule) which addressed some, but not all, of the concerns. After the change of administrations, the DOL announced that it would not enforce the rule until it reconsidered the guidance. On October 14, 2021, the DOL issued a Proposed Rule, revising the 2020 Rule. The 2021 guidance should help address the confusion over the proper use of financially material ESG information, but uncertainty regarding proper fiduciary behavior of those who manage pensions persists. This article explains why the confusion exists and why pension fiduciaries should consider climate change and other ESG factors in their investment decision-making process.

The article describes the fiduciary duties that apply to those who manage pension funds. The article then discusses the consideration of climate change and other ESG factors in investment decision making and attempts to dispel misunderstandings related to ESG and fiduciary duties. The article reviews DOL guidance from 1994 forward, explains why so many commenters expressed concern over the 2020 proposal, and analyzes the 2021 Proposed Rule. The article argues that a prudent pension manager should invest for the long-term financial benefit of all pension participants and their beneficiaries. To do so, a prudent manager should consider climate change and other ESG factors to address systemic risks to the portfolio and to protect the long-term interests of participants and beneficiaries.

GENEVIEVE MANN, Gonzaga School of Law
Email: manng@gonzaga.edu

Most people hope they will never need another person to step in and make financial decisions for them if they become “incapacitated.” Just ask Britney Spears. Yet many execute a power of attorney to protect their assets in case it happens to them. The power of attorney has become the universal financial management tool to prepare for future incapacity, preferred because it allows loved ones to effortlessly assist an elder with diminishing capacity. Unfortunately, along with ease of use, comes ease of abuse. Too often this ubiquitous instrument is used to misappropriate an elder’s property or usurp their autonomy due to a lack of oversight.

The rate of elder financial exploitation continues to rise as the U.S. population ages. The COVID-19 pandemic also exacerbated isolation and vulnerability for our elders. Nevertheless, the legal profession steadfastly holds its grip on the power of attorney as a utility instrument - despite the high risk. The academic conversation too narrowly focuses on a polarized choice: either keeping powers of attorney unregulated and unsupervised or opting for an overly restrictive regulatory process. Rather than adhering to this false dichotomy, a better approach is creating a legal framework to address the increasing number of elders exploited at the hands of unscrupulous individuals.

This Article posits that the rise in elder financial exploitation due to power-of-attorney abuse demands a more robust and creative framework. The federal legislative response has been anemic; despite passage of the Elder Justice Act, which established a collaborative approach to protective services, the mandate has remained woefully underfunded. To prevent elder financial exploitation, a multi-disciplinary infrastructure should be bolstered with necessary oversight and protection measures. In particular, the model should be enhanced with agent supervision and a centralized power-of-attorney registry to increase detection and prevention, while not overburdening agents or elders. It is no longer adequate to allow unregulated power of attorney use while a growing number of elders remain at risk.

MINOR MYERS, University of Connecticut - School of Law

The ascendance of SPACs in U.S. capital markets has attracted intense regulatory scrutiny from federal officials, especially the SEC. This Article examines SPACs through a different lens: Despite all their novelty and complexity, SPACs are organized as standard Delaware corporations. As this Article demonstrates, SPACs have exhibited a striking disregard of corporate law. The standard SPAC adopts a governance structure that, for a public corporation, is highly unusual: All corporate control is vested in the hands of a single shareholder (known as the sponsor), who suffers from a deep conflict of interest with public stockholders but nevertheless acts free of any conventional disinterested constraints. The SPAC industry has kept its collective head in the sand on what this model means for SPAC fiduciaries: under existing Delaware law, the standard SPAC very likely triggers the entire fairness test, and very likely for all the reasons it can be triggered. SPACs have also failed to comply with basic corporate statutory requirements in ways that are positively bizarre for large commercial transactions.

SPACs now face a corporate law reckoning, forcing Delaware to examine the SPAC in light of basic corporate expectations. This Article argues that the normative touchstone in that examination should be to enforce privately-ordered bargains. For a SPAC that elected to organize as a corporation, in Delaware, and sold shares of common stock to the public, the core attributes of the privately-ordered bargain are deceptively simple: (1) the mandatory loyalty obligation for fiduciaries and (2) the limited ways to satisfy that obligation short of a judicial inquiry. In particular, the SPAC redemption right should be irrelevant to the judicial standard of review, as homebrewed remedies cannot abrogate the loyalty demand or excuse the absence of any disinterested decision-makers. Thus, the most searching form of judicial review should apply to the one business decision that a SPAC makes—its business combination.

Delaware and the federal government should act symbiotically in responding to SPACs. Before imposing substantive external regulations on SPACs, the SEC and Congress should wait for a clearer picture from Delaware about the vehicle’s internal regulation. And for the time being, Delaware should resist any legislative calls to fashion a new statutory structure for the SPAC, especially in light of the looming federal response and the still-unfolding picture of sponsor behavior during the 2020-21 boom. Federal officials should fashion SPAC rules that are explicitly cognizant of Delaware’s fiduciary protections, as SPACs that live up to the basic expectations of the Delaware corporate form will give rise to far fewer problems under federal securities laws. Thus, for example, the SEC might allow the registration of SPAC shares only if the entity is incorporated in Delaware or might restrict exchange rules in similar fashion.

JENNIFER S. FAN, University of Washington - School of Law
Email: jsfan@uw.edu

In corporate governance scholarship, there is an important debate about the nature and roles of the members of the board of directors in venture capital-backed private companies. The impact of a newly emerged, founder-centric model has been underappreciated, while the role of the independent director as tiebreaker or swing vote is vastly overstated. The reality is that corporate governance in these companies is a norm-driven, consensus-building process that rarely spills out into open conflict.

This is the first empirical study of startup corporate governance post-Great Recession and during the pandemic. Using survey and interview methodologies, this Article makes four primary contributions to the existing literature on corporate governance in venture capital-backed companies. First, during the last period of economic growth after the Great Recession, a founder-centric model of corporate governance emerged. This has had significant implications for venture capitalists on boards, how they choose to monitor the companies they invest in, and how boards are structured. Second, independent directors are typically not tiebreakers or swing votes as current scholarship assumes; in fact, they play a secondary role to founders and investors who serve on the board of directors. Although conflicts inevitably occur, the underlying modus operandi is geared toward consensus building, and it is rare for the board to have a non-unanimous vote. Third, although fiduciary duties and contractual mechanisms still loom large in corporate governance, most of the work is done informally with best practices and the growth-at-all-costs model framing much of what is done regarding corporate governance. Corporate governance measures are primarily prioritized during times of economic downturns and immediately prior to initial public offerings and acquisitions. Lastly, even with the increased focus on diversity, equity, and inclusion efforts in the larger national conversation about public companies, these discussions are still in their nascent stages in venture capital-backed private companies; it is in this area where corporate governance efforts need to be reimagined.

ROBERT J. RHEE, University of Florida Levin College of Law
Email: rrhee@law.ufl.edu

Fiduciary law requires a coherent theory. When courts are asked to determine whether a relationship is fiduciary, they do not have an operative rule absent statute or contract. They work through the facts with an inchoate idea. This state of incomplete knowledge would not be so problematic if the boundary of the principle is clear and the law is static. By hook or crook, case law and the law generally seem to have gotten the results about right. But there is uncertainty at the margins, and the boundary is continuously tested in litigation and academic conceptualization. Potential elasticity of the concept will test and stress the fiduciary principle as new fact patterns and social problems reveal themselves in the future. A theorization of the fiduciary law is important.

This article advances a liberal theory of the fiduciary relationship. The theory states that a fiduciary relationship arises when: (1) power exists in a relationship; (2) power exists in a systemic and structural state, (3) systemic, structural power negates an initial strong presumption of equal footing, and (4) systemic, structural power is exerted against a critical interest. An important contribution of this theory is that it is independent of correlative notions of “trust, confidence, and vulnerability.” These factors are too elastic and undistinguishing, more rhetoric than causality. The loci of the liberal theory are particular conceptions of power and interest and such power over such interest. Once the real causal elements are unpacked, the theory explains the law as it exists today, fitting into its framework all types of cases in which the law and courts have recognized a fiduciary relationship. As a normative theory, it affirms that the law is about right even if courts have worked from intuitions, inchoate analysis, and rhetoric.

The liberal theory is called as such because it also solves a legitimacy problem. Fiduciary law imposes a mandatory code of stringent conduct on private relationships. A theory must harmonize the fiduciary principle with our political organization. The liberal theory, as a normative idea, is grounded in a foundation of our political economy. Fiduciary law should not conflict with the core values of a liberal, capitalist society with a strong market system. It should start from an initial strong presumption of liberty, agency, and private ordering, and permit intervention only when equal footing cannot be presumed because systemic, structural power is exerted against critical interests. The theory justifies a strong role of the law’s intervention and paternalism under limited conditions and argues that this role advances important values of a liberal, capitalist society.

PAUL B. MILLER, Notre Dame Law School
Email: paul.miller@nd.edu

This chapter provides a comparative interpretive analysis of the business judgment rule and its relationship to principles governing the fiduciary liability of corporate directors. In broad outline, principles providing for the fiduciary liability of directors under Delaware law are in alignment with those of foreign jurisdictions. However, Delaware charts its own course in the spirit and finer doctrinal detailing of its law. And if any doctrine may be said to singularly reflect the spirit of American corporate law, it is the business judgment rule. American law stands apart for the sheer breadth of latitude it asserts for managerial discretion. And that assertion is made, and thought to be policed, through the business judgment rule.

The business judgment rule appears anomalous in comparative context. First, it seems anomalous within the context of American fiduciary law for, as Julian Velasco has observed, there is no “fiduciary judgment rule” applicable to all fiduciaries. Second, the rule seems distinctive as a matter of comparative corporate law. Aside from legal transplants inspired by Delaware law, most foreign jurisdictions have done without a business judgment rule.

In this chapter I test the appearance of anomaly as well as conventional views about the nature of the business judgment rule and its relationship to basic precepts of fiduciary liability. The interpretive project is one of rational reconstruction: it acknowledges doctrinal irresolution but asks what sense may be made of the rule when presented it is in its best light. The comparative analysis probes the apparent distinctiveness of the business judgment rule. I suggest that, surprisingly, the reconstructed rule is not anomalous, save in being given doctrinal expression (i.e., in being posited as a “rule”). Fiduciary administration is, elsewhere, protected by implicit norms of deference by judges to decisions lawfully made by fiduciaries. I conclude by querying whether the effectiveness of the business judgment rule in the United States – something achieved despite persistent doctrinal ir