Corporate Aid to Governmental Authority – Abstract

Situationist Contributor David Yosifon recently posted another thoughtful and provocative article on corporate law.  The article, titled “Corporate Aid to Governmental Authority: History and Analysis of an Obscure Power in Delaware Corporate Law” (forthcoming in University of St. Thomas Law Journal) can be downloaded for free on SSRN.  Here’s the abstract.

The Delaware General Corporation Law contains an obscure provision stating that all corporations have the power to “[t]ransact any lawful business which the corporation’s board of directors shall find to be in aid of governmental authority.” 8 DGCL §122(12). This oddly worded provision has never been applied, analyzed, or interpreted by any court. It has received almost no treatment by corporate law scholars. This lack of attention is surprising, given that by its own terms the provision seems to bear on fundamental corporate law themes, such as the purpose of corporations, the scope of directors’ fiduciary obligations and discretion, and the relationship between corporate law and corporate social responsibility. In this Article, I examine the history behind this strange provision and analyze its applicability to pressing social policy questions surrounding corporate law.

My analysis leads both to narrow and broad policy conclusions. The narrow conclusion is that §122 of the Delaware corporate code is a textual mess that should be amended at least for coherence and clarity. The broad conclusion is that the analysis herein contributes to the case for reforming corporate governance law to require directors to actively attend to the interests of multiple stakeholders, not just shareholders.

Download the article for free here.  See Yosifon’s SSRN page here.

Related Situationist posts:

• Marjorie Kelly Speaks at Harvard Law
• Our Stake in Corporate Behavior
• Taking the Situation of Consumers Seriously
• Against Freedom of Commercial Expression – Abstract
• Merchants of Discontent – Abstract

The State of Shareholder Power in the Situation of Citizens United

Who is speaking when a corporation talks? Can a corporation represent all of its shareholders and workers in political speech? How will corporations decide who to represent?  In “Corporate Governance Redux in the Light of Citizens United,” Robert A.G. Monks will detail  the history of corporate personhood and how this case relates to corporate governance.

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Come hear Mr. Monks, shareholder activist, author, corporate governance advisor, and HLS alum, for a lunch-time discussion of the state of shareholder power after Citizens United (04/22/10).  The talk will be held in Austin West at Harvard Law School (12pm-1pm).  Lunch will be provided.

Self-Handicapping and Managers’ Duty of Care – Abstract

David Hoffman‘s intriguing new article, “Self-Handicapping and Managers’ Duty of Care,” just came out in Wake Forest Law Review. It is also available on SSRN. Here’s the abstract.

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This symposium essay focuses on the relationship between managers’ duty of care and self-handicapping, or constructing obstacles to performance with the goal of influencing subsequent explanations about outcomes. Conventional explanations for failures of caretaking by managers have focused on motives (greed) and incentives (agency costs). This account of manager behavior has led some modern jurists, concerned about recent corporate scandals, to advocate for stronger deterrent measures to realign manager and shareholder incentives.

Self-handicapping theory, by contrast, teaches that bad manager behavior may occur even when incentives are well-aligned. Highly successful individuals in particular come to fear the pressure of replicating past success. To avoid the regret associated with the future failure that they anticipate, such individuals then create hurdles (through active or passive self-sabotage) or excuses. When failure comes, individuals hope to shift attention from their merits to the handicap. Research shows that self-handicapping works. Indeed, managers in failing firms who self-handicap may escape with their reputations and compensation burnished.

In this essay, I summarize an extensive body of research on self-handicapping that surprisingly has not been well explored by corporate law theorists. I then suggest that modern corporate scandals traditionally understood as products of failures of monitoring – like Enron – might be better explained in part as a function of self-handicapping by managers. This explanation supports recent efforts to move beyond a purely carrot-and-stick model of corporate governance. Finally, I briefly discuss mechanisms to reduce self-handicapping by corporate officers, in particular, making them self-aware and selecting executives less prone to engage in this type of wasteful activity. The law has a potential role to play in this process, but its proper focus is directors’ negligence in hiring, not managers’ failures in taking business risks.