April 10, 2011
Kleinberger on "the decay in 'personal responsibility' under the Delaware law of business organizations"
Daniel S. Kleinberger recently posted his article, "Delaware Dissolves the Glue of Capitalism: Exonerating from Claims of Incompetence Those Who Manage Other People’s Money," on SSRN. Here is the abstract:
This paper was presented at the 2lst Century Commercial Law Forum – Tenth International Symposium 2010 – sponsored by School of Law, Tsinghua University, Beijing, People’s Republic of China (October 30-31, 2010).
Delaware law is the leading source of non-federal law governing U.S. business organizations. Over the past 25 years that law has tilted further and further toward insulating individuals who manage business firms from any liability to the firms’ owners based on claims of misconduct. These developments have occurred both in corporate law and the law of unincorporated organizations. Although often described as consistent with market principles, these developments actually undercut the proper functioning of a market system. Effective competition among firms does not require a “dog eat dog” mentality within firms. Managerial responsibility is a prerequisite to healthy firms, which in turn are a prerequisite to a healthy market economy. This paper explores the decay in “personal responsibility” under the Delaware law of business organizations and argues that restoring confidence to market economies requires restoring some minimum level of accountability for those who manage other people’s money.