Tuesday, July 3, 2007
There's a neat online symposium going on over at Conglomerate. The current entrant in the Conglomerate Junior Scholars Workshop is a paper by Trey Drury (Loyola - New Orleans, left) on Section 102(b)(7) of the Delaware General Corporation Law, and its equivalents in the other jurisdictions, which limit directors' liability for money damages (but not a limit on injunctive relief or the finding of a breach of duty) with respect to the duty of care.
As anyone who has followed my ramblings (here and at PrawfsBlawg) knows, I am hardly an empiricist. (When I want my dose of philosophical empiricism, I turn to my friend David McGowan at San Diego, who does as good a job channeling Hume as anybody I know!) I have said before that one of the great benefits of being a law professor is the wide brief to be a social philosopher. I think that brief comes with an obligation to be clear about the descriptive, the normative, and the prescriptive, even if it is just to be clear that the descriptive and the normative are difficult to separate. But I do wonder from time to time whether we jump to the prescriptive too quickly (noting that I am sure I have done the same thing).
Professor Drury is far more sympathetic to the "20-20 hindsight" problem in assessing directors' decisions than many commentators. Nevertheless, I wondered whether Professor Drury's very interesting and readable paper was a solution in search of a problem, and commented:
I'd be the last person to excoriate exercises in pure reason, but I'd still like to see some empirical work showing that most of the current bubble of corporate governance work is something other than the availability heuristic at work. There are 9,000 publicly traded companies in the U.S. - is it really the case that 102(b)(7) and its ilk are a problem for them worth the intellectual energy?
The only empirical work cited in the article (I think) is the Bradley and Schipani study, which I have not read. I'm skeptical it supports the claim that directors are "incentivized" to bad behavior, because just on the description, it sounds to be a macro look at share prices (and I'd want to dig through the methodology). Assuming it is methodologically sound, I would think about giving it more airplay at the outset as the basis for thinking there is a problem, rather than merely inferring, as a deductive exercise, that 102(b)(7) causes a problem. The sense otherwise, at least to me, is the hammer in search of a nail problem.
Of course, it's also possible that I am a spineless, passion-less wimp.
*Cross-posted at PrawfsBlawg