Sunday, January 24, 2021

Shaner on Privately Ordered Fiduciaries

Professor Megan Wischmeier Shaner (Associate Dean for Research & Scholarship; President's Associates Presidential Professor of Law, University of Oklahoma College of Law) recently published Privately Ordered Fiduciaries (28 Geo. Mason L. Rev. 345 (2020)). Below is an excerpt from the Introduction that might be of interest to readers.

Over the past two decades, legal and practical hurdles to developing doctrine addressing the corporate officer have been cleared away. In 2004, the Delaware Code was amended to provide for personal jurisdiction over nonresident officers of Delaware corporations. “Around this same time there was a dramatic shift underway in corporate governance norms that had been buttressed by federal regulation to create greater board independence from officers.” With fewer board seats occupied by company executives, officer conduct was no longer reliably regulated by bootstrapping obligations to an officer's concurrent director status, underscoring the need for specific rules addressing officer obligations.

The separation of director and officer status in public corporations led to a heightened focus on officers as distinct legal actors in the corporation and on the accompanying legal standards that would govern them. The Delaware Supreme Court's 2009 decision in Gantler v. Stephens clarified, in part, the fiduciary obligations and accountability of corporate officers. In Gantler, the court held that “officers of Delaware corporations, like directors, owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors.” These developments in corporate law, individually and collectively, cleared a path for the exploration and development of the legal contours of officer duties. The courts, stockholders, and their counsel, however, have declined the invitation to tackle officer accountability and responsibility. And somewhat ironically, when faced with the few officer challenges that have been brought before them, the Delaware courts have applied a director-centric lens in evaluating officer issues, narrowing the potential avenues for legal challenges, closing the door on future doctrinal development, and limiting the guidance available to market actors.

The absence of officer doctrine has not gone unnoticed. Academics, jurists, corporate managers, and their counsel have all commented on the ambiguity that exists with respect to the legal rules governing officer decisionmaking and liability. In fall 2018, the Officer Liability Task Force (the “Task Force”) of the American Bar Association (“ABA”) met for the first time to discuss: (1) the uncertainty in the law surrounding the nature and scope of the fiduciary duties of, and applicability of the business judgment rule to, corporate officers; and (2) potential ways to address that uncertainty, including whether any potential products, such as annotated model employment agreements, would assist in providing additional clarity. The Task Force's objectives are, however, relatively narrow ….

This Article tackles the broader issues raised by the Task Force's work, taking a deep dive into the issue of private ordering of corporate officer fiduciary obligations and liability.

Stefan J. Padfield | Permalink


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