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The Business Lawyer
THE BUSINESS LAWYER - November 2004, VOLUME 60, NUMBER 1 ARTICLES Should a Duty to the Corporation Be Imposed on Institutional Shareholders? Roberta S. Karmel 60(1): 1217 (November 2004) The common law principle that directors owe a primary duty to theircorporation and a secondary duty to the shareholders of that corporation has been gradually eroded by the federal securities laws so that directors are charged with owing duties to shareholders, with the corporation and other corporate constituents relegated to a lower status. Further, the shareholder primacy model has become the dominant model in scholarship theories with regard to the firm, although other models have been proposedand debated. Under the shareholder primacy model, shareholders are considered the "owners" of the corporation and therefore given rights at the expense of othercorporation constituents. Although modern institutional investors do not behave like owners of corporate property, the shareholder primacy norm has been strengthened and reinforced by the Sarbanes-Oxley Act of 2002. Further, in the wake of recent corporate scandals, institutions have been demanding more rights, specifically more rights with respect to the nomination of corporate directors. In view of these demands, this article inquires as to whether large shareholders should obtain any such rights without also acquiring duties to the corporations in which they invest and to other shareholders. Can a Board Say No When Shareholders Say Yes? Responding to Majority Vote Resolutions Andrew R. Brownstein and Igor Kirman 60(1): 2377 (November 2004) The past 20 years have witnessed a significant increase in the number of shareholderproposals submitted to American public corporations and in the number of such proposals that have received majority support during shareholder meetings. While some companies have responded to majority vote resolutions by implementing the proposals or reaching settlement with the proponents, a significant number of companies have not adopted the changes suggested by these resolutions. The refusal of companies to adopt such suggested changes, even when doing so after careful consideration by the board of directors, has in turn led some activist shareholders to employ pressure tactics against such companies. After canvassing these changes, this article examines what companies and their directors should do in response to shareholder resolutions that obtain majority shareholder votes. The article concludes that directors retain the ultimate responsibility to act in what they believe to be the best interest of all shareholders, even if that means not adopting majority vote resolutions. At the same time, it also notes that the changed corporate governance climate makes it essential for companies and their directors to treat majority vote resolutions seriously and recommends possible enhanced procedures for considering and acting on such resolutions. Fiduciary Duties of Directors of a Corporation in the Vicinity of Insolvency and After Initiation of a Bankruptcy Case Myron M. Sheinfeld and Judy Harris Pippitt 60(1): 79107 (November 2004) This article discusses the general fiduciary duties of directors of corporations and how those duties are altered when a corporation is in the zone or vicinity of insolvency and when the corporation is insolvent. The different tests for determining a corporation's insolvency are outlined. The article also analyzes the fiduciary duties of directors in a Chapter 11 bankruptcy case. In particular, the article discusses directors' duties in managing the bankruptcy estate, directors' responsibilities under Sarbanes-Oxley, and the exculpations of directors that are permitted in Chapter 11 plans of reorganization. The article provides directors with practical guidelines for properly exercising their fiduciary duties in Chapter 11. Collapsing Corporate Structures: Resolving the Tension Between Form and Substance Steven L. Schwarcz 60(1): 109145 (November 2004) When is a corporate structure legitimate, and when should it be collapsed? Although most urgent in the context of structured finance transactions, this question also arises in other important corporate contexts, including piercing the corporate veil, substantive consolidation, recharacterizing sales as transfers intended for security, and collapsing LBO transactions. In a larger sense, it is one of the most fundamental questions in corporation law, at the basis of any finding that the private ordering of a firm, or of the relationship between firms, is unenforceable or that the law should disrespect form in favor of substance. In the past, judges and scholars have attempted to formulate rules for determining when to collapse corporate structures only in isolated contexts. This article first examines and synthesizes these isolated sources of law. The synthesis reveals that judges implicitly have been grappling with one of the most difficult conceptual problems of contract law: the circumstances under which externalities should defeat contract enforcement. By addressing that problem directly through contract theory and economics, this article proposes an overall theory for collapsing corporate structures and then uses that theory to derive rules of general application. Finally, the article examines how this theory and its derivative rules might inform, or be informed by, the related debate over whether limited liability should be the default rule in corporation law. A History of the Creation and jurisdiction of Business Courts in the Law Decade Mitchell Bach and Lee Applebaum 60(1): 147275 (November 2004) Specialized practices operated by those possessing an extraordinary body of knowledge, training and/or experience are a routine and expected part of daily life. Specialized "business courts" or "commercial courts" within state trial court systems have become increasingly common since the early 1990s, and it appears that such courts are finding a firm place in the legal community. The authors set out some of the history and jurisdictional scope of these "business courts" designed to create a reliable venue for the thoroughgoing address of business and commercial litigation. REPORTS Second Report of the Select Advisory Committee on Business Reorganization Select Advisory Committee on Business Reorganization (SABRE), Business Bankruptcy Committee, ABA Section of Business Law 60(1): 277325 (November 2004) Law Office Opinion Practices The Committee on legal Opinions, ABA Section of Business Law 60(1): 327339 (November 2004) Every week hundreds, if not thousands, of third party legal opinions are delivered at closings for business transactions. What those opinions mean and the work lawyers are expected to do to support them has been the subject of numerous reports by this Committee, the TriBar Opinion Committee, and many state bar groups. Those reports, articles, and treatises on legal opinions have little to say about the practices law firms and law departments follow in discharging their responsibility to see that opinions are rendered (and received) in a competent and ethical manner. This Report begins aninquiry into these matters. Changes in the Model Business Corporation Act--Proposed Amendments Relating to Chapters 1, 7, and 8 The Committee on Corporate Laws, ABA Section of Business Law 60(1): 341394 (November 2004) SURVEY Survey of the Law of Cyberspace: Introduction Michael J. McGuire 60(1): 395 (November 2004) E-Disclosure: A Short Guide to Going Paperless in Consumer Financial Services Jean Braucher 60(1): 395 (November 2004) "Staple Article": In Defense of Betamax and Its Progeny Roland L. Trope and Greg E. Upchurch 60(1): 395 (November 2004)
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