Featured Articles in Volume 57, Issue 4 (2008)



Kent Greenfield
D. Gordon Smith

Debate: Saving the World with Corporate Law?

Kent Greenfield*
D. Gordon Smith**

The current debate within corporate law is as fundamental as at any time since the New Deal, when the great exchange between Merrick Dodd and A.A. Berle defined the issues for a generation of scholars. Today, the community of corporate law scholars in the United States is split between two groups. The first, heavily influenced by economic analysis of corporations, argues the merits of increasing shareholder power vis-à-vis directors. The second, animated by concern for economic justice and regulatory efficiency, challenges the traditional, shareholder-centric view of corporate law and argues instead for a model of “stakeholder governance.” The following Essays present a debate between two prominent scholars, one from each of the two major groups, on the audacious question, “Can corporate law save the world?” Professor Greenfield, a leading proponent of “progressive corporate law” and the author of The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities, uses this Essay to offer a provocative critique of the status quo using organizational and regulatory theory. In his Essay, Professor Smith, one of the nation’s leading advocates of increased shareholder power, contends that changes in corporate law cannot eradicate poverty, clean our air or our water, or solve “the labor question.” Indeed, he argues, the only changes in corporate law that will have a substantial effect on such issues are changes that will make matters worse, not better.

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The New Death of Contract: Creeping Corporate Fiduciary Duties for Creditors

Frederick Tung*

This Article identifies a worrisome trend in corporate law and scholarship. Across seemingly unrelated issue areas, courts and scholars have lost faith in private corporate bargains. They invite judicial intervention into private contract, proposing to expand fiduciary duties beyond their traditional shareholder-centered focus to protect non-shareholder claimants from managerial opportunism. When conflict between claimant classes becomes acute, managers pursuing shareholder value may make inefficient investments that benefit shareholders but harm other claimants and the firm generally. I argue that claimants’ private contracts with the firm are superior to expanded duty for constraining this opportunism.

I focus on one specific conflict—the conflict between shareholders and creditors. Existing doctrine already works a shift in fiduciary duties to creditors when this conflict becomes acute—when a firm becomes insolvent. Scholars propose to expand on current doctrine to include more creditors more of the time. I argue that both existing doctrine and its proposed expansions suffer fatal theoretical infirmities. The chief failing is that the accepted hypothetical bargain analysis from which corporate fiduciary duty derives cannot justify current doctrine or expansion proposals. Expanded duty to creditors is also costly compared to private contract.

I propose an approach that I call contract primacy. Shareholder primacy should remain the default rule. Private contracting should be effective to curb manager opportunism. Additional legal constraints are costly and unnecessary. Sophisticated creditors typically negotiate elaborate covenant protections by the time a firm is in distress, often to the benefit of other creditors, who implicitly delegate monitoring responsibilities to the low-cost monitor. A creditor may even negotiate for control of the firm, displacing shareholder primacy. Against the current doctrine and conventional wisdom, courts should vindicate these contracts for creditor primacy without insisting on the firm’s insolvency. Current doctrine should be abandoned, and proposals for further expansion of fiduciary duty for creditors should be rejected.

* Professor of Law, Emory University School of Law.

 

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The Antitrust Analysis of Joint Ventures After the Supreme Court’s Dagher Decision

 

Thomas A. Piraino, Jr.*
 

In 2006, the Supreme Court, in Dagher v. Saudi Refining Co., 547 U.S. 1 (2006), concluded that the per se rule should not apply to internal decisions of a legitimate joint venture.  The Court’s decision in Dagher changed the judicial landscape for price fixing and other similar joint venture conduct.  Prior to Dagher, the parties to a joint venture could have been found liable under the per se rule simply for entering into an agreement affecting the prices of joint venture products.  After Dagher, joint venture partners will be able to defend the reasonableness of such arrangements under the rule of reason.  Dagher’s influence, however, is likely to extend beyond its denial of a per se approach to joint venture price fixing arrangements.  The Dagher decision included broad dicta that may form the basis for an entirely new way of analyzing the legality of joint ventures themselves and of the various types of competitive conduct pursued by joint ventures and their partners.

This Article explains why a comprehensive new approach to joint ventures is necessary and proposes a means by which the federal courts and antitrust enforcement agencies can build on Dagher to implement such an approach.

* Vice President, General Counsel, and Secretary, Parker-Hannifin Corporation, Cleveland, Ohio.  Distinguished Adjunct Lecturer, Case Western Reserve University School of Law.

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