Corporate Governance

Delaware Judges, Shareholder Rights, and the Appearance of Bias (Part 1)

By J. Robert Brown

We have written on this Blog about the Delaware courts and their efforts to expound on matters beyond the case and controversy in their courtroom.  Sometimes they do so in cases, the use of hypotheticals inDesimone a good example.  But other times they take advantage offorums outside the courtroom.  Some justices and chancellors are regular contributors on the corporate governance speaker circuit, the trips even taking themoutside thecountry.  Nor are they bashful about these opportunities, with theDelaware Supreme Court prominently listing them on its web site.

We wonder about the judicial appropriateness of this activity.  Certainly, we have no qualms with former members of the bench such asE. Norman Veasey, the retired chief justice of the Delaware Supreme Court and now a partner at Weil, Gotshal, actively participating in the corporate governance debate.  But with respect to those currently on the bench, we suspect that many participants attend these convocations in the hope of learning something about the future direction of the Delaware courts on current legal issues.  In other words, they are hoping to glean a judicial bias.  So we sometimes wonder about the particular comments and remarks made at these assorted forums.  

Well, in at least one case we know.  We read with great interest the article recently published by VC Strine in the Journal of Corporation Law, "Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance," 33 J. Corpo. Law 1 (Fall 2007), which arrived in the mail a week or so ago, gratis, from the Law Review.  (We found thesame title on SSRN but did not compare the two).  The article was prepared as a "keynote delivery" for the annual banquet of the Law Review and as the Dorsey and Whitney Foundation Lecture.  The article surveys almost every current corporate governance issue and contains many thoughtful observations, including a proposal to eliminate staggered boards and to provide for shareholder reimbursement of election contest expenses (although coupled with a proposal that boards should only be elected every three years).  

But more importantly, the tone and subject of the article contains a clear and unmistakable anti-shareholder bias.  An approach perhaps understandable for academics or attorneys practicing in the area, the positions taken in this piece are written by a judge who has a central role in adjudicating governance disputes among parties and presumably purports to approach issues in a neutral fashion.  Much of what is in the article suggests that shareholders, particularly activist shareholders, will have a difficult time, something borne out in a number of recent decisions. 

We will explore some of the views contained in this article over the next week and the implications with respect to an appropriate judicial disposition. 

Full post as published by The Race to the Bottom on March 04, 2008 (boomark / email).