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eBook details

• Title: Disney, Good Faith, And Structural Bias.
• Author : The Journal of Corporation Law
• Release Date : January 22, 2007
• Genre: Business & Personal Finance,Books,
• Pages : * pages
• Size : 343 KB

Description

This Article assesses the recent Disney decision and argues that on the facts presented, the decision was probably correct. However, the court squandered an opportunity to develop and articulate an appropriate doctrinal approach for the issues the case presented. The case was an excellent opportunity for courts to provide some means to constrain executive compensation, and more generally, to address problems caused by "structural bias," the cozy relationship directors may have with officers (and, less often, controlling shareholders). In such cases, there is no breach of the duty of loyalty as that duty has traditionally been articulated. However, the duty of care rubric doesn't seem properly applicable either. The directors have not simply been careless; rather, they seem to have gone through some motions of decision making when their decision was a foregone conclusion given their ties to the officers. The court created space for a doctrine of good faith, but it provided little guidance as to how that doctrine might work, even in cases like Disney itself. We suggest an extension of the duty of good faith that could provide a bit more bite. Plaintiffs should be allowed to demonstrate bad faith with a two-part showing: (1) the challenged decision occurred within an environment of structural bias, and (2) influenced by that structural bias, the directors were grossly negligent in making the challenged decision. Even if a court were to follow our suggestion, most cases would turn out as they historically have, with defendant victories. But we think that if courts articulate a doctrine requiring more scrutiny of decisions made in an environment of structural bias, a Caremark-like shift in norms and practices, directed by a combination of legal and extra-legal forces, might be encouraged. I. INTRODUCTION

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