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Lyman Johnson

Three decades later, an irksome uncertainty still impedes a settled understanding of the Delaware Supreme Court’s landmark ruling in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. For such a towering doctrine, Revlon’s underlying rationales remain controversial, its exact contours and demands continue to be surprisingly unclear, and it holds out scant hope for remedial relief. In spite of these troubling features of today’s Revlon jurisprudence, however, Revlon is slowly being worked back into the larger fabric of Delaware’s fiduciary duty law and away from being a gangling, standalone doctrine. The organizing themes of this judicial project are strong deference in the deal context to decisions made by independent directors without regard to deal structure, the substantially reduced likelihood of equitable or monetary remedies in all types of deal-related lawsuits, and a nascent effort at harmonizing Revlon with Delaware’s more general, and ill-defined, doctrine on corporate purpose. This chapter discusses the original Revlon decision and its rapid expansion before turning to lingering uncertainties surrounding the reach of Revlon, the decline of Revlon’s remedial clout, and where Revlon stands today in relation to Delaware’s overall fiduciary duty law. Revlon’s sharp focus on immediate value maximization was a breakthrough pronouncement on corporate purpose, a subject of longstanding national debate but one on which the Delaware Supreme Court had been strangely silent. However, grave reservations about whether and when corporate directors should be required to pursue short-term goals found useful cover in sustained judicial murkiness over the boundaries of Revlon. Only if Delaware courts resolve the underlying issue of corporate purpose more generally will Revlon either be fitted into the larger body of Delaware law or continue to stand uncomfortably to the side as a doctrinal loner of diminished significance.

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Lyman Johnson

Chapter 21 looks at the development of US corporation law in relation to larger demands for corporate social responsibility, and finds a paradox: since the late nineteenth century, even as the large corporation was increasingly recognized as having a distinct existence as a legal person, and came to wield increasing influence on a range of stakeholders, from employees to communities to the environment, corporation law narrowed its concern to the relationship between management and shareholders. Paralleling these developments, corporate theory by the late twentieth century largely disregarded the existence of a distinct corporate personality and emphasized instead a view of the corporation as simply an aggregate (‘nexus’) of freely associated individuals. Following these developments, corporate social responsibility has been left to bodies of law outside corporate law, or to evolving sets of norms and practices outside the law altogether.

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Lyman P.Q. Johnson

The subjects of corporate personhood, corporate purpose, and fiduciary duties are all central to corporate law discourse. But what is the relationship of each of these to the others? This chapter describes how corporate personhood, corporate purpose, and fiduciary duties are vitally and coherently connected. While longstanding debates about the theoretical nature of corporateness likely will continue, corporations are meaningful socio-legal entities separate and distinct from those persons associated with them. With respect to corporate purpose, the objective or “mission” of a business company is to provide goods or services in a particular manner, goals that may in part be non-monetary in nature and that are not necessarily the ultimate aims or motives of all individuals choosing to associate with a corporation. Moreover, corporate law generally is agnostic and broadly permissive as to a company’s goals, and shareholder well-being is better understood as an outcome of corporate success, not necessarily the very point of business enterprise. Taking these considerations together, corporations as distinct entities can and do have purposes separate and apart from those of its shareholders and other constituencies who choose, so to speak, to submit voluntarily to the jurisdiction of the corporation. This is an important characteristic of a burgeoning institutional pluralism not just in the business sector, but in modern society more generally, as different organizations pursue, to varying degrees, different entity-specific objectives. Part 3 introduces fiduciary duties into this picture, arguing that corporate boards of directors collectively have the statutory governance responsibility, and corporate directors individually have the fiduciary duty, to act in the best interests of the corporate entity, which is to say, to act to advance the purposes of the corporation, whatever they might be. Thus, stated most strongly, the directorial fiduciary duty of loyalty is to act in the best interests of the corporation (a distinct person) by affirmatively advancing the articulated corporate purpose(s). But to fully explain the policy of strong judicial deference to director prerogative and discretion in charting corporate direction, and the empirical reality that remedial relief is rare even in the face of director failure to fulfill duty – that is, failure to devotedly advance corporate purpose – a weaker version of loyalty is judicially demanded, i.e., nonbetrayal of the corporation’s institutional interests and purpose, not their fully faithful attainment. In this way, corporate law discourse can express a strong coherent demand that directors loyally serve the private corporation’s distinctive purposes even as public courts, institutionally, can only enforce a weaker demand that directors not betray those interests.

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Lyman P.Q. Johnson

The chapter examines the variety of approaches taken on investor protection since 1940 and argues that making efforts on many fronts is the best—and probably the only politically viable—regulatory strategy. Specifically, it considers board-centered, investor-centered, SEC-centered, and market-centered solutions. Though it is found that all are flawed by themselves, and that each could be improved, the medley of their combined effect may be the best protection for investors.