Corporate Governance after the Financial Crisis
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Corporate Governance after the Financial Crisis

Edited by P. M. Vasudev and Susan Watson

The financial crisis of 2008–09 raises questions about the assumptions that underpin corporate governance. Shareholder value and private ordering may not in fact be the best means of promoting efficiency and corporate responsibility and the mechanisms used to ensure management accountability may not be effective. In this fascinating study, experts from around the world draw on the experience of the financial crisis to explore topical issues ranging from shareholder primacy and the corporate objective to the stakeholder principle, business ethics, and globalization of corporate governance principles. The chapters are provocative, acknowledging that our understanding of fundamental questions of corporate governance is still developing and demonstrating that the corporate governance debate is far from over.
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Chapter 8: The Role of Corporate Law in Preventing a Financial Crisis – Reflections on In re Citigroup Inc Shareholder Derivative Litigation

Franklin A. Gevurtz


Franklin A. Gevurtz INTRODUCTION 1 As we survey the wreck of the economy left in the wake of the recent financial crisis, the question inevitably becomes what to do in order to prevent another such meltdown. This question, in turn, divides into two subsidiary inquiries: (1) What substantive rules are necessary to prevent another crisis; and (2) Who should impose such rules? This chapter looks at one aspect of the latter question. The debates over who should impose rules to prevent another financial crisis tend to focus on agencies that regulate financial institutions (for example, bank regulators) and agencies that regulate financial markets (for example, securities regulators) (Paletta 2009). Commentators have given less attention to the role of government bodies that create and enforce corporate law more generally. The lack of attention given to those responsible for enforcing corporate laws in preventing a future financial crisis seems surprising. After all, one would not assume a priori that corporate law is irrelevant to preventing a crisis involving the collapse or bailout of major corporations. Indeed, among the potentially more significant legal actions to date from the recent crisis has been a shareholder derivative lawsuit seeking to hold the directors of the mega financial firm, Citigroup, liable under Delaware corporate law for the massive losses suffered by the firm (In re Citigroup 2009). This chapter seeks to fill the gap. Specifically, it looks at the role of state legislatures and courts – such as those of the State of Delaware – which are the...

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