Thanks, once again, to my buddies at the Glom for giving me the opportunity to participate in this forum.  Yet again, I was asked to read and comment on an interesting piece of scholarship.

Having just taught a Comparative Mergers & Acquisitions course using Steve Bainbridge's Mergers and Acquisitions book, I found the first few sentences of Prof. Trey Drury's working paper "What's the Cost of a Free Pass?  A Call for the Re-assessment of Statutes that Allow for the Elimination of Personal Liability for Directors" particularly salient.  In these sentences, he notes the built-in tension between authority and accountability in the corporate form (which is a central theme in the Bainbridge text and numerous other scholarly works).  This necessary authority/accountability struggle is central to Drury's argument in the paper.  It is because of a perceived negative imbalance in that struggle--weaknesses in the accountability structure emanating from the statutory enablement of director exculpation--that Prof. Drury suggests modifying existing exculpation statutes to allow shareholders to periodically vote endorsement or disapproval of charter exculpation provisions.  He also suggests giving shareholders the power, as I understand it, to initiate binding proposals for charter amendments to delete or reform exculpation provisions.  Finally, he suggests repeal of the statute, but characterizes that option as undesirable.  Each of these suggestions is intended to increase accountability while preserving authority and promoting shareholder choice.

On one level, as a former practitioner, I have to like Prof. Drury's suggestion that shareholders periodically ratify exculpation provisions.  This suggestion will help keep lawyers involved in the annual meeting proxy process in a more substantive way than they otherwise might be.  (Prof. Drury's suggestion does not quite provide full employment for securities lawyers, but it certainly is a positive development!)  Looking at the proposal from a less jaded perspective, however, I must wonder whether the transaction costs associated with Prof. Drury's suggestion offset the potential benefits.  I think it unlikely that shareholders actually will exercise their franchise rights in a meaningful way if given the choice to expressly ratify exculpation provisions in corporate charters.  Accordingly, I wonder if it really
does enhance accountability at all.  I would like to see the paper better substantiate that claim.  I have similar (and other) concerns about the suggestion to give shareholders new charter amendment powers
and more significant reservations about repealing the enabling statute.  In general, I would like to see Prof. Drury better support his proposed solutions in a future draft.  Perhaps he should focus narrowly on one or two ideas (instead of three) and show more clearly in the last part of his paper how any proposed fixes counteract his earlier critiques of the existing framework.

I must note before closing that Prof. Drury's paper is very readable and makes a number of important points along the way about exculpation statutes--as to attendant director behavioral incentives, suitability and efficacy, the channeling of fiduciary duty actions into good faith claims, and unappreciated beneficial effects.  I agree with some of these observations, and not with others.  But that's the nature of analyses involving fiduciary duty in the wake of Disney, isn't it?  Some of us think the system ain't broke, and others think we need a fix but cannot agree on why or what.  I am confident that this paper, in its final form, will contribute new insights to the literature in that latter category.

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