I recently blogged about my new corporate governance article, A Conflict Primacy Model of the Corporate Board. Bernie Sharfman posted a thoughtful comment, asking "how do you get around DGCL 141(a) and its judicially interpreted requirement that the board participate in all significant decisions of the corporation?" The short answer is that "by or under the direction of the board of directors" statutory language, and the longer one is that, after some agonizing, I decided to defer questions of implementation for now. I often try to cram too much into one article, and rethinking the public board's role as centering on dealing with areas of managerial conflict seemed, upon reflection, to be a lot to bite off in one symposium piece.
Which leads me to the genesis of this particular piece, which I'll explain using a personal anecdote. I sometimes exasperate my husband with my acceptance of the world as it is. Our classic example involves soon after we started dating, when he visited my parents' house. There was a wall lamp in the basement that had been hanging from wires for years--indeed, since we had moved in 8 years earlier. It had been broken during the move-in, but the Rodrigues take was: it still works, so why fix it? Nathan was horrified, went to a hardware store, and replaced the light fixture in about half an hour.
My attitude towards the supermajority independent board stems from my familial tendency to accept the world as it is. Independent public boards aren't going away. That means that most directors are outsiders, and we have no guarantee that they know anything about the company or even the industry. So what should we do? Keep expecting them to manage the corporation in a strategic sense? I say no, instead use the independent board for what it's good for: areas of conflict with management. That's where its outsider status serves a useful purpose. This first piece represents an argument about the ends that we can realistically ask such a board to serve. Implementation is an important, but separate question.
So it was with sympathy and gratitude that I read Steve Bainbridge's post this summer, explaining his starting point and first premise when articulating his director primacy model (I hereby out myself as the friend whose misreading inspired the post). Despite what I thought was my familiarity with Steve's position, in the draft I sent to him earlier this summer I mischaracterized the overall nature of his inquiry. As he put it in his post:
Like most legal theorists who write about the board, both Eisenberg and Blair/Stout are concerned with the uses to which the board puts its powers. Eisenberg wants the board to monitor. Blair/Stout want the board to mediate.
In contrast, I did not approach the board of directors from a perspective framed by the question “what does the board do?” Instead, my inquiry started differently. I looked at the language of the DGCL and the MBCA, which both state that the business and affairs of the corporation shall be managed by or under the direction of the board of directors. And I asked, why? Why a board? Why not shareholders? Or employees? Or an imperial CEO?...Hence, like the statutes, director primacy is about the allocation of power within the firm, and has little to say about how that power is to be used (other than requiring that it be used to maximize shareholder wealth)...
The statutes are indifferent as to how specific boards allocate their time amongst those functions. And so am I.
Steve and I had a fruitful (from my perspective, at least) email discussion about my draft, which I look forward to continuing at the end of this week, at the UCLA Junior Business Law Faculty Forum. I'm also looking forward to seeing Lisa, Gordon and and some friends of the Glom there, too.
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