Hard to Identify Wrongdoing and Wrong Doers & Corporate Actors

Protected from Blame

Even though a corporation is a juridical person, those especially critical of the corporate

form may view it as a person without a soul. Corporations are not a natural state of affairs, they

are a government construct designed to facilitate economic activity but structured by law in such

a way that perpetuates harm to those who are external to the corporation. The corporation is

comprised of a network of natural persons who use it not only to organize, but to shield themselves

from scrutiny for their individual actions.

By allowing people to operate behind the corporate facade, they are alienated from the

effects of their actions. Agents down the line of command will do things they otherwise would not,

when they are acting under direction of authorities. As in Stanley Milgram's shock experiment, the

corporate structure alienates corporate actors from the real, human impacts of their actions. The

Enron traders would not have shut down the California power grid if they were operating on their

own and had to look Californians in the eye-- their lives didnt matter because all is fair in love

and business.

There is little room for morality in the corporate form: profits are the underlying value.

Corporate law refuses to make substantive or normative decisions about goodness or Goodness of

corporate actions. Instead, the law grant corporate directors protection when taking on excessive

risk and imposing negative externalities upon stakeholders at large.

The critique that corporate law protects corporate actors from blame to the detriment of

society, however, ignores the importance, perhaps even the necessity, of the laws role in

protecting directors and officers from excessive liability when they make business decisions and

take risks. Surveys and case law indicate that such protection helps to ensure (1) that there
remains a sufficient incentive for the most qualified corporate actors to lead corporations; and (2)

that corporate actors are able to take the necessary risks to develop innovative goods and

services, maximize shareholder value, and thereby encourage capital expenditures. Furthermore,

corporate law still provides avenues, namely voting procedures and direct/derivative suits, for

shareholder recourse in cases where corporate actors commit egregious acts and/or breach their

fiduciary duties.

Surveys highlight the importance of protecting corporate actors from liability because they

suggest that what people value most about companies are the innovative, life-changing goods

and services they provide. For example, many respondents highlighted the importance of the

disruptive technologies of Google (Alphabet), Apple, Amazon, and Tesla. Such innovations are

arguably possible only within a business environment that permits directors and officers to draw

upon their experience and exercise their business judgement without personal liability

incessantly looming over their shoulders. In any case, no respondent stated that a company was

most important because of its perceived ethical Goodness or because its corporate actors

decisions were held to the most stringent standards of review. While it would be unfair to say

that with business the end justifies the means, it is perhaps appropriate to say that the ends are

preeminent.

Case law also supports the claim that the protection of corporate actors from liability is

an important feature of business law. For example, in applying the business judgment rule, the

court in Dodge v. Ford Motor Co. stressed that directors are in a better position than judges to

effect the primary purpose of corporationsmaximizing shareholder value. (Maximized

shareholder value is itself important because it provides an incentive for investment.). Dodge v.

Ford Motor Co., 204 Mich. 459, 500, 170 N.W. 668, 682 (1919).
 As the court in Brehm v. Eisner states, Courts do not measure, weigh or quantify

directors judgments, because to do so would invite courts to becomes super-directors,

measuring matters in business decision making . . . . counter to the foundation of our

jurisprudence. Brehm v. Eisner, 746 A.2d 244, 264 (Del. 2000). In sum, modern corporate law

permits those most qualifiedelected directors and appointed officersto make the business

decisions for corporations.

Case law also demonstrates that corporate actors do not have completely unfettered

discretion. In addition to remaining liable for their personal crimes and torts, they are bound by

the punctilio of an honor the most sensitivefiduciary dutyand can face personal liability

with its breach. The court in Smith v. Van Gorkom, for example, determined the defendant had

breached its fiduciary duty of care for failing to sufficiently inform itself when making a

business decision. Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985). Consequently, in addition to

promoting business innovation and qualified decision-making, modern corporate law does limit

the bounds of corporate conduct.

Corporate law gives extreme deference to corporate actions. One such way this occurs is

through the business judgment rule. The business judgment rule provides that honest business

decisions made in good faith and on the basis of reasonable investigation are not actionable, even

when the decision is mistaken, unfortunate, or even disastrous. Thus, the rule creates security for

corporate actions so long as they do not reach to a level of bad faith as determined by a court. The

court only considers the business judgment rule in decisions made by disinterested directors and

is a defense that may be asserted by these directors in claims brought by or on behalf of the

corporation in a derivative suit.

 Derivative suits have strict procedural rules that must be followed to avoid dismissal. One

such rule is the demand requirement, which provides the corporation with the opportunity to

redress an issue before a suit is filed. The traditional rule requires a demand to be made on the

corporation unless it would be futile due to directors being interested in the transaction in

question. Both the MBCA and the DGCL have their own demand requirements. The MBCA

requires a written demand on the corporation in all cases, barring emergency. This universal

demand then gives disinterested Board of Directors or its Special Litigation Committee the

opportunity to investigate and conclude in good faith that the action is not in the best interest of

the corporation. The DGCL almost always requires a demand. It excuses a demand only if there

is reasonable doubt that the Board of Directors has the independence and disinterestedness

necessary for application of the business judgment rule, or when the facts, as alleged with

particularity and taken as true, support reasonable doubt that the challenged transaction was the

product of a valid exercise of the business judgment rule.

Even though these rules seem as though they protect corporate actors and make it difficult to

identify and punish corporate wrongdoing, these rules are carefully articulated to be enough to

prevent corporations engaging in blatant wrongful activities while still giving corporations the

ability to engage in activities that serve the corporate purpose, maximizing shareholder

value. These rules, combined with shareholder voting power are all that is necessary to provide

adequate remedies for corporate wrongdoing. If the rules narrowly constrained corporate

activities and leaned towards holding directors liable for every small instance that a shareholder

felt was wrong, then we wouldn't have the most qualified individuals acting as directors for

corporations. The most qualified individuals would not unnecessarily subject themselves to

liability if they knew the rules were constrained in such a way that wasnt favorable to allowing
them freedom of action. Without the most qualified individuals running corporations, it would

be impossible to maximize shareholder value, frustrating the purpose of corporations.

In conclusion, corporate law has been carefully designed to allow the maximum amount

of freedom for corporations to conduct business, while still giving adequate means of control to

prevent egregious actions. The system in place gives shareholders the ability to control who they

want making the decisions for a corporation, and the power to bring direct and derivative

lawsuits should the directors choose to act in a way that prevents the corporation from

maximizing shareholder value. The current rules in place give the people in charge, who are

experts in their field, the ability to make the hard choices that ordinary shareholders might not

have the knowledge or expertise to make. As a society, we do not want law that is so

constraining that it discourages the experts from wanting to be directors in corporations, as it

would do more harm to the economy in the big picture than giving corporations lots of

operational freedom has done.

ENGAGE

Personally, I am adequately convinced of the defense we mounted for corporate law. Though I do
believe there are somethings that could be revised that would bring positive change, I think these
changes must be carefully planned and narrow in scope as to not disrupt the status quo. If we made
disruptive changes to the corporate system, for the better or not, it would cause a dynamic shift in how
business works in our country. This could lead to massive shifting in our economy and stock market that
may or may not have disastrous consequences to our nation as a whole. I would not have the skill to
know the nuances of business law well enough to make revisions to corporate law that would not
frustrate the purpose of the corporate structure. I feel that the laws we have now were designed to
maximize shareholder value and instill the capitalist system on our country. I think this thought
transfers well over to other forms of business entities as well. The system is designed to be as
minimalist as possible, while still providing means of control and remedy should someone cross the line.