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Questions and Answers
What was the title of Milton Friedman's 1970 article that criticized businesses for attempting to promote desirable social ends?
What was the title of Milton Friedman's 1970 article that criticized businesses for attempting to promote desirable social ends?
A Friedman Doctrine: The Social Responsibility of Business is to Increase its Profits
What is the primary responsibility of companies, according to Milton Friedman?
What is the primary responsibility of companies, according to Milton Friedman?
To its shareholders
What 1976 paper provided a quantitative economic rationale for maximizing shareholder value?
What 1976 paper provided a quantitative economic rationale for maximizing shareholder value?
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure by Michael C. Jensen and William Meckling
Who argued that Milton Friedman is not to blame for the rise of shareholder primacy in American corporations?
Who argued that Milton Friedman is not to blame for the rise of shareholder primacy in American corporations?
What is the name of the professor who wrote a paper defending Milton Friedman's views on corporate social responsibility?
What is the name of the professor who wrote a paper defending Milton Friedman's views on corporate social responsibility?
What is the term used to describe the prioritization of shareholder interests in corporate decision-making?
What is the term used to describe the prioritization of shareholder interests in corporate decision-making?
What is the primary reason why shareholders prefer higher return projects, despite the associated risks?
What is the primary reason why shareholders prefer higher return projects, despite the associated risks?
Why do managers tend to be more risk-averse than shareholders?
Why do managers tend to be more risk-averse than shareholders?
What is the 'hindsight bias' in the context of business decision-making, and how can it affect judicial outcomes?
What is the 'hindsight bias' in the context of business decision-making, and how can it affect judicial outcomes?
How do shareholders' interests differ from those of managers in terms of risk tolerance?
How do shareholders' interests differ from those of managers in terms of risk tolerance?
What is the primary function of the doctrine of limited liability in the context of corporate risk-taking?
What is the primary function of the doctrine of limited liability in the context of corporate risk-taking?
How does portfolio theory relate to shareholders' risk tolerance in the context of corporate decision-making?
How does portfolio theory relate to shareholders' risk tolerance in the context of corporate decision-making?
What is the significance of the Corwin test in the standard of review for corporate transactions?
What is the significance of the Corwin test in the standard of review for corporate transactions?
What is the 'cleansing effect' in the context of the Corwin doctrine?
What is the 'cleansing effect' in the context of the Corwin doctrine?
How can a plaintiff overcome the 'cleansing effect' in a Corwin doctrine case?
How can a plaintiff overcome the 'cleansing effect' in a Corwin doctrine case?
What is the significance of material misrepresentations or omissions in the disclosures provided in connection with the shareholder vote?
What is the significance of material misrepresentations or omissions in the disclosures provided in connection with the shareholder vote?
What is the relationship between the Corwin test and the Revlon standard of review?
What is the relationship between the Corwin test and the Revlon standard of review?
What is the significance of the cases in which the Corwin doctrine failed?
What is the significance of the cases in which the Corwin doctrine failed?
Under the statute, what is the burden of proof for defendant directors seeking exculpation?
Under the statute, what is the burden of proof for defendant directors seeking exculpation?
What is the consequence of aggressively applying the Emerald ruling to §102(b)(7) provisions?
What is the consequence of aggressively applying the Emerald ruling to §102(b)(7) provisions?
When can Chancery Court grant §102(b)(7) motions to dismiss?
When can Chancery Court grant §102(b)(7) motions to dismiss?
How can plaintiffs end-run §102(b)(7) provisions?
How can plaintiffs end-run §102(b)(7) provisions?
What must plaintiffs plead in order to proceed with a claim against an independent director protected by an exculpatory charter provision?
What must plaintiffs plead in order to proceed with a claim against an independent director protected by an exculpatory charter provision?
Under what standard is a claim subject to review in certain cases?
Under what standard is a claim subject to review in certain cases?
What is the underlying purpose of the duty of care and duty of loyalty, and to whom are these duties owed?
What is the underlying purpose of the duty of care and duty of loyalty, and to whom are these duties owed?
What is the term used to describe the doctrine that prioritizes the interest of shareholders in corporate decision-making?
What is the term used to describe the doctrine that prioritizes the interest of shareholders in corporate decision-making?
What is the significance of the shift in the balance of power between managers and shareholders in the 1980s, and how did it impact corporate governance?
What is the significance of the shift in the balance of power between managers and shareholders in the 1980s, and how did it impact corporate governance?
What is the difference between standards of conduct and standards of judicial review in corporate governance?
What is the difference between standards of conduct and standards of judicial review in corporate governance?
How do the duties of care and loyalty relate to the best interest of the corporation, and what is the ultimate goal of corporate actions?
How do the duties of care and loyalty relate to the best interest of the corporation, and what is the ultimate goal of corporate actions?
What is the significance of the Shareholder Value Doctrine in the context of corporate governance, and how has it evolved over time?
What is the significance of the Shareholder Value Doctrine in the context of corporate governance, and how has it evolved over time?
What is the standard of review that applies in Delaware law, and what are the key elements that need to be shown in DoC cases?
What is the standard of review that applies in Delaware law, and what are the key elements that need to be shown in DoC cases?
What is the effect of reliance on officers in lawsuits, and how does it relate to the duty of care?
What is the effect of reliance on officers in lawsuits, and how does it relate to the duty of care?
What is the significance of Francis v. United Jersey Banks (N.J. 1981) in the context of corporate law, and how does it relate to Oversight Liability?
What is the significance of Francis v. United Jersey Banks (N.J. 1981) in the context of corporate law, and how does it relate to Oversight Liability?
What is the effect of stockholder ratification on the business judgment rule, and what is the significance of the Corwin test?
What is the effect of stockholder ratification on the business judgment rule, and what is the significance of the Corwin test?
What is the relationship between the duty of care and the duty of loyalty, and to whom are these duties owed?
What is the relationship between the duty of care and the duty of loyalty, and to whom are these duties owed?
What is the significance of the Delaware corporate law in the context of corporate governance, and how does it impact the fiduciary duties of directors and officers?
What is the significance of the Delaware corporate law in the context of corporate governance, and how does it impact the fiduciary duties of directors and officers?
In a Delaware M&A transaction, what are the conditions under which the standard of review shifts from entire fairness to business judgment, and what are the implications for controlling stockholders?
In a Delaware M&A transaction, what are the conditions under which the standard of review shifts from entire fairness to business judgment, and what are the implications for controlling stockholders?
What is the significance of a properly functioning special committee in Delaware M&A transactions, and how does it impact the standard of review?
What is the significance of a properly functioning special committee in Delaware M&A transactions, and how does it impact the standard of review?
In Delaware corporate law, what is the significance of approval by a majority of the minority shareholders, and how does it impact the standard of review?
In Delaware corporate law, what is the significance of approval by a majority of the minority shareholders, and how does it impact the standard of review?
What is the significance of the controlling stockholder's independence and disinterest in Delaware M&A transactions, and how does it impact the standard of review?
What is the significance of the controlling stockholder's independence and disinterest in Delaware M&A transactions, and how does it impact the standard of review?
In Delaware corporate law, what is the significance of the entire fairness standard of review, and when is it applied?
In Delaware corporate law, what is the significance of the entire fairness standard of review, and when is it applied?
What is the significance of the business judgment standard of review in Delaware corporate law, and when is it applied?
What is the significance of the business judgment standard of review in Delaware corporate law, and when is it applied?
In a transaction involving a controlling stockholder, what is the standard of review if the majority of the board is not independent and disinterested, but there is a properly functioning special committee or approval of a majority of the minority?
In a transaction involving a controlling stockholder, what is the standard of review if the majority of the board is not independent and disinterested, but there is a properly functioning special committee or approval of a majority of the minority?
Under what circumstances will the business judgment rule apply in a transaction involving a controlling stockholder?
Under what circumstances will the business judgment rule apply in a transaction involving a controlling stockholder?
What is the standard of review in a transaction involving a controlling stockholder if the majority of the board is independent and disinterested with respect to the controlling stockholder?
What is the standard of review in a transaction involving a controlling stockholder if the majority of the board is independent and disinterested with respect to the controlling stockholder?
What is the significance of the Corwin test in the context of Delaware corporate law?
What is the significance of the Corwin test in the context of Delaware corporate law?
What is the relationship between the Corwin test and the Revlon standard of review?
What is the relationship between the Corwin test and the Revlon standard of review?
What is the significance of material misrepresentations or omissions in the disclosures provided in connection with the shareholder vote?
What is the significance of material misrepresentations or omissions in the disclosures provided in connection with the shareholder vote?
Who is responsible for making a determination regarding indemnification of a director or officer in a corporation?
Who is responsible for making a determination regarding indemnification of a director or officer in a corporation?
What is the primary purpose of indemnification under §145(a) of the Delaware corporate law?
What is the primary purpose of indemnification under §145(a) of the Delaware corporate law?
What is the significance of the SEC's position on indemnification against liability under the federal securities laws?
What is the significance of the SEC's position on indemnification against liability under the federal securities laws?
What is the primary distinction between direct suits and derivative suits under §145(a) of the Delaware corporate law?
What is the primary distinction between direct suits and derivative suits under §145(a) of the Delaware corporate law?
What is the primary responsibility of a committee of directors designated by majority vote in the context of indemnification?
What is the primary responsibility of a committee of directors designated by majority vote in the context of indemnification?
What is the significance of the majority vote of the directors in the context of indemnification?
What is the significance of the majority vote of the directors in the context of indemnification?
According to §8.30(a), what is a requirement for a director to act in good faith?
According to §8.30(a), what is a requirement for a director to act in good faith?
What is the purpose of the Business Judgment Rule (BJR)?
What is the purpose of the Business Judgment Rule (BJR)?
Under MBCA §8.30, what is a consequence of a director's conduct satisfying the requirements?
Under MBCA §8.30, what is a consequence of a director's conduct satisfying the requirements?
What is a circumstance under which director liability can be imposed according to MBCA §8.31?
What is a circumstance under which director liability can be imposed according to MBCA §8.31?
What is the function of the Business Judgment Rule (BJR) in corporate law?
What is the function of the Business Judgment Rule (BJR) in corporate law?
What is the significance of the post-Van Gorkom era in corporate law?
What is the significance of the post-Van Gorkom era in corporate law?
What is the primary purpose of MBCA §2.02(b)(4) and similar statutes in other states?
What is the primary purpose of MBCA §2.02(b)(4) and similar statutes in other states?
What is the significance of the Arnold v. Society for Savings Bancorp (Del. 1994) case?
What is the significance of the Arnold v. Society for Savings Bancorp (Del. 1994) case?
What is the effect of the 2022 amendment to DGCL on officer exculpations from breaches of the fiduciary duty of care?
What is the effect of the 2022 amendment to DGCL on officer exculpations from breaches of the fiduciary duty of care?
What is the primary purpose of statutory responses to corporate crises, such as MBCA §2.02(b)(4) and similar statutes in other states?
What is the primary purpose of statutory responses to corporate crises, such as MBCA §2.02(b)(4) and similar statutes in other states?
What is the significance of the Van Gorkom case in the context of corporate law?
What is the significance of the Van Gorkom case in the context of corporate law?
What is the primary purpose of charter provisions exculpating directors and officers from breaches of their fiduciary duties?
What is the primary purpose of charter provisions exculpating directors and officers from breaches of their fiduciary duties?
Study Notes
The Evolution of the Doctrine
- Marked two important milestones: Corwin (2015) and MFW (2014)
- Corwin established the Corwin test: business judgment rule applies if transaction is approved by fully informed, uncoerced vote of disinterested stockholders
- Corwin test has a "cleansing effect," shifting the standard of review from Revlon to business judgment rule
- Plaintiff can overcome the cleansing effect by showing shareholders' vote was not fully informed
Why a Business Judgment Rule?
- Shareholders, as residual claimants, prefer higher return projects, but are insulated from downside risks by limited liability
- Managers are risk-averse due to potential job loss and legal liability
- Hindsight bias can occur when judges evaluate business decisions with the benefit of hindsight
The Shareholder Value Doctrine
- Companies have no social responsibility to the public or society, only to shareholders
- Influential articles by Milton Friedman (1970) and Michael C. Jensen and William Meckling (1976) promoted shareholder value maximization
- The doctrine took hold in the 1980s due to a shift in the balance of power between managers and shareholders
Directors' Fiduciary Duties
- Directors owe duties exclusively to shareholders
- The duty of care requires acting with the care of an ordinarily prudent person
- The duty of loyalty requires acting in the best interest of the corporation
Takeaways
- Directors' duties are owed exclusively to shareholders
- Standards of conduct differ from standards of judicial review
- The shareholder value doctrine implies that the purpose of corporate actions must be shareholder wealth maximization
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Description
Learn about Milton Friedman's views on business ethics and corporate social responsibility, as expressed in his 1970 New York Times article. Quiz yourself on the economist's stance on the role of private enterprises in society.
