I have heard from several reliable sources that my teacher, mentor, and friend Michael Dooley, the William S. Potter Professor of Law Emeritus at the University of Virginia School of Law, has passed away. Up until his 2012 retirement, Mike taught corporations, corporate financial transactions, mergers and acquisitions, and contracts. In 1984-1985, I was privileged to be his student in three classes and his research assistant.
Mike became not just a boss and teacher but also a mentor. Through his support and advice, he gave me the confidence to believe I could make it as a legal academic. And, when I went on the teaching market, Mike took a dispositive hand. His influence paid particular dividends when I applied for a position at the Illinois College of Law. Mike had started his teaching career at Illinois and many of his friends from those days were now senior faculty there. Needless to say, my new colleagues later told me that Mike’s endorsement had been the decisive factor in their decision to hire me.
As an academic, I have been tremendously influenced by Mike’s scholarship, especially his article Two Models of Corporate Governance and its progeny. One of the chief insights of the law and economics movement was the identification of agency costs as a critical corporate governance problem. Unfortunately, as a result, several generations of scholars came to “believe that the fundamental concern of corporate law is ‘agency costs.’”
In Two Models, Mike restored needed balance. To be sure, he acknowledged, deterrence and punishment of misconduct by the board and senior management is a necessary function of corporate governance. But accountability standing alone is an inadequate normative account of corporate law. Instead, as he persuasively explained, a fully specified account of corporate law must incorporate a value he called Authority:
If the board is never made accountable for its decisions, it is liable to exercise its power irresponsibly vis-à-vis the shareholders. On the other hand, the power to hold a party accountable is the power to interfere and, ultimately, the power to decide. Thus, affording shareholders the right to demand frequent judicial review of board decisions has the effect of transferring decision-making authority from the board to the shareholders.
Mike went on to explain why such a transfer would significantly reduce the efficiency of corporate decision making, ultimately harming shareholder interests. Accordingly, he explained, the core problem was figuring out whether Authority or Responsibility values predominated in any given setting. My work on director primacy grew out of that insight.
I like to think that I also had something to do with that course correction, but I have always acknowledged that my role in many respects was that of a popularizer of Mike’s work. “Professor Michael Dooley was the first to make the connection between the work of Kenneth Arrow and the structure of Delaware corporate law. … Professor Bainbridge has adopted Professor Dooley's application of Arrow's theory and readily acknowledges the contribution Professor Dooley has made in the development of his director primacy model.” Bernard S. Sharfman, Why Proxy Access is Harmful to Corporate Governance, 37 J. Corp. L. 387, 399 n.83 (2012).
I am deeply saddened both personally and professionally by this loss. My thoughts and prayers go out to his wife Jean, his family, and all the many people who loved him.