Gordon Smith posts on Delaware Chancellor William Chandler's decision in Unisuper Ltd. v. News Corporation, a case that potentially poses a conflict between the enabling principle dear to contractarian scholars of corporate law -- i.e., the principle that corporation laws should be subordinate to private ordering -- and the basic default rule of director primacy. I haven't seen a copy of the opinion yet, but I'm very aggravated by one passage from it quoted by Gordon:
Delaware’s corporation law vests managerial power in the board of directors because it is not feasible for shareholders, the owners of the corporation, to exercise day-to-day power over the company’s business and affairs. Nonetheless, when shareholders exercise their right to vote in order to assert control over the business and affairs of the corporation the board must give way. This is because the board’s power – which is that of an agent’s with regard to its principal – derives from the shareholders, who are the ultimate holders of power under Delaware law.
Stuff and nonsense! (That wasn't the most respectful tone to use with respect to one of the best judges in the country!) As I wrote in Director Primacy: The Means and Ends of Corporate Governance:
... control—the power and right to exercise decisionmaking fiat—is vested neither in the shareholders nor the managers, but in the board of directors. According to this “director primacy” model, the corporation is a vehicle by which the board of directors hires various factors of production. The board of directors thus is not a mere agent of the shareholders, but rather is a sui generis body—a sort of Platonic guardian—serving as the nexus of the various contracts making up the corporation.
... the powers of the board of directors are neither delegated to the board by shareholders nor usurped by the former. Instead, as an early New York decision put it, the board’s powers are “original and undelegated.”
If any reader has a copy of the opinion, I would very much appreciate receiving it so that I can evaluate it in more depth.
