Sunday, March 22, 2009

More than just not taking personal advantage

The Harvard Program on Corporate Governance has issued a discussion paper entitled, "Loyalty's Core Demand: The Defining Role of Good Faith in Corporation Law."

The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.

The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.

The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.

Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.

Enjoy the read.

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