Many companies issue two types of shares: common shares and preferred shares. The vast majority of shareholders are common shareholders, largely because common shares are cheaper and more abundant than preferred shares. While common shareholders enjoy voting rights, preferred shareholders generally do not have voting rights until common shareholders are paid due to their preferred status, allowing them to earn the first dividend. In addition, dividends paid to preferred shareholders are typically higher than those paid to common shareholders. (For more information, see “What are the rights of all common shareholders?”) Anti-Primacy: Sharing Power in American Corporations Robert B. Thompson, 71(2): 381-426 (Spring 2016) Prominent theories of corporate governance often adopt primacy as a matter of organization. Shareholder primacy is the oldest and most commonly used of its kind. The primacy of the director has increased considerably and comes in at least two different versions. Various alternatives followed – primacy for CEOs, employees, creditors. All these theories cannot be correct. This article claims that none of them are. The alternative developed here is a shared power between the three actors named in the statutes of the companies, with judges responsible for keeping all players in the game.
The revealing part of the article shows how the proposed parts lack the legal or economic characteristics necessary for primacy. The prescriptive part of the article suggests that we can better understand the multiple uses of primacy if we recognize that the law does not prescribe the first principles of corporate governance, but provides a structure that works in the face of the economic and business environment of modern businesses, where the separation of functions and effectiveness of managers is the starting point. Therefore, colloquial legal language that transfers all power to the board must be interpreted in light of the reality of the discontinuous nature of board (and shareholders) involvement in governance. The corporate governance documents of the largest U.S. companies, as discussed in the article, are consistent with this reality by assigning management to senior executives and using verbs such as oversee, review, and advise as director functions. The final part deals with dispute resolution and the role of judges in such a world, with particular emphasis on the boundary between shareholder and director. At this limit, there are two distinct judicial roles, the traditional role, which focuses on the application of the fiduciary duty to review conflicts and other incompetence of the director, and the less recognized role of protecting the mutual assistance of shareholders. In this more modern context, market and economic developments allow shareholders to participate effectively in governance in a way that was unworkable three decades ago when key Delaware legal doctrines took hold.
What is particularly interesting here is how courts, commentators and institutional investors act in a manner consistent with a common approach to power, as opposed to the primacy of one of the theories originally proposed. Some states, such as California, offer additional protections to minority shareholders and provide that if the company is sold or a dividend is declared, the same price or dividend per share must be paid to the minority shareholder as to those who hold the majority of the shares. In addition, California may, in certain circumstances, impose a fiduciary duty on controlling shareholders so that their shares cannot harm the interests of minority shareholders. The law in this area is complex and legal advice should be sought before taking any action that could harm minority shareholders. Corporate shareholder rights are the benefits that come with buying stock, such as the ability to vote on certain issues.3 minutes spent reading Dodge v. Ford Motor Co. at 100: The Enduring Legacy of Corporate Law`s Most Controversy Case Michael J. Vargas, 75(3): 2103-2122 (Summer 2020) This article examines Dodge v. Ford on the occasion of its 100th anniversary. In Dodge v.
Ford, the Michigan Supreme Court ruled that a corporation is organized for the benefit of its shareholders and that directors must operate it for that purpose. Despite the fact that Dodge v. Ford is rarely cited in court notices, the case continues to stir controversy in case law. There is little justification for this academic attention because the factual basis is little more than a caricature of Henry Ford, and subsequent developments in corporate law have almost eroded the precedential value of the case. On the contrary, the legacy of Dodge v. Ford may simply be that it serves as a practical talisman that represents the one phrase that truly cares about everyone and is deployed with every new battle in the war between maximizing shareholder profits and corporate social responsibility. In addition to the rules of absolute priority, other rights differ for each class of security right. For example, a corporation`s articles usually state that only common shareholders have voting rights and that preferred shareholders must receive dividends before common shareholders. The rights of bondholders are defined differently because a contract or bond deed is a contract between the issuer and the bondholder. Payments and privileges received by the bondholder are based on the obligation (contractual principles). Who will the business be managed for in 2020? The Object Debate Edward B. Rock, 76(2): 363-396 (Spring 2021) A high-profile debate is taking place on one of the oldest questions in corporate law, namely: “For whom is the company run?” In addition to jurists and lawyers, leading business leaders and business school professors.
The “Long Term” in Corporate Law J.B. Heaton, 72(2): 353-366 (Spring 2017) When you read in-house counsel, jurists and influential lawyers, shareholders are an alarming short-sighted group demanding that executives and managers make short-term decisions that sacrifice long-term value. But here`s the conundrum: there`s virtually no evidence that shareholders prefer short-term gains that are smaller than larger (discounted) long-term gains. This article makes a simple claim: The short/long-term rhetoric in Delaware corporate law obscures the real struggle, between a rational desire of far-sighted shareholders to maximize shareholder value on the one hand, and a desire of the courts and others for the longevity of corporations – that is, the long-term survival of corporations – on the other. Corporate law directs, or at least allows directors, to manage long-term survival under the guise of maximizing shareholder wealth, i.e. a state of sufficient continuous profitability that allows the company to survive as long as possible, regardless of whether this level of profitability actually maximizes shareholder value. The problem is obvious: if Delaware allows companies to prioritize longevity, then it`s a goal that often conflicts with shareholder wishes. Whether this policy is good or bad for society, I`m going for another day. But as long as Delaware leaves voting power to shareholders and gives directors a hidden power to act against shareholder interests in the name of corporate longevity, we can expect (and will continue to be) in many cases where corporations are worth more in other forms, when corporations in different forms are worth more. if they are oriented differently. Smaller, acquired and merged into larger organizations, or, to put it bluntly, liquidated and completely dead.