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Cardozo Law Review

Abstract

What propels the evolution of Delaware corporate law? In a series of persuasive articles, Professor Mark Roe explains Delaware corporate law developments as an effort to preempt federal intervention. If public outrage over corporate governance failures reaches Congress, federal lawmakers may impose reforms that undercut Delaware’s prominence and ultimately harm those that benefit from the prestige and lucre that come with it. To avoid this, Delaware courts strategically adjust doctrines to appear vigilant in protecting investors. Delaware’s adjudication of director oversight failures aligns with this account. In re Caremark, the seminal case renowned for its declaration of a proactive board-level monitoring obligation, originally situated that obligation as part of the exculpated duty of care, rendering it effectively toothless. Only a decade later, with federal encroachment a distinct possibility, did the judiciary recast that obligation as part of the nonexculpable duty of loyalty. And once the threat subsided, Caremark returned to its role as a doctrinal bogeyman, with complaints seldom withstanding a motion to dismiss. Until now. Under Marchand v. Barnhill, plaintiffs are allowed to infer that the board of directors breached their oversight obligation for “mission critical” failures that occurred under their watch. Marchand’s impact on Delaware corporate law was immediate and significant; previously Herculean pleading requirements were satisfied in greater numbers than ever before. Yet unlike the previous doctrinal shake-up, no impending federal legislation was on the horizon. What, then, explains this change? This Article contends that Marchand responds to a different challenge—one arising not from political pressure in Washington, but from a generational shift in shareholder values. As Baby Boomers gradually exit the capital markets, the shareholder base is transforming. Unlike their predecessors, Generation Xers and Millennials consider a corporation’s impact on other aspects of society in tandem with its bottom line. And the open-ended nature of “mission criticality” signals Delaware’s awareness of the incoming shareholder class’s values and willingness to require corporations to comply with their expectations. By aligning its corporate law with the priorities of the new generation of shareholders, Delaware aims to sustain its legitimacy and prevent any erosion of its status as the preeminent jurisdiction for U.S. corporate law.

Disciplines

Business Organizations Law | Commercial Law | Law

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