Comments on: Directors' Duties Even in Solvent Firms http://truthonthemarket.com/2006/02/07/directors-duties-even-in-solvent-firms/ Academic commentary on law, business, economics and more Tue, 14 Feb 2012 19:40:24 +0000 hourly 1 http://wordpress.com/ By: Geoffrey Manne http://truthonthemarket.com/2006/02/07/directors-duties-even-in-solvent-firms/#comment-5436 Thu, 09 Feb 2006 06:25:53 +0000 http://www.truthonthemarket.com/2006/02/07/directors-duties-even-in-solvent-firms/#comment-5436 But I think that is consistent with what I take to be Jill’s claim: Directors owe (limited) corporate fiduciary duties to shareholders instead of anyone else not because shareholders have a privileged position but because, to the extent the firm’s value is increased by shareholders having some means of constraining directors at the margin, fiduciary duty suits (i.e., access to courts) is the best way to do it. As I suggested, I think this might overly discount takeovers, but it is a plausible claim, it seems to me.

I think Jill would probably agree (or, at least, I agree) that granting creditors access to courts to enforce corporate fiduciary duties, even in the zone of insolvency, is not likely a good way to maximize firm value, chiefly because it would overly constrain director discretion.

Plus, your claim is a little circular: You say “holding otherwise would be an undue interference with directors’ judgment,” but what amount of interference is “due”? The claim that any interference inconsistent with shareholder wealth maximization is “undue” would be circular: why should that be the limit? Jill’s paper suggestst that the defense that “shareholder wealth is a proxy for firm value” may be insufficient.

(And in her defense, Jill carefully disclaims taking a normative position in this paper; she is only questioning the empirical use of share value as a proxy for firm value).

]]> By: Larry E. Ribstein http://truthonthemarket.com/2006/02/07/directors-duties-even-in-solvent-firms/#comment-5435 Wed, 08 Feb 2006 03:06:11 +0000 http://www.truthonthemarket.com/2006/02/07/directors-duties-even-in-solvent-firms/#comment-5435 The problem with claims like Jill’s, and many others, is that they don’t take account of the logistics underlying the business judgment rule — that is, the problem of second-guessing the directors. As discussed in “Directors’ Duties,” as well as my “Accountability and Responsibility in Corporate Governance,” this includes second-guessing directors’ decisions as to which interest to maximize. Courts hold that there are no special duties to creditors, not because the shareholders’ interests are equivalent to the corporation’s, but because holding otherwise would an undue interference with directors’ judgment.

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