 |
| Pix credit here |
I have been teaching the introductory course on corporation law in the United States for quite some time. That repetition over decades provides a space, if one is willing to enter it, for reflection. That reflection is not merely an invitation to ponder the way that time alters all things--as banal a waste of time as many one could think of. Instead, that banality sometimes provides the seeds for perhaps more useful reflection. For me that touches on two related matters. The first is pedagogy; the second is on the object of pedagogy--that is on the nature of knowledge that is to be conveyed in an active state, where the iterative details change constantly, swirling, however, around a core that is less likely to be moved quickly, and even if it did, to move around a core within a much more compressed orbit. Putting the two together may provide some utility to both teacher and student, each invited to partake at a level contextually suited to their respective purposes, needs, and capabilities.
It is within these day to day dilemmas of corporate clients and the challenges they may bring to their lawyers, that it is possible to develop basic approaches to the theory and policy that these day to day problems and choices reflect. In more theoretical language, corporate law is best learned as an iterative phenomenological enterprise in which the law and the expectations of those who must abide it are shaped by the constant interactions between problems to be resolved and the underlying theory that validates and encourages the choices made that the analytical framework chosen. (Course Concept Note).
For those who find this interesting I have included below the Course Concept note that I prepared for students (and for myself as well). It forms part of the larger course syllabus that interested readers might access HERE: CorpSyllFALL2025. Any conversation around the points raised always welcome.
COURSE CONCEPT NOTE
Corporations—Backer FALL2025
A Note on Pedagogy and a summary description of the order of the syllabus.
A Note on Pedagogy and a summary description of the order of the syllabus. It is usually useful to provide students with a roadmap of where they will be taken during the course of the semester. It is equally important to try to explain the reasons for taking a particular path from the start to the end of the course materials. The approach taken from the perspective of the young lawyer stepping into a busy corporate practice fresh from passing the bar examination. The focus is on pragmatic learning focused on client needs, desires, and the role of the lawyer in guiding those desires and needs in ways that expose to the client the range of lawful possibility among which they may choose (and their consequences). Both the connection between the role of the lawyer and the purpose of the corporate law as a means of rationalizing and facilitating the operation of enterprises engaged in economic activity (which retains pride of place in these systems to which law serves as a complement in markets driven liberal democratic states generally and as specifically enshrined in the law/culture of the United States).
It is within these day to day dilemmas of corporate clients and the challenges they may bring to their lawyers, that it is possible to develop basic approaches to the theory and policy that these day to day problems and choices reflect. In more theoretical language, corporate law is best learned as an iterative phenomenological enterprise in which the law and the expectations of those who must abide it are shaped by the constant interactions between problems to be resolved and the underlying theory that validates and encourages the choices made that the analytical framework chosen.
What follows are the class assignments for the semester arranged chronologically.
Before working through them, students might want to consider the reason for this sequence: The course materials are arranged to provide students with a view of the corporation, and the laws, norms, and principles through which it is regulated, interpretations of law are justified, and clients and lawyers weigh the risks of particular actions against the probability of affirmation of their legality by a court.
The pedagogy for this course, then, is designed to draw the student into issues of corporations from the outside in. (1) We start with a view of the corporation as a legal entity in context. (2) We then consider the internal governance of the enterprise. (3) And then we turn to key elements of its operation and management: (a) corporate combinations, (b) shareholder litigation, and (c) the overarching stewardship of fiduciary duty as the regulatory mechanism for policing the outer boundaries of exercises of operational discretion. The course is divided into six broad parts:
Part 1 of the materials (Classes 1-3) introduces students to the context in which people engage in economic activity, and construct law to aid in its rationalization, and in the protection of the integrity of transactions and their enforcement. To that end, students are introduced to the lawyer as a mediating agent and the normative and behavior expectations of lawyers in the context of the regulation of economic activity (especially in corporate form). Students then consider the behavioral framework within which such activity is understood and the rationalization for its organization and valuation. That study focuses on an introduction to risk and to the principal stakeholders in organized economic activity—those who control capital, those who offer labor, and those who manage the relations between them. Risk is the way in which such interactions are valued, and value maximization is the objective of actions. Risk also explains the value (to individuals and society) of permitting the aggregation of capital (we leave the value of the aggregation of other means of production, especially of labor, to other courses). But what society (and law) chooses to consider as factors in risk assessment, and what is omitted, suggests a bit about the scope and focus of the legal context in which these valuation decisions may be rationalized, and responsibility (and liability) apportioned. The student will be encouraged to explore in greater detail the role of law in both manifesting or rationalizing risk, and then in assigning responsibility for risk and risk based choices in an increasingly broad arena of law making—from issues of human rights impacts and sustainability, to those affecting sanctions based regimes limiting the sale of goods and technology transfers across borders or to certain designated persons or entities. These suggest not merely value but the allocation of the consequences, in law, of risk bearing and risk controlling. We return to this in its manifestations as business and legal risk, and the emerging structures of corporate social responsibility and responsible business conduct.
Part 2 of the materials (classes 3-7) then considers the legal framework built around the valuation-risk premises around which economic activity is organized. Here students are exposed to the core concepts and legal consequences of corporate ‘legal personality.’ In other words, these materials introduce students to the way in which law constructs the “outer shell” of the corporate form, and develops expectations around its operations which are then expressed and applied through legal doctrine—statutes, cases, and the private law of corporate organization. It is also the portion of the class where much of the specialized vocabulary of corporate law is introduced, along with core basic concepts. Students start with vocabulary and legal structure building—an overview of the legal attributes of corporate form, the fundamental role of agency expressed through the fiduciary duty principle, the role of equity in corporate regulation, and a very brief demarcation of the walls between what may be regulated within the enterprise so constructed (the internal affairs rule) and the regulation of the enterprise itself within the social and political collective of the nation. These suggest the ways in which conceptions of the corporation as a collective, as a nexus of contracts as a creature of the State, or as an autonomous organ of society shapes the way in which risk is understood and partitioned. Students are then introduced to the structures and ideologies underlying the construction of corporate statutes—how to read them, how to understand their interconnection with caselaw, and how judges perform two quite distinct tasks in relation to both: interpreting (statutes) and developing (common law and equity). Students are then introduced to the now contentious issue of corporate personality (is a corporation property in the hands of shareholders, an instrumentality of the state, or an autonomous entity). Corporate personality informs the extent of constitutional protection afforded to corporations, and legal approaches to corporate purpose (to maximize shareholder welfare, stakeholder welfare, or the welfare of the nation). Lastly, the extent of the corporation’s social responsibility (philanthropy mainly but also human rights and sustainability) is introduced. These touch on the allocation of adverse impacts of externalized activity and efforts to internalize the costs and consequences of such risks of negative impacts in some areas of corporate activity (sanctions, regimes, human rights, and sustainability, etc.). Students here will be introduced to the language within which these issues are sometimes wrapped—Environmental, Social and Governance (ESG) reporting, and the regulatory supervision of compliance based state objectives based legal regimes.
Part 3 of the materials (classes 8-12) corporate formation, financing, and the integrity of the enterprise. This Part 3 of the materials brings students inside the corporate form. It also introduces students to close reading of sometimes highly technical statutory provisions. First students consider the technical requirements of corporate formation and the role of the lawyer (our exposure to corporate legal ethics and the problems of privilege). These touch on the ceremonials of corporate formation and the nature and significance of the documentation that gives physical evidence of the formation (and legal consequences) of the creation of a corporate “person.” Students are then introduced to the language that corporations use to speak about themselves, and which serve as the basis for rationalizing systems of legal control over the scope of responsibility and the discretionary decision-making of corporate directors, officers, and shareholders. That language is the language of accounting and financial reporting. That language is both a consequences of and a means of giving expression to the fundamental corporate purpose to maximize corporate value. Current challenges to this “language” of corporate manifestation are also explored in the form of supplementary or alternative reporting regimes. With these tools, students are ready to consider the financing of the now formed corporate entity. That is, students are introduced to the forms of the bond that tie certain corporate stakeholders (lenders and investors) to the corporate collective in ways that are different from that of others (labor, the State, etc.). To that end, students are introduced to the basics of corporate finance. Students consider the rules for the financing of enterprises. These include both an understanding of the nature of financial instruments and the differences between them (e.g., equity and its sub-forms as well as the variations of the forms of debt). Special attention is paid to the regulation of dividends and the rules of legal capital. Students are introduced to the concept of “par value” and of dividends and its legal constraints. Lastly, students also consider the circumstances under which the corporate form may be disregarded (veil piercing).
Part 4 of the materials (classes 13-18) are meant to familiarize students with the legal regimes developed for the internal management of the corporate enterprise and the issues of the “special case” of closely held corporations. Here students are introduced to the standard model of corporate governance: (1) shareholders bear all residual risk and retain all residual reward of corporate operations and performance, but do not manage the firm—their control rights are fundamentally limited (like citizens in a liberal democracy) to the exercise of their power to vote; (2) directors have no authority as individuals; shareholders vote for individual directors, but these individuals acquire authority only as part of a collective--they are aggregated elements that together comprise another abstracted person—the board (or college/collective) that is charged to collectively manage and oversee the affairs of the corporation; the board (not directors) are the spirit of the enterprise made (collective) flesh and exercise the authority to bind the enterprise; (3) managers/officers are responsible for the day to day activities of the enterprise under the authority of the board of directors; they serve the enterprise by serving the board; they do not serve the shareholders or other constituency but are the agents of the corporation as manifested in its board. In short, shareholders vote, directors set policy and bind the enterprise, and managers operate the enterprise. There are other stakeholders in a corporate enterprise, of course, but they are of only passing interest to the corporate law (employees, trade creditors, lenders, the communities in which the enterprise operates, etc.). Students consider why this is so in the United States. Lastly, students study the more technical aspects of the role of shareholders (the complexities of rights and forms of shareholder voting); the role of directors (requirements for meeting and valid action and their role in governance; the role of officers, and lastly the role of lawyer-advisors. Lastly, students are introduced to the fundamental principle of organized economic activity—the principles of agency. Corporate law presents a very specific application of rules and cultural expectations around the premise that people may be hired to undertake tasks not for themselves but for others. That applies as much to shareholders delegating managerial authority to directors, as it does to directors delegating the responsibility for the day to day operations of the enterprises on managers. Students are then exposed to the way that the law permits variation in the standard model through (a) special provision for closely held enterprises, and (b) through statutory rules that are enacted as default provisions but which permit some sometimes substantial deviation if set forth in the corporate charter or in the bylaws or sometimes in shareholder agreements. The law of oppression in the close corporation is also considered, focusing on common law and statutory approaches.
Part 5 of the materials (classes 19-21) introduce students to the basics of corporate combinations and shareholder litigation. This Part briefly introduces students to the basics of corporate combinations and shareholder litigation. With respect to corporate combinations, students are first introduced to the principle economic structures of such combinations—mergers, triangular mergers, statutory share exchanges. The legal structures for those combinations are introduced. These produce a perhaps necessarily complicated regulatory environment of rights, duty and obligation which shift risk and responsibility depending on the character of the transaction and the parties engaged in them. Students then consider the de facto merger doctrine and the special problems of sales of assets transactions. This touches on one of the great contradictions of corporate law—that law must sometimes give way either to a higher law or to the generative principles that give law their form. More broadly, it suggests the pervasive effect of equity in the shaping of corporate law—whether in the form of statute, of private law, or of common law. With respect to shareholder litigation, students consider the way that the law distinguishes between direct and derivative litigation and the consequences. They consider then the general outlines of the requirements and procedural movement of derivative litigation. These include rules on capacity (who can sue), reliance, causation, and injury. Much attention is paid to the fundamental core of shareholder litigation in contemporary times—the demand requirement (the requirement that absent a waiver or excuse) shareholder litigants must make a demand on the board to correct the breaches alleged before they may file their derivative action in court. These are rules of both process and substance and provide a useful segue to the last set of materials considered in this introduction to corporate law. Within all that legal structuralisms lie the more profound issues of policy: (1) the balancing of the rights, duties and prerogatives of shareholder, officers and directors; (2) the consequences of setting one of more conceptions of the corporate enterprise as the normative baseline from which law is possible; (3) the role of the courts and the protection of individual agency in a system that prizes human individual autonomy and the regulatory oversight of the State and its (judicial) organs; (4) what sorts of abuse are worth expending political and judicial capital to oversee, and the structures of rights protection; and (5) the normative consequences of choosing specific forms of otherwise neutral appearing procedural pathways.
Part 6 of the materials (classes 22-28) caps off the course with a more granular consideration of the meaning and application of fiduciary duty in a wide variety of contexts. The course ends with a more systematic and detailed discussion of fiduciary duty. In a sense, that discussion provides a capstone in the sense that it draws together all of the elements of corporate law that had been discussed through the first parts of the semester and puts together various elements of corporate conduct that have been discussed in the margins respecting each. One deals here with the judicial oversight (through law) of risk allocation in a context in which the fundamental object of accountability centers on abuse of discretion by those who have been assigned risk controlling authority within the enterprise. The materials start with consideration of the overall framework for fiduciary duty by distinguishing between fiduciary duty as a normative (conduct)s standard and as a standard of liability. It also distinguishes between the conduct of an individual director (which may or may not result in liability) and the actions of the board (which do). Also distinguished is the difference between fiduciary duty and the procedural requirements that must be undertaken to move from allegation to a finding of liability. This involves the introduction of the core concept of the “business judgment rule.” The BJR is, like fiduciary duty itself, both a normative rule (courts will not second guess board decisions and boards have a very wide scope of discretion in managing a corporation) and a rule of process (determining the rules under which the normative presumptions of the BJR can be overcome and the shifting burdens of production and proof that must be met to move to liability). It reflects the manifestation of the ideology of the relationship between (1) courts and corporate rights holders; and (2) among corporate rights holders in arranging the allocation of risk bearing and control within an environment fueled by a constant stream of discretionary decision making only some of which is subject to legal oversight, but all of which is subject to the constraints of abuse. Students then untangle the various forms of fiduciary duty that are been developed by the courts: (1) duty of care (monitoring); (2) duty of care (transactional); (3) duty of loyalty (conflicts of interest); (4) duty of loyalty (independence); (5) duty of loyalty (good faith); and (6) duty to disclose. All of these are then applied in varying contexts in which they tend to arise. Also untangled are the normatively embedded systems of process for determining liability—and against whom—through process mechanisms focused on a presumption of honest behavior and the consequences of producing enough evidence to overcome that presumption. These are encased, in turn, in what in Delaware is referred to the “entire fairness” test. It is a mechanism the origins of which are meant to preserve the benefit of the bargain of those whom the law protects, but which then balances the failings of the parties in arriving at a state of reasonable meeting of expectation in markets and among people who suffer the flaws of humanity intensified in the presence of the prospect of financial gain (or ruin). Shifting of burdens of proof and of justification reflect normative choices about which of the actors are protected and the extent to which others must overcome that sense of systemic protection (the prerogatives of a board to manage, the protection of the financial interests of shareholders against self-serving action, etc.) that the system if corporate law may be presumed to protect. The shifting boundaries of all of these moving parts then provide the context in which the student may come to understand both the specificity of actions (based on shifting facts and circumstances of a particular set of allegations of breach) and its generality (the effects of an individual decision on the integrity—normative and procedural) of the system itself.
Chapter Problem Assignments: Several Chapters of the TEXT includes Problems; these are identified in the Syllabus below. Problems will be posted to the ASSIGNMENTS Section of the Course Canvas Page which may be accessed from the Canvas Course Homepage. Please upload completed Problem assignments through the Canvas course page “Assignments” section. Upload preferences are either in Word or PDF format.
You will be expected to work through the problems as directed in the syllabus and to prepare a summary answer (normally sufficient to identify issues and to supply an answer that briefly develops your reasoning and analysis supporting your conclusions). Student analysis of each problem should be upload to the appropriate “assignments” on the course Canvas page. The work on each problem should be to be submitted to me no later than the end of the class at which the problem is assigned.
The submitted responses to the problems will be reviewed but not graded. They serve as a basis for alerting me to the way students are approaching learning, and to point to areas where additional interaction may be useful. For students, these problems serve as a set of recurring preparation for the final exam. Students who diligently approach engaging with the problems will find the final take home exam much less challenging, or at least they will be much more used to the format that will be used for the take home exam. More generally, students might consider using the problems as means of reviewing their knowledge and of developing ownership of materials—where the problems indicate a knowledge or approach gap the problems also serve as a quite useful basis for organizing questions and review meetings with me.
No comments:
Post a Comment