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CONTROLLER CONFUSION: REALIGNING CONTROLLING STOCKHOLDERS AND CONTROLLED BOARDS

Harvard law review, 2020-03, Vol.133 (5), p.1706-1727 [Peer Reviewed Journal]

COPYRIGHT 2020 Harvard Law Review Association ;COPYRIGHT 2020 Harvard Law Review Association ;Copyright Harvard Law Review Association Mar 2020 ;ISSN: 0017-811X ;EISSN: 2161-976X

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  • Title:
    CONTROLLER CONFUSION: REALIGNING CONTROLLING STOCKHOLDERS AND CONTROLLED BOARDS
  • Author: Harvard Law Review
  • Subjects: Analysis ; Boards of directors ; COMPANY DIRECTORS ; Confusion ; CONTRACTS ; Controlling person liability (Securities law) ; Corporate directors ; Corporation law ; Corporations ; CORPORATIONS LAW ; Courts ; Fairness ; FIDUCIARY ; Fiduciary duties ; JUDICIAL REVIEW ; Judicial review of administrative acts ; Law ; Law and legislation ; Laws, regulations and rules ; Legal status, laws, etc ; Morality ; Ownership ; Powers and duties ; SHARES AND SHAREHOLDERS ; State court decisions ; Stockholders ; Trusts and trustees ; Uncertainty
  • Is Part Of: Harvard law review, 2020-03, Vol.133 (5), p.1706-1727
  • Description: Corporate law has long been concerned with issues of control. In few matters is this concern as salient as Delaware's heightened standards of judicial review for matters involving two related concepts: a board of directors that is not independent (a "controlled board") and a stockholder with substantial stock and control (a "controlling stockholder"). While control pervades both circumstances, the analytical processes, implications, and outcomes remain distinct. This note will proceed in three parts. Part I provides an overview of the controlling stockholder doctrine, including the rationale, fiduciary duties, and standards of review. Part II details the underlying case law, noting the court's recent inconsistent application of the controlling stockholder inquiry and conflation of controlling stockholder status with controlled boards. This Part discusses the implications of the doctrinal shift, emphasizing the resulting uncertainty and inefficiency, and noting the increased likelihood of entire fairness review. Part III advances a doctrinal proposal, arguing that by redefining controlling stockholders to require control by virtue of stock ownership and modifying the board independence analysis to fill any enforcement gaps, courts can clarify a murky field, more logically align stockholder protections with controlled boards, and more adequately protect the company and its stockholders.
    Corporate law has long been concerned with issues of control. In few matters is this concern as salient as Delaware's heightened standards of judicial review for matters involving two related concepts: a board of directors that is not independent (a "controlled board") and a stockholder with substantial stock and control (a "controlling stockholder"). While control pervades both circumstances, the analytical processes, implications, and outcomes remain distinct. This note will proceed in three parts. Part I provides an overview of the controlling stockholder doctrine, including the rationale, fiduciary duties, and standards of review. Part II details the underlying case law, noting the court’s recent inconsistent application of the controlling stockholder inquiry and conflation of controlling stockholder status with controlled boards. This Part discusses the implications of the doctrinal shift, emphasizing the resulting uncertainty and inefficiency, and noting the increased likelihood of entire fairness review. Part III advances a doctrinal proposal, arguing that by redefining controlling stockholders to require control by virtue of stock ownership and modifying the board independence analysis to fill any enforcement gaps, courts can clarify a murky field, more logically align stockholder protections with controlled boards, and more adequately protect the company and its stockholders.
  • Publisher: Cambridge: Harvard Law Review Association
  • Language: English
  • Identifier: ISSN: 0017-811X
    EISSN: 2161-976X
  • Source: Alma/SFX Local Collection
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