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11 Bus. Law. Update 1 (1990-1991)

handle is hein.journals/buslwme11 and id is 1 raw text is: DA
Other CIItIItkhcy
Statutes: 'A New Form of

By A.A. Sommer, Jr.
Morgan, Lewis & Bockius
Washington, DC
Editor's Note: The Corporate Laws Com-
mittee has published a report on ',other con-
stituencies in the August issue of The
Business Lawyer (Other Constituencies Stat-
utes: Potential for Confusion, 45 Bus. L.
2253 (1990)). The report criticizes the emer-
gence of state corporate law statutes that au-
thorize, and in some cases mandate, corporate
directors to take into account the interests of
constituencies other than shareholders. We
have asked A.A. Sommer, Jr., chair of the
task force that produced the report, and Ste-
phen Wallman, a dissenting member of the
task force, to summarize their views on this
controversial issue for the UPDATE. Wall-
man's article will appear in the November!
December issue.
T he takeover wars of the 80s, like all
wars, caused the combatants to
adopt tactics and take measures to meet
the demands of the moment without
thought for future consequences (re-
member the nuclear bombing of Hiro-
shima and Nagasaki?). Now that the
wars are over-or at least abated for the
moment-it's time to take stock and see
what price we're going to pay in the fu-
ture for those tactics and measures.
One of the tactics used by defenders
of the corporate citadel was importun-
ing cooperative -legislators and gover-
nors, concerned with losses of local
industry, to adopt so-called other con-
stituency statutes-laws that gave di-
rectors   of  locally   incorporated
companies the power to take into ac-
count constituencies other than
shareholders-employees, communi-
ties, customers, and suppliers. Half of
the states have adopted these statutes in
one form or another.

rSome of the statutes, notably Indi-
ana's and Pennsylvania's, make abun-
dantly clear this power permits directors
to put the interests of these other con-
stituencies ahead of shareholders if
they so desire. While the other 23 states
have not made it so clear, there is evi-
dence that was their intent, too. Con-
necticut bought the      farm   by
mandating that directors of Connecti-
cut corporations registered with the SEC
take into account other constituencies.
Anyone want to be a director of a Con-
necticut corporation? Interestingly,
some of the defenders of these statutes
seem to favor the Connecticut form:
They speak of unjust enrichment of
shareholders because of takeover pre-
mia, breaches of implicit contracts with
the other constituencies, and inefficien-
cies because of the maldistribution of
gains realized by shareholders.
These statutes were supposed to per-
mit directors to, say, rebuff a hostile
tender offer at a large premium if the
Continued on page 2

'September/October 1990
Volume 11 Number 1
Section of Business Law   /LN
From the
Section Chair...
By George Clemon Freeman, Jr.
O ur Section has a tradition of collec-
tive leadership. Major long-term
policy decisions are made by our Coun-
cil, of which all officers are ex officio
members. The Council acts after full
consultation with our committee chairs.
The Section chair's role each year is to
see that these policies are carried out
effectively and to help set new priori-
This year we will continue the efforts
to broaden participation in our Section.
During this past year under Jean Al-
lard's leadership we made major efforts
to reach out to women and minorities
and bring them onto our major com-
mittees and into positions of leader-
ship. We have also encouraged younger
lawyers to join our working committees
through an open membership policy.
These outreach efforts will continue.
We have also been concerned with our
recent loss of rank among the ABA sec-
tions. For many years, we were first. Last
year, however, the Litigation Section
pulled ahead of us. I call on each of you,
whether you work in a law firm or cor-
Continued on page 2


The role of institutional investors is changing
views of corporate governance                     3
This issue spotlights the Bankruptcy Committee    5
Meet our staff                                    6
Delaware amends its corporation, limited partnership,
and business trust laws                           7
ABA addresses homelessness                       10

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