THE HISTORICAL VIEW OF AMERICAN CORPORATE LAW
In the broadest sense, the evolution of corporate law and governance might be seen in the following light: First, the King of England granted charters. Later, state legislatures began granting charters, based on the entity's proposed business purpose and the societal or communal need for the entity's specific contribution to the state's economy, such as building roads or bridges. Next, around the turn of the twentieth century, this micromanagement by the state legislatures gave way to the enactment of general corporation laws--enabling statutes. The enabling statutes provide fundamental parameters for corporate governance, yet allow for substantial flexibility to fit a corporation's corporate governance structure with its particular needs.
Then, around the end of the 19th Century and the beginning of the 20th Century, states began to enact general corporation statutes and state courts, notably Delaware, began the adjudication of corporate principles. Corporate law has since been articulated in both statutes and case law. General corporation statutes still are primarily enabling acts with room for private ordering and case-by-case adjudication. Some statutes are comparable to a definitive code. Others are skeletal enabling acts, leaving the bulk of corporate law to case-by-case judicial development. This latter model is exemplified by the Delaware model embodied in the Delaware General Corporation Law (DGCL) and the Delaware case law. The Model Business Corporation Act (MBCA) is both, but it is more of a definitive code than the DGCL. Yet, the MBCA, as enacted in individual states, still leaves room for the judiciary to fill in some interstices. Each form of law carries with it various costs and benefits that make it more or less attractive in a given context. Choosing a law's optimal form depends on careful consideration of these costs and benefits in a given context.
II THE DELAWARE CASE-LAW MODEL
The "flesh and blood" of Delaware corporate law is judge-made. It is the common-law formulation of principles of fiduciary duties, articulated on a case-by-case basis. No Delaware statute sets forth the duty of care, the duty of loyalty, the business judgment rule, or when director liability may attach. Yet, the judicial gloss on fiduciary duties is embodied in about a century of Delaware case law, norms, expectations, and aspirational standards that influence the structure, relationships, control mechanisms, and objectives of corporations.
Because Delaware fiduciary-duty law is judge-made, it has been characterized as "far from clear and predictable," therefore demonstrating a "degree of indeterminacy.'' (1) But importantly, any indeterminacy found in the fiduciary law does not outweigh the benefits produced by judicial lawmaking. "Delaware lawmaking offers Delaware corporations a variety of benefits, including flexibility, responsiveness, insulation from undue political influence, and transparency.'' (2) Most scholars I know would say that Delaware should not move to a mandatory or codified system. A rational corporation law or corporate-governance regime, such as Delaware's, depends on a rich body of case law and the expertise, prompt service, and independence of, and trust in, the judiciary. As noted below, my thesis is that some statutory language, even in the MBCA, can lead to more confusion or potential mischief than would be the case if the development of key doctrines is left to case law. This is particularly true, in my opinion, when it comes to articulating fiduciary duties of directors.
Life in the boardroom is not black and white; directors and officers make decisions in shades of gray all the time. No viable corporate-governance regime can be founded on a "one size fits all" notion. Fiduciary law is based on equitable principles. Thus, it is both inherently and usefully non-prescriptive, because it allows business practices and expectations of director conduct to evolve, and enables courts to review compliance with those evolving practices and expectations in each unique factual setting. …