US Corporate Law Reform Post-Enron: A Significant Imposition on Private Ordering of Corporate Governance?

Alex Barden

BVC Student, Inns of Court School of Law

jcls Vol 5 Issue 1 (April 2005)

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Abstract

The Sarbanes-Oxley Act introduced new mandatory rules for publicly traded companies in the US. Recent litigation suggests that the judiciary of Delaware, the most common state of incorporation for US public companies, is limiting the freedom to derogate from the fiduciary duty of care. Commentators have long doubted the value of imposing mandatory rules on corporate governance. Others, most notably Bernard S Black, have argued that many ostensibly mandatory rules are practically trivial, and do not prevent managers and shareholders from bargaining for whatever governance terms they wish. This piece evaluates recent developments against the backdrop of this debate, considering whether they represent a significant imposition on the private ordering of corporate governance. It concludes that elements of Black’s thesis apply to the federal reforms, such that Sarbanes-Oxley is more trivial than it might appear, and that the changes in Delaware law have greater significance for corporate governance than Black’s thesis suggests.

Keywords

Corporate governance; mandatory rules; Sarbanes-Oxley; Delaware judiciary