Founded in 2005 and published three times a year by law students of the University of Virginia, the Virginia Law & Business Review is one of the nation's premier journals of business legal scholarship.
This Article offers an innovative, cross-field analysis of how control over decisionmaking is established and regulated within private legal organizations, focusing on business corporations, residential community associations, and labor unions. While diverging in their historical origins, stakeholders’ composition, and specific norms of internal governance, these organizations share an underlying set of challenges regarding both the bottom-up formation of credible coordination to solve collective action problems and the top-down ordering of their legal power and authority. This common ground calls for a unified theoretical analysis that does not merely fall back on simplistic attempts to classify these organizations as either purely-private or quasi-public enterprises.
While private legal organizations implicate various axes of stakeholders’ relations, this Article focuses on modes of control and accountability among “direct members”—that is, shareholders in the business corporation, homeowners in the residential community, and labor union members.
The belief that mandatory disclosure requirements enhance the efficiency of the United States capital markets and protect investors therein is a touchstone of federal securities regulation. During the 1932 presidential campaign, Franklin Delano Roosevelt promised to enact federal legislation to protect investors by mandating disclosure, drawing on the views of Louis Brandeis who famously stated, “publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electriclightthemostefficientpoliceman.” Thefruitofthosepromiseswas the Securities Act of 1933, which requires companies issuing public securities to provide “full disclosure of information thought necessary to informed investment decisions.”
Since the enactment of the securities laws, debates over disclosure have raged fast and furious. Should disclosure be mandatory or voluntary? If mandatory, what precisely should be required to be disclosed?6 At the heart of the arguments is the question of what information matters to investors and what mechanism is best suited to ensure that the right “mix” of information is provided at the least cost to the system. How best can the laws enable the Securities and Exchange Commission (“SEC”) to fulfill its stated mission "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
On July 17, 2013, Delaware Governor Jack Markell signed into law legislation establishing a new type of corporate entity: the public benefit corporation. A benefit corporation, similar to, but distinguished from a Certified B Corp, is a voluntary alternative corporate form that focuses on adherence to higher standards of corporate purpose, accountability, and transparency. As states like Delaware adopt public benefit corporation legislation, household names like Ben & Jerry’s, Patagonia, and New Belgium Brewery (the makers of Fat Tire Beer) that have already embraced extralegal Certified B Corp status now have the opportunity to assume legal public benefit corporation status.
Directors of public benefit corporations pledge to manage the corporation in a way that balances rather than ignores the interests of the company’s primary stakeholders (e.g., employees, shareholders, vendors and suppliers, customers, and the community). The new benefit corporation legislation is of particular importance because it redefines the fiduciary duties of directors not only with respect to an ongoing enterprise, but also in the event of a sale or change of control of the company.