For any organization, there are rules and regulations that guide its day today running. There could be different debates about who should make the rules such as rules on proxy access, rules on executive compensation, rules or even rules on fiduciary duties. In this paper, we are going to refer to case laws and statute laws to explain the meaning of corporate governance. These laws can generally be referred to as corporate law and they deal with the rules that govern corporations, companies, and other organizations. Am also going to give examples and how these laws apply. (Sanjay 150-156)
Statute laws will be determined by the government agencies like the judges. For example, a federal government may impose the same statutory standard to govern all public corporations in a country or region. This standard should be interpreted by the judges and in any case of misunderstanding between the parties of the corporation, then the judicial system decides. A statutory standard may require all the corporations to separate at all times the chairman and the chief executive officer, to give more power to the share orders, for example in the Delaware’s chartered corporations, the law of the corporation empowers the directors to manage the corporation. However there are limits that are described by the enabling statute. These limits state that the share orders can amend the bylaws, the shareholders must vote to vote to approve certain transactions, shareholders have the power to elect directors, and so many other laws that are statutory laws but which govern the corporation. When ever a state passes a law to govern corporations, the Corporations are supposed to adopt them. A good illustration is the case of proxy access law in all Delaware chartered corporations. The state has a law in the august -1 statute which is a flexible enabling statute liberally allowing full reimbursement if the corporation so wishes. This is a statute law that governs all the corporations in Delaware and in case of any problems, this statute will be used. There is also a provision that each corporation may have its own internal governance structure. (Robert 90-97)
Case laws on the other hand are the body of available writings which will be used to give out verdicts on related cases. Case laws can also be referred to as common laws. How are they applied? Whenever a case occurs in a corporation, and then the case is taken to court, the judges can use the records of the previous case to determine the verdict. The case laws might not be applied as rigidly as they were when they were used. A judge who sets to use such laws must produce a written opinion that justifies the facts that the judge finds, the principles of law that the judge believes applies, and an analysis of the relationship between those principles and facts. (Robert 90-97)
The best thing with common laws or the advantage of case laws is that one can look at the real life situation about the dispute. For example, when there is a dispute between the directors and the shareholders due to an action of the directors, the shareholders pleads of complain can be seen, the principles of fiduciary duty of loyalty can then be applied, facts are given, and then a law is developed. This is something that is clear, predictable, and consistent. In fact case law methodology is shaping the governance of corporations. (Lawrence & Mitchell 345-349)
I do not imply that the statue laws are inappropriate, not at all. The bills that are passed by the governments are always for the interest of the common man especially the shareholders. A bill on rights for shareholders is good; a bill on empowering the share holder empowerment is also good, because no body is opposed to power. What I mean is that we need a flexible system in the corporative governance. (Friedman 56-67)
At this point, I will give an example of a case that applies case law in corporative governance. A company called Citigroup sued its directors for breach of fiduciary duty of loyalty and care because they failed to see the warning signs about derivatives and supreme markets and failed to predict in advance that they had made investments that they otherwise would have avoided and this cost the investors millions of money. The judge decided that the case had no enough evidence since the directors were independent and they risked for the company to prosper and so it was withdrawn. There is no rigidity when using case laws. Principles of good governance and facts are used to give verdicts. (Bauman 45-78)
Whether we apply the statute laws, or the case laws, the most important thing is to have the best directors in offices. People who are thoughtful, people who are always informed, people who are focused on the trust placed on them to act on others, and people who can serve other peoples interests. This will be done by encouraging directors to take reasonable risks, without fear of being liable for breach of the duty of care in case the project fails. A director should only be made liable for breaching duties of loyalty or failing to carry out duties. This way they will be motivated and will work with out fear. This is why the law governing corporations should be one that does not chill responsible risk taking
Work cited
Bauman, Jeffrey. “Corporations law and policy: materials and problems.” St. Paul MN: Thomson West, 2007: 45-78
Friedman, Lawrence. A History of American Law (3 Ed.). Simon and Schuster, 2005: 56-67
Lawrence, Mitchell & Michael, Diamond, “Corporations, a contemporary approach.” Cases and materials for a course in corporate law, Durham, N.C: Carolina Academic Press, 2004: 345-349
Robert, Hamilton. Law of Corporations in a Nutshell. St Paul, Minn: West Group, 2000: 90-97
Sanjay, Anand. “Essentials of Sarbanes-Oxley.” Hoboken, N.J. John Wiley & Sons, 2007: 150-156