Should There Be Corporate Governance Police?
Abstract
If a company misbehaves, lawsuits are one way of providing a remedy and encouraging that company and others to behave in the future. If the misbehavior is securities fraud, there are two potential plaintiffs—traders allegedly injured by the fraud may bring a private suit, and the government (through the SEC or DOJ) may sue to enforce the public interest in truthful disclosures of corporate information. If the misbehavior is violations of corporate governance rules, however, only private suits are available. Despite the parallel rationales for marrying private and public attorneys general, the toolkit for protecting the public interest in corporate governance is not as well stocked. This essay imagines what a government cause of action might look like for alleged corporate governance wrongdoing. Many of the pathologies of current corporate governance litigation may be ameliorated by a state-based, public cause of action for breaches of fiduciary duty. Although not without downsides, putting Delaware’s Corporate Governance Police on the beat may improve the governance of American companies, while reducing the amount of vexatious litigation.