Corporate governance issues: United States and the European Union.

(123.) Lawrence Fox, The Academics Have It Wrong: Hysteria is No Substitute for Sound Public Policy Analysis, in ENRON: CORPORATE FIASCO AND THEIR IMPLICATIONS supra note 80, at 851, 865-66. Not only did the SEC propose and ultimately adopt a regulation that requires lawyers for public companies to report up the corporate ladder, but it also proposed rules "that would literally destroy confidentiality between lawyer and corporate client, as well as pre-empt state substantive law addressing fundamental principles of corporate governance." Id. at 864. Mr. Fox said:

[the] very idea of the Senate of the United States enacting or

directing others to enact rules of professional responsibility for

lawyers should be enough to cause collective professional

indigestion and indignation. A foundation of our independent

profession is that our rules of professional conduct are

promulgated by the states. Time and again, we have quite correctly

resisted efforts to have the federal government usurp--even for

lawyers employed by the federal government--the traditional role of

regulating lawyers through the respective state Supreme Courts.

Id. at 866.

Also worth noting is Section 806 makes employees, employers, and other specified persons civilly and criminally liable if they retaliate against "whistle blowers." Sarbanes-Oxley of 2002 [section] 806, 18 U.S.C.S. 1514A (LexisNexis 2005).

In the same vein, SEC regulation 17 C.F.R. [section] 205.3(d)(2) allows (but does not require) an attorney for a publicly-traded company to provide information to the SEC that would otherwise be privileged if the attorney reasonably believes such disclosure is necessary to 1) prevent the company from committing a material violation that is likely to cause substantial financial injury to the company or its investors; 2) stop the company from committing or suborning perjury or fraud in an SEC proceeding; and 3) rectify the financial consequences of a material violation in which the attorney's services were used. Steve Seidenberg, SEC Trumps N.C. Ethics Rules, ABA J. EREPORT, Vol. 5, Mar. 31, 2006, at 13. The regulation has been controversial ever since it was promulgated on January 29, 2003, pursuant to the Act. Id. The author further stated, although this "reporting out" rule poses no ethical problems for attorneys in most states (because fortytwo states have ethics rules that either allow or require attorneys to report out under these circumstances), the remaining eight states, however, have ethics rules that prohibit disclosure of such confidential client information. Id. Consequently, attorneys in those states find themselves in a dilemma. Id. The extent of the dilemma was realized in the summer of 2003 when two of the affected states, Washington and California, asserted the SEC's rule was trumped by contrary state ethics rules. Id. However, the SEC asserted the validity of its authority over any conflicting state ethics rules by reiterating the U.S. Supreme Court's ruling in Fidelity Federal v. de la Cuesta, 458 U.S. 41 (1982), which generally held that a federal regulation preempts conflicting state law if the agency intended to preempt state law, and the agency action was within the scope of its delegated authority. Seidenberg, supra note 123, at 13.

(124.) Greene & Boury, supra note 11, at 29. Attorney-client privilege may also become an issue.

(125.) Id. at 30.

(126.) Id. The United States has historically deferred to home country rules in so far as it does not regulate the internal structures of foreign corporations. Id.

(127.) EISENBERG, supra note 12, at 193.

(128.) MODEL BUS. CORP. ACT [section] 7.28; DEL. CODE ANN. TIT. 8, [section] 212 (2001).

(129.) MODEL BUS. CORP. ACT [section] 8.01(I)); DEL. CODE ANN. TIT. 8, [section] 141(a).

(130.) See EISENBERG, supra note 12, at 193-94.

(131.) Id. at 194; Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 659 (Del. Ch. 1988).

(132.) See Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919) (noting the traditional view that a corporation is organized and carried on primarily for shareholder profit).

(133.) "The traditional law and economic perspective holds that in determining the maximands of the corporation, exclusive priority should be given to its residual claimants"--the shareholders. Amir N. Licht, The Maximands Of Corporate Governance: A Theory Of Values And Cognitive Style, 29 DEL. J. CORP. L. 649, 652 (2004). However, others "call for 'corporate social responsibility,' holding that in addition to shareholders' interests, corporate officers must give weight to the interests of other corporate and societal constituencies," such as "creditors, employees, customers, local communities and the environment." Id. at 651.

(134.) EISENBERG, supra note 12, at 177. The acquirer could, however, oust the incumbent through the difficult and usually intermittently unsuccessful process of proxy fights. Id. Proxy fights occur during elections for directors when shareholders, through their proxy cards, can choose between two or more opposing slates of directors. Carol Goforth, Proxy Reform as a Means of Increasing Shareholder Participation in Corporate Governance: Too Little, But Not Too Late, 43 AM. U.L. REV. 379, 388 (1994).

(135.) EISENBERG, supra note 12, at 177.

(136.) Id. This is because, if and when successful, the acquirer may sometimes not only oust management but actually liquidate the firm's assets and fire most or all employees. Id. Incumbent management logically resists such takeovers by making the corporation take defensive actions to stymie a bid. Id. The pragmatic takeover that ostensibly dominated public perception at the time was the hostile "bust-up" takeover. Licht, supra note 133, at 701. This public image was intensified by colorful jargon to describe takeover activities--this jargon included words such as raiders, white knights, poison pills, shark repellants, greenmail, etc. Id. at 701 n.205. See O'KELLY & THOMPSON, supra note 20, at 816-17 (providing meaning and more on the jargon); see also Anne B. Fischer, Oops! My Company is on the Block, FORTUNE, July 23, 1984, at 16 (discussing why, with the impact of the merger and acquisition boom at that time and with management's defensive responses, stricter regulations of mergers and acquisitions were inevitable).

(137.) Licht, supra note 133, at 701.

(138.) Id. at 702. It is worthwhile to note that the federal Williams Act of 1933 regulated some aspects of takeover. Geoffrey Miller, Political Structure and Corporate Governance: Some Points of Contrast Between the United States and England, 1998 COLUM. BUS. L. REV. 51, 54 (1998); see also 15 U.S.C. [section] [section] 78m(d)-(e), 78n(d)-(f). However, legislative history indicates that congressional policy was to adopt a neutral position between the interests of incumbent managers and those of bidders. Id. The Act, therefore, was generally consistent with this intermediate position, not unduly favoring bidders or targets. Id. The Act imposed some "regulation on the terms and procedure for takeover bids, require[d] prebid disclosure and create[d] a fraud remedy for communications concerning an offer." Id.

(139.) 493 A.2d 946 (Del. 1985).

(140.) Id. at 955. Courts in other jurisdictions followed the Delaware standard and approved constituencies' statutes, with the shareholder benefit considered to be of paramount consideration. Licht, supra note 133, at 702 n.210; see also, e.g., Amanda Acquisition Corp. v. Universal Foods Corp., 708 F. Supp. 984, 1009 (E.D. Wis.), aff'd, 877 F.2d 496 (7th Cir.1989); GAF Corp. v. Union Carbide., 624 F. Supp. 1016, 1019-20 (S.D.N.Y. 1985) ("The protection of loyal employees, including managers, of the organization is not anathema ... legitimate concerns for their past conduct of the enterprise and its requirements need not be left to the goodwill of an unfriendly acquirer of corporate control in the jungle warfare involving attempted takeovers."). Other forms of such statutes included laws restricting the voting rights of shares acquired by a bidder in a takeover unless the remaining shareholders approve (control share statutes); laws restricting rights of a winning bidder to consummate a merger or other business combination with the target for a substantial period of time after the bid (business combination freeze statutes); and provisions requiring the bidder to pay as much at the freezeout stage of an acquisition as it pays to tendering shareholders in the takeover bid (fair price rules). See Miller, supra note 138, at 55.

(141.) 506 A.2d 173, 182 (Del 1985).

(142.) Id. at 182; see also E. Norman Veasey, Should Corporation Law Inform Aspirations for Good Corporate Governance Practices--Or Vice Versa?, 149 U. PA. L. REV. 2179, 2184 (2001) ("IT]he interests of stockholders are primary and may not be trumped by that of other constituencies, although those interests may be considered if congruent with interests of the stockholders.").

(143.) Revlon, 506 A.2d at 182. Revlon therefore appeared to be "restricting the power of incumbent managers to control the takeover process." See Miller, supra note 138, at 57.