Abstract

Scholars have long celebrated the importance of norms in corporate law. Indeed, norms likely guide corporate actors more than the omnipresent threat of shareholder suits. This Article divides corporate norms into two distinct groups: aspirational norms and arbiter norms. Aspirational norms announce socially desirable objectives for corporate managers and encourage certain disclosure practices; arbiter norms identify distinct transactions for closer scrutiny by an independent body, the court. This Article shows that even though aspirational norms and arbiter norms serve different objectives, they share a common characteristic—overbreadth. This feature exists whether the norm is set forth by statute or found in judicial doctrine. Such overbreadth explains some, but by no means all, of the problems accompanying shareholder litigation, including the frequency of suits and inconsequential settlements. This Article also develops the paradoxes that accompany corporate norms.

The inherent overbreadth of both aspirational and arbiter norms can be of great assistance to their protection against inconsequential settlements. Using the recent decision In re Trulia, Inc. Stockholder Litigation, this Article addresses how courts can fulfill their role in the non-adversarial setting of the settlement hearing. When asked to approve a settlement, the court should anchor its scrutiny of the adequacy and reasonableness of a settlement in the norm that is central to the suit. By doing so, the court can more positively contribute to the ongoing development of corporate norms.

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