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The Corporate Fox and the Shareholders' Hen House: Reflections on Alford v. Shaw Deborah A. DeMott 45 N.C.L. Rev. 569 (1987) |
ABSTRACT:
In Alford v. Shaw, the North Carolina Supreme Court held that recommendations of litigation committees appointed by defendant directors to assess a derivative action demand must be accorded deference in keeping with the business judgment rule without the requirement that the committee affirmatively show that it acted in good faith. The court cited the importance of "fostering a favorable business climate" in reaching its ruling in the case, which departs significantly from other jurisdictions that allow such litigation committees, but require a showing of good faith and allow the court more lattitude in reveiwing the recommendations. Professor DeMott discusses why the North Carolina ruling is incorrect and expounds on the possible consequences of the jurisdiction following the rule laid out in this case. She points out that the court ignored the mainfest legislative intent apparent from surrounding provisions in the code, undermining the principle that corporate law should be "sound, complete, [and] predictable." The article includes a brief discussion of rulings on litigation committees and shareholder derivative suits in other jurisdictions and the doctrines and assumptions that underlie those rulings, and ends with a recommendation to the North Carolina Supreme Court to review the ruling in Alford and establish a clearer, better rule with regard to litigation committee recommendations on shareholder demand in derivative suits.
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