Governance is a strength of the Minnesota Law faculty, with professors who teach, research, publish, speak, and advise on what goes makes for good corporate governance, whether in the classroom or the White House. 

Professor Richard Painter, S. Walter Richey Professor of Corporate Law, who served as chief ethics lawyer for President George W. Bush, says personal responsibility is “absolutely critical” to good governance and is particularly essential for thosewho run large financial institutions and their lawyers. 

Painter pushed for a key provision of the Sarbanes-Oxley Act of 2002 requiring lawyers who represent public companies to report known securities law violations, fraud, and breaches of fiduciary duty to the client’s board of directors. 

Personal liability should accompany that responsibility, Painter and Professor Claire Hill argued in their 2015 book, Better Bankers, Better Banks: Promoting Good Business through Contractual Commitment. 

Before 1980, general partners paid out of their own pockets when investment banks failed or faced huge fines, Painter says. Since then, big banks have gone public, and those running them enjoy limited corporate liability and “can act like cowboys with other people’s money,” he adds. 

The book proposed remedies that include legislation or company-specific contractual provisions requiring high-ranking officers to pay a portion of fines imposed on the company. Painter and Hill also recommended having directors set rules that require senior officers to pay fines and cover failures personally, and to include such provisions in employment agreements. 

Beware the Purported Savant 

Beware the hoodie-wearing, unkempt, often male figures who “fit too readily into a story of brilliance,” warns Professor Claire Hill, James L. Krusemark Chair in Law. 

“People want to latch onto a certain kind of savant who’s going to take off like crazy,” she says. “But in retrospect we only know who the brilliant peopleare after a very long time. And even then, they might have been lucky.” 

Hill cites numerous examples of companies run by the purported savant that have collapsed, harming shareholders, employees, and sometimes even the broader public. Law isn’t that well situated to address these harms, Hill says, and there is much debate about which of these harms should be within the law’s purview. Hill’s research considers to what extent the debate can be resolved. 

She points to Elon Musk’s recent purchase of Twitter. Once Musk had agreed to buy Twitter, shareholders were best served by him going through with the deal as they would get more cash than their shares were reportedly worth. What was the board of directors to do when it seemed that others — certainly employees and, arguably, society at large — would be harmed? After all, the board’s duties are principally to the shareholders. 

Hill’s research also considers how other types of companies go wrong and particularly how top-level executives can be held more accountable. She is co-authoring a piece comparing “individual accountability regimes” being adopted in non-U.S. jurisdictions with practices in the U.S. 

What to Know about ESG 

A set of principles and standards known as ESG — for environmental, social and governance — is among the hottest and most controversial topics in business and investing, and Professor Brett McDonnell, Dorsey & Whitney Chair in Law, watching closely. 

“ESG addresses to what extent do and should corporations be considering the interests of persons other than the shareholders of the corporation,” McDonnell says. The ESG movement seeks to consider stakeholders such as employees, customers, and creditors, as well as the environment and local communities. Public benefit corporations do this already, reporting yearly on their efforts to do good for society under a statute that McDonnell helped draft with a state bar committee. 

McDonnell has worked with environmental law scholars in the U.S. and in Australia to study how shareholder activism may be changing how public companies react to climate change. He also is watching growth in companies’ engagement with stakeholders. McDonnell has a long-standing focus on the role or potential role of employees in corporate governance. 

In Germany, for example, he notes that boards include employee representatives, while employee councils work with managers to make decisions about workplace conditions. 

Diversity as a Hallmark of Good Governance 

Corporate governance has improved in several regards in recent decades, Professor John Matheson, Law Alumni Distinguished Professor of Law, says. Corporate boards are more diverse, with women today holding 28% of board seats, up from just 10% some 15 years ago. 

“One of the dangers of bad governance is what might be viewed as the ‘old boys network,’ having the same people who have the same ideas in control and willing to go along with whatever the CEO wants,” Matheson says. 

The lack of recent scandals in publicly held companies is a good sign. “Generally, checks and balances are improving in publicly held companies today so that you don't have the level of governance failures that you may have seen in the past with situations such as WorldCom and Enron,” Matheson says. “There may be individual problems at individual companies, but I don’t see a pandemic of bad governance.” 

Matheson welcomes the push from retail and institutional investors “to have companies be more than profit centers but good corporate citizens as well.”