Nadelle Grossman, The Duty to Think Strategically, 73 La. L. Rev. 449 (2013)
73 Louisiana Law Review 449 (2013)
Under Delaware corporate law, directors and officers have a duty to oversee their firm’s management of risk to limit losses. Corporate law does not, however, require directors or officers to oversee their firm’s management of strategy to create gains. Yet, managing both risk and strategy is essential to a firm in creating value. In fact, as I argue in the Article, the current focus by courts and commentators only on risk management to prevent losses could actually undermine a firm’s management of its strategy for gains. I therefore propose a model for how Delaware corporate law can drive firms to manage their strategies for gains, in addition to their risk of loss, all to create value.
This proposal is especially necessary in light of the fact that companies such as General Motors collapsed not because of excessive risk taking, but because they failed to sufficiently formulate and implement innovative strategies for gains. This proposal also opens an additional avenue to combat the significant problem of short-termism, or the drive by firms to create short-term profits regardless of whether that creates true value. It combats short-termism by creating an expectation for officers and directors to oversee their firm’s formulation and implementation of value-creating strategic objectives. Those objectives, rather than next quarter’s earnings targets, would then be expected to guide firm decisions.
Grossman, Nadelle, "The Duty to Think Strategically" (2013). Faculty Publications. Paper 635.