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Opting only in: Contractarians, waiver of liability provisions, and the race to the bottom

Gopalan, Sandeep and Brown, J. Robert 2009, Opting only in: Contractarians, waiver of liability provisions, and the race to the bottom, Indiana law review, vol. 42, no. 2, pp. 284-315.

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Title Opting only in: Contractarians, waiver of liability provisions, and the race to the bottom
Author(s) Gopalan, Sandeep
Brown, J. Robert
Journal name Indiana law review
Volume number 42
Issue number 2
Start page 284
End page 315
Total pages 32
Publisher Indiana University, Robert H. McKinney of School of Law
Place of publication Indianapolis : Ind.
Publication date 2009-01-01
ISSN 0090-4198
Summary This paper will test the core claim of scholars in the nexus of contracts tradition—that private ordering as a process of bargaining creates optimal rules. We do this by analyzing empirical evidence in the context of waiver of liability provisions. These provisions allow companies to eliminate monetary damages for breach of the duty of care through amendments to the articles of incorporation. With all states allowing some form of these provisions, they represent a good laboratory to examine the bargaining process between management and shareholders. The contractarian approach would suggest that shareholders negotiate with management to obtain agreements that are in their best interests. If a process of bargaining is at work as they claim, the opt-in process for waiver of liability provisions ought to generate a variety of approaches. Shareholders wanting a high degree of accountability would presumably not support a waiver of liability. In other instances, shareholders might favor them in order to attract or retain qualified managers. Still others would presumably want a mix, allowing waiver but only in specified circumstances.Our analysis reveals that the diversity predicted by a private ordering model is not borne out by the evidence with waiver of liability provisions for Fortune 100 companies. All states permit such provisions and in the Fortune 100, all but one company has them. Moreover, they are remarkably similar in effect, waiving liability to the fullest extent permitted by law. In other words, one categorical rule was merely replaced by another, dealing a significant blow to the contractarian thesis.
Language eng
Field of Research 180119 Law and Society
Socio Economic Objective 940499 Justice and the Law not elsewhere classified
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2009, Indiana University, Robert H. McKinney of School of Law
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Document type: Journal Article
Collection: Law
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