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Goolsby corporations book in its third edition

The third edition of “Goolsby on Virginia Corporations” has the same nuts-and-bolts focus as the previous versions of the treatise.
Any niggling question a practitioner might have about setting up a closely held corporation or even merging publicly traded Virginia corporations probably can be answered quickly by referring to the index or table of contents.

There is even a CD-ROM with forms to put those answers into effect.

The treatise updates legislative changes to the Virginia Stock Corporation Act – Goolsby was the principal draftsman of the original act and the amendments to it – and analyzes recent corporate cases from the Supreme Court of Virginia, the federal courts and other states, especially those from Delaware.

But the treatise also emphasizes trends in corporate governance that Goolsby says make service as a corporate director a much dicier proposition than when he was an associate to the principal rainmaker at Hunton & Williams – future U.S. Supreme Court Justice Lewis F. Powell Jr. – in the late 1960s.

Then, a corporate board was likely to be composed of the CEO, a couple of other senior officers and business or social associates of the CEO. Management had little concern about interference from shareholders, who were individual investors for the most part.
Since that time, Goolsby said, “There has been a steady transfer of power from managers to a disinterested board to shareholders,” many of whom are pension or mutual funds with substantially more collective clout than that wielded by individual investors.

The pace of the transfer has increased in recent years with the implosion of Enron and WorldCom and the passage of the Sarbanes-Oxley Act. Those developments reflect “the inability of high-profile boards to do what they’re supposed to do” and the legislative response to that failure, as well as “the lack of reality associated with the amount of money [corporate] executives get paid,” Goolsby said.

Shareholders are asserting more control over election of board members and attempting to control corporate policy through advisory votes on such issues as where the company does business and executive compensation, which Goolsby said is “at the heart of what directors do.”

“I think we need to re-examine how we want that balance to be,” he said.

The corporate model of separating ownership from control is undercut by increased shareholder activism, which can reduce the entrepreneurial flexibility of management and shift the focus to quarterly earnings rather than the long-term health of the company, he said.

These developments require more time from corporate directors and may place them in the crosshairs of such activist shareholders as hedge and pension funds who want a shift in corporate policy. “When these concerns are combined with the never-ending concern about being exposed to litigation and personal responsibility, one wonders why anyone would agree to serve,” Goolsby writes.

On a more practical note, the treatise examines recent legislative changes that increase the ability of shareholders to act by majority consent rather than by unanimous consent, correct inconsistencies in the procedures for dissolving a corporation, provide clearer procedures for evaluating the shares of dissenting shareholders, and give the State Corporation Commission equitable powers to correct filing errors.

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