Home | About | RSS Feed | Contact and Publicity Guidelines | Comment Policy the Law, the Universe, and Everything 

Search


Concurring Opinions is a
general-interest legal blog
operated by Concurring
Opinions LLC, a Pennsylvania
Limited Liability Corporation.

jr_114_9780195367195_bnr

jr_114_9780195383768_bnr

advertise-here4


FC-CO(SS)

Our Podcast

Subscribe to Law Talk

law-rev-contents2.jpg


  • Posts by Author

  • Categories

  • Archives


  • Recent Comments

    • Observer on Ricci: Color-Blind Standards in a Race Conscious Society?

    • RJ on Ricci: Color-Blind Standards in a Race Conscious Society?

    • RJ on Ricci and Briscoe as Disparate Impact Cases

    • Mike Rich on Negligent Corpse Mishandling

    • anon on Privacy and Tattletales

    • orly lobel on At CELS, Hoping to Blog

    • harry brooks on Ricci: Color-Blind Standards in a Race Conscious Society?

    • RJ on Ricci: Color-Blind Standards in a Race Conscious Society?

    • Michael H Schneider on Negligent Corpse Mishandling

    • flood pictures on Public opinion on same-sex marriage

    • gtownstudent on And Justache For All at GW Law

    • AF on Ricci and Briscoe as Disparate Impact Cases

    • RJ on Ricci and Briscoe as Disparate Impact Cases

    • Maryland Conservatarian on Ricci: Color-Blind Standards in a Race Conscious Society?

    • Daniel S. Goldberg on Negligent Corpse Mishandling

  •  

    Site Meter

Fiduciary Duty and the Corporate Psychic

posted by Kaimipono D. Wenger

Newsweek has a fascinating article about a woman who makes her living as psychic to the corporations:

When Seagate Technology, the $11 billion-a-year maker of hard drives for the Playstation 3 and Microsoft Xbox, went searching for a consultant to run one of its management workshops in the fall of 2006, it bypassed the usual list of Silicon Valley gurus. Instead, Seagate’s executive director of software engineering, Gabriel Lawson, invited Laura Day—a stylish New Yorker with no tech experience—to train his Colorado-based team. “She was amazing,” Lawson tells NEWSWEEK, recalling Day’s quick insights into the poor coordination between the company’s research and marketing teams. “Anybody who can afford her will get 100 times their money’s worth.” What exactly is Day’s expertise? While she likes to downplay it as mere “intuition,” her clients prefer another explanation: she’s a psychic. . . .

Day is one of a small but expanding cadre of corporate psychic consultants—the professionalized face of an occupation better known for hokey headscarves and crystal balls. Rebranded as “intuitionists” or “mentalists”—terms more palatable to mainstream America—psychic advisers in recent years have been crossing over into the world of legitimate business, where they are used by decision makers in law, finance and entertainment looking for an edge in a down economy. “I specialize in nonbelievers,” says Day, referring to her roster of “red-meat-eating, Barneys-shopping, Type A personalities.”

For a flat rate of $10,000 a month, Day’s insight is available for rent. She has about five monthly clients at a time, offering them unlimited 24-hour access. . . . In a typical call early last year, a prominent Wall Street money manager asked whether he should pull out of a risky, multimillion-dollar energy deal or let his money ride. “My gut,” Day recalls saying, “is that you’re not going to get your return.” The money manager listened and yanked his investment, she says, just before the deal nose-dived.

A psychic may make sense as a pep talk for managers, but deciding whether to do a deal based on psychic readings? Yikes. Suppose a CEO makes a big deal decision based on advice from the psychic. What kinds of fiduciary duty problems might arise?

To start with, there are obvious Van Gorkom concerns.


The Van Gorkom court was not at all pleased with the ad hoc method of arriving at a price — in particular, with the price number that the company Chairman/CEO just pulled out of the air. Going to a psychic doesn’t seem to help. It’s no longer the CEO pulling a number out of the air — now he’s hiring someone else to pull it out of the air for him. (The court was not impressed with Van Gorkom’s gut instinct; is there any reason to think they’d like Ms. Day’s any better?)

Plus, the Van Gorkom court castigated the board for their failure to investigate the problematic methodology used to arrive at the price. And the same concern would apply here, too. Even if the CEO decides to base the deal on readings from a psychic, could the board possibly sign off on that? Van Gorkom indicates that the board should at least understand the basic methodology behind the decision. And if that methodology is, “I asked a psychic” — can the board really sign off on that?

(Do they have to ask the psychic for her methodology? “I based this prediction on the lotus pattern I noticed in my tea leaves, and on the place of Jupiter.” Not quite as convincing as a PowerPoint presentation by a Morgan Stanley team, is it?)

But what if the board has an exculpation clause in place, limiting their Van Gorkom liability? Is there still a potential fiduciary duty problem?

I think there might be, on a few unusual fronts.

First, this might be the rare case that triggers good faith concerns. Good faith (in Disney, via Stone) now includes instances:

Where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties. There may be other examples of bad faith yet to be proven or alleged, but these three are the most salient.

So, say that our CEO decides on a deal based on a prediction from the psychic; the board signs off on the deal either without investigating, or after investigating but deciding that a deal suggested by a psychic is okay — but they’re exculpated from any duty of care violation that might come up under Van Gorkom.

Is this potentially an instance of intentional dereliction / conscious disregard? Maybe. Of course, the good faith standard is clear as mud, but it seems like this could be a good candidate for finding a breach. If effectively turning the company’s helm over to Madame LeGipsy for a crucial deal isn’t intentional dereliction . . . what is?

(Plus, does this potentially fit into the “player to be named later” provision of Disney — the “we’re not saying all possible good faith violations, and we reserve the right to add more later” clause?)

If it’s a good faith breach, then it’s really a loyalty breach (see Stone’s clear-as-mud reclassification of Disney), and the board isn’t shielded by the anti-Van Gorkom exculpation provision.

(On the other hand, maybe our psychic knows that the Delaware court is about to change the good faith standard once again — in which case, perhaps she’s only giving advice that she knows will be okay.)

A second wrinkle — what if it’s waste? Of course, waste is not exactly the most robust claim to make, especially post-Disney. But one could reasonably argue, I think, that paying a $10,000 monthly retainer to a psychic might be waste. Not to mention doing a $50 million (or $500 million) deal based on a psychic’s advice.

No wonder nobody is going on the record as having made deal decisions based on Ms. Day’s advice.

—

Bonus question, since we’re talking about paying for supernatural assistance:

Suppose Corporation makes a contribution of $100,000 to the Sisters of the Sacred Heart, and the nuns in return promise to pray not for a soul (corporations don’t have souls; see John Coffee’s article from a few decades ago) but rather for the company’s stock price to improve.

Is that a legitimate action? Is “purchase of prayers seeking divine intervention re: stock price” potentially waste, again? (Or good faith breach? No pun intended.)

(On the other hand, is it okay if the prayers themselves are peripheral and the real goal is to support a visible, popular charity and thus generate corporate goodwill? See Kahn v. Sullivan).


 July 7, 2008 at 2:40 pm   Posted in: Corporate Law   Print This Post Print This Post

Responses (1)

  1. Aaron Walker - July 9, 2008 at 8:51 am

    Mmm, i am calling “spam alert” on alex. i think he is just a bot, sadly. Which is ironic that he is selling a get rich quick scheme on a post about a corporate psychic.

    As far as the issue is concerned, I think that without empirical evidence that this actually works, you rely on it at your peril–as in, if it works out you are fine, but if it doesn’t, welcome to lawsuit hell. And i would be curious as to whether the psychic is aware of that issue.

Leave a Reply

*
To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Click to hear an audio file of the anti-spam word


  • « Previous post
  • Next post »

Authors

Daniel J. Solove

Website
Understanding Privacy

Kaimipono Wenger

Website
SSRN Page

Dave Hoffman

Website
SSRN Page

Nate Oman

Website
SSRN Page

Frank Pasquale

Website
SSRN Page

Deven Desai

Website
SSRN Page

Danielle Citron

Website
SSRN Page

Lawrence Cunningham

Website
SSRN Page

Sarah Waldeck

Website
SSRN Page

Jaya Ramji-Nogales

Website
SSRN Page

Solangel Maldonado

Website
SSRN Page

Gerard Magliocca

Website
SSRN Page


Guests

Rachel Godsil
Alex Kreit
Anita Krishnakumar
Matthew Sag
Michael Zimmer






Previous Guests

Michael Abramowicz
Michelle Adams
Robert Ahdieh
Michelle Anderson
Laura Appleman
Ann Bartow
Francesca Bignami
Jeremy Blumenthal
Kathleen Boozang
Bruce Boyden
Donald Braman
Al Brophy
Neil H. Buchanan
Bill Burke-White
Scott Burris
Paul Butler
Naomi Cahn
Anupam Chander
Miriam Cherry
Jack Chin
Jennifer Collins
Allison Danner
Brannon Denning
Deven Desai
Mike Dimino
Mark Edwards
David Fagundes
Christine Haight Farley
Kim Ferzan
Dan Filler
Michael Froomkin
Amanda Frost
Timothy Glynn
Rachel Godsil
Eric Goldman
David Gray
Craig Green
Tristin Green
Jeffrey Harrison
Erica Hashimoto
Carissa Hessick
Laura Heymann
Robert Hillman
Christine Hurt
Darian Ibrahim
John Ip
Kevin Johnson
Dan Kahan
Brian Kalt
Sam Kamin
Michael Kang
Chimène Keitner
Orin Kerr
Nancy Kim
Heidi Kitrosser
Adam Kolber
Russell Korobkin
Anita S. Krishnakumar
Susan Kuo
Greg Lastowka
Sarah Lawsky
Erik Lillquist
Jeff Lipshaw
Jonathan Lipson
Jacqueline Lipton
Joseph Liu
Michael Madison
Solangel Maldonado
Jason Mazzone
Linda McClain
William McGeveran
Salil Mehra
Carrie Menkel-Meadow
Max Minzner
Scott Moss
Eric Muller
Jaya Ramji-Nogales
Helen Norton
Elizabeth Nowicki
Paul Ohm
Michael O'Shea
David Opderback
Kristen Osenga
Rafael Pardo
Marcy Peek
Eduardo Peñalver
Robert Percival
David Post
Shruti Rana
Geoffrey Rapp
Neil Richards
Lori Ringhand
Alice Ristroph
Susan Scafidi
Paul Secunda
Jonathan Siegel
Jessica Silbey
Peter Smith
Charles Sullivan
Rick Swedloff
Steph Tai
Andrew Taslitz
Robert Tsai
Jenia Turner
Steve Vladeck
Sarah Waldeck
Melissa Waters
Alfred Yen
David Zaring
Timothy Zick
Spencer Weber Waller
Howard Wasserman
Frank Wu
Corey Yung
Jonathan Zittrain

Blogroll

Above the Law
ACS Blog
Althouse
Balkinization
Becker-Posner Blog
BlackProf
BoingBoing
Chicago Law Faculty Blog
Conglomerate
CrimLaw
Crime & Federalism
CrimProf Blog
Crooked Timber
Discourse.net
Dorf on Law
Election Law
Emergent Chaos
The Faculty Lounge
Feminist Law Profs
43(B)log
Freakonomics Blog
Freedom to Tinker
Google Blogoscoped
How Appealing
Ideoblog
Info/Law
Instapundit.com
Juris Novus
Jurisdynamics
Law and Humanities Blog
Law and Letters
Law Librarian Blog
Legal Profession Blog
Legal Theory Blog
Legal Times Blog
Leiter Reports
Brian Leiter's Law School Reports
Lessig Blog
Madisonian Theory
Media Law Blog
Mirror of Justice
The Moderate Voice
National Security Advisors
Opinio Juris
Point of Law
PrawfsBlawg
ProfessorBainbridge.com
Property Prof Blog
Red Tape Chronicles
The Right Coast
Schneier on Security
SCOTUSBlog
Security Dilemmas
Sentencing Law and Policy
Simple Justice
Sivacracy.net
The Situationist
Susan Crawford
TalkLeft
Talking Points Memo
TaxProf Blog
Tech & Marketing Law
Truth on the Market
Volokh Conspiracy
WorkPlace Prof Blog
WSJ Law Blog
Wonkette
The Yin Blog


© Concurring Opinions

Powered by WordPress