Megan Wishchmeier Shaner, The Corporate Chameleon, 54 U. Rich. L. Rev. 527 (2020).
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Since the adoption of the first American general incorporation statutes in the late nineteenth century, corporate law has contemplated three distinct actors involved in the corporation—directors, stockholders, and officers. Today, officers are widely considered among the most central, if not the central, figures in corporate governance. Yet they are the least theorized participants. While corporate statutes and case law make clear the identities of directors and stockholders, officers are left relatively undefined. Over 120 years after the creation of modern corporation law, “Who is an ‘officer’ of a corporation?” remains an open question. The definitional uncertainty surrounding “officer” is problematic at the individual, institutional, judicial, and legislative levels. Categorization as a corporate officer carries with it distinct legal duties, rights, and liabilities. Currently, individuals, boards, and their counsel are left to speculate as to “officer” status. Lacking in established definitional boundaries, parties opportunistically define “officer” to fit their particular argument, causing judicial analysis and rulemaking as it pertains to corporate officers to become inconsistent and unpredictable.
Historically, corporate codes identified a handful of officers that every corporation should, and in some cases, must have. Over the years, the adoption of statutory reforms largely stripped out all references to any particular office or title. Corporate statutes contemplate a distinct “officer” category, but refrain from articulating that role with any specificity, leaving it up to corporations to do so in their governing documents.Corporations have, however, refrained, through private ordering in their bylaws or otherwise, from clarifying the term “officer.” In fact, corporations have done the opposite; through exercising the freedom of contract provided under the enabling regime of modern corporate law, corporations have muddied the definitional waters, fashioning officer titles in myriad ways and giving titles to countless people, many of whom lack traditional officer responsibilities and authority. Over the years corporate law has developed in such a way that identifying the officers of a corporation, as that role is contemplated in corporate jurisprudence, is arguably a more challenging task than it has ever been.
In addition to state corporate codes, federal securities law, jurisdictional statutes, and bankruptcy law all make reference to the corporate “officer.” Each defining “officer” in slightly different terms, courts disagree over the proper interpretation of “officer” and the proper identification of persons occupying this role. A contributing factor to the inconsistent interpretations is the lack of a “north star” definition in state corporate law for courts to look to for guidance. The resulting definitional fluidity within and across disciplines means that individuals can move in and out of “officer” status in a chameleon-like fashion depending on the context and jurisdiction in which they operate.
To be sure, this chameleon-like result is not exclusive to the term “officer.” There are many words in the English language that take on new or specialized meanings depending on the area of law or jurisdiction in which one is operating. Moreover, legal definitions can expand, contract, or be transformed into new definitions depending on the context in which a word or phrase is being used. The variable nature of words in the law becomes problematic, however, when there is a lack of established consensus and clarity in defining a term. Linguistic precision is vital to the development, practice, and application of the law, but to achieve this, there needs to be clear delineation of a term’s legal meaning(s). This is necessary for individuals to understand their legal responsibilities and authority, and for lawyers and judges to communicate efficiently and effectively. If left unresolved, definitions will be determined ex post, allowing parties to opportunistically define terms to fit their particular argument or position.
While limited in scope, “officer” scholarship to date has focused on identifying the authority, responsibility, and liability of these individuals. Research in this area (including that written by this author) avoids the messy step of having to delineate with precision “officer” status in a corporation. However, before officer jurisprudence is further developed by the courts or scholars, the threshold question of “To whom does the doctrine apply?” needs to be answered. Corporate governance specifies different consequences that attach to the different categories of corporate actors. It is both normatively and practically problematic to decide consequences without reference to a clearly defined category.
Defining “officer” has become particularly pressing in light of the private ordering movement in corporate law. With increasing frequency, parties are structuring key aspects of corporate governance through private contracting methods. Observing that the ambiguity surrounding officers in corporate law makes it a ripe topic for private ordering, the American Bar Association (“ABA”) has created a Task Force on Officer Liability charged with developing ways of addressing uncertainties in officer doctrine and developing model provisions suitable for use in employment agreements and governing documents. Integral to these efforts will be establishing a clear consensus on the legal default definition of “officer.” As individual corporations and their stockholders begin to attempt to structure the governance of their entity through provisions in the governing documents or contract, clarity as to whom the law views as an “officer” is critical.
This Article seeks to address what is currently missing from corporate law—a clear way of determining “officer” status as that distinct legal role is contemplated in corporate jurisprudence. Part I discusses the three primary actors involved in the internal governance of the corporation—directors, stockholders, and officers—and how the law defines each one. While corporate law clearly contemplates officers as a distinct role, a quick comparison of the three reveals a failure to identify with any precision the bounds of “officer” status. Part II looks to other areas of the law for guidance in defining and identifying the officers of the corporation. While the policy considerations underlying the definitions of “officer” in each of these other areas of the law may be similar or different to those animating “officer” for purposes of state corporate law, the articulation and identification of individuals occupying the officer role are nevertheless instructive. Finally, Part III applies the lessons learned from the struggles courts in securities law and bankruptcy law have had in identifying officers and proposes a test for determining “officer” status. Adopting a prototype-centered approach, the proposal rejects a fixed definition in lieu of a multi-factor approach that embodies the traditional and legal officer roles espoused by courts and scholars. The result stabilizes the meaning of “officer” as a category of corporate actor and provides predictability and certainty to corporations, officers, directors, stockholders, third parties, and their counsel going forward.
* Associate Dean for Research & Scholarship; Professor of Law, The University of Oklahoma College of Law. For helpful comments and discussions, I would like to thank Afra Afsharipour, Brad Bernthal, Wendy Netter Epstein, Charlie Korsmo, Christopher Odinet, and Christina Sautter. I would also like to thank the participants in the National Business Law Scholars Conference, the Law and Society Annual Meeting, and BYU Law School’s Winter Deals Conference whose thoughtful comments and questions contributed to the completion of this Article.