Vanderbilt Law Review


David M. Barnes

First Page



Corporate law considers the affairs of a corporation to be private activity. The prevailing concept of the firm is a nexus of private contract rights among participants in an economic enterprise. But for many U.S. auto and financial services corporations, the events of the fall of 2008 and the winter of 2009 turned this presumption on its head. The U.S. government's $700 billion bailout injected an alien actor-the United States Treasury-into this once-private enterprise. The bailout enabled the Treasury to take a direct equity stake in many of the nation's struggling auto and financial services corporations. In the fall of 2008, for example, the Treasury purchased $300 billion of stock in over 600 banks. A few months later, it invested $100 billion in American automakers. Everyone from GM and Citigroup to your local First State Bank is now owned, at least in part, by the federal government. For many of these companies, the

government is a powerful shareholder due to the size of its equity stake. But the government also has a power that no other shareholder has: it regulates the companies it owns. After the bailout, corporate scholars immediately began to debate the impact the presence of this regulator-shareholder would have on corporate law. Much of this scholarship focuses on the obligations and responsibilities of the government itself, and what, if any, duties the government owes to the corporation and its shareholders as a result of its equity stake.9 Interestingly, little, if anything, has been written on the effect a powerful regulator- shareholder's presence has on the fiduciary obligations of corporate directors. This is particularly odd, considering that the government's influence on directorial decisionmaking is at the heart of many lawsuits currently pending against directors and will continue to be a focus of future suits so long as the government maintains a substantial equity position in these corporations. This Note focuses on this largely ignored issue.