Strategic Governance

Creditors exercise significant power over financially distressed corporations, thereby pushing corporate managers further into the realm of unprofitable risk aversion. The heavy hand of creditor power and the threats creditors are able to make to managers’ professional stability and success misalign senior officers’ incentives by undermining their freedom to make wealth-maximizing decisions on behalf of the corporation. The importance of independent managerial decision making is paramount in the law of corporate governance and that independence has been inefficiently undermined by the exertion of oppressive creditor control. This Article resolves the problem by creating a mechanism to balance shareholder and creditor influence over management so that no one constituent is able to dominate or undermine the independence of managerial decision making.