Approximately 80,000 businesses fail each year in the United States. This Article presents an original empirical study that surveys more than 400 business restructuring professionals. The study focuses on a critical factor that arguably contributes to these failures—the conduct of boards of directors and management. Anecdotal evidence suggests that management of distressed companies often bury their heads in the sand until it is too late to remedy the companies’ problems, a phenomenon commonly called “ostrich syndrome.” The data confirm this behavior, shows a prevalent use of loss framing, and suggest trends consistent with prospect theory. This Article draws on both the data and behavioral economics to examine the genesis and contours of this problem. It then discusses potential changes to applicable law and introduces a new “meet and confer” process to encourage timely restructuring negotiations. The meet and confer process is designed to promote meaningful changes in management conduct and to facilitate more “successful failures.” Policymakers should adopt regulations that foster this mentality, rather than rewarding fear or ignorance in the face of failure.
September 2014, Vol. 66, No. 5
F. Patrick Hubbard, “Sophisticated Robots”: Balancing Liability, Regulation, and Innovation
Christopher R. Drahozal & Erin O’Hara O’Connor, Unbundling Procedure: Carve-Outs From Arbitration Clauses
Jason Rantanen & Lee Petherbridge, Ph.D., Disuniformity