Digital Commons Network^™

Why Venture Capital Will Not Be Crowded Out By Crowdfunding, Ryan Kantor

Legal Issues Journal (United Kingdom)

As the recovery period from one of the worst recessions in our history continues on, life for the fledgling and even, often times, experienced entrepreneur has been tough. Indeed, President Obama remarked “[c]redit’s been tight, and no matter how good their ideas are, if an entrepreneur can’t get a loan from a bank or backing from investors, it’s always impossible to get their businesses off the ground.” In response to this ever-present need for business funding, and in an attempt to stimulate the economy and job growth, Obama signed the Jumpstart Our Business Startups Act (“JOBS Act”) into law on …

India's Companies Act Of 2013: A Governance Shift Into The Sunlight, Sarah C. Alvy

Indonesian Journal of International and Comparative Law

Recently enacted, the Companies Act of 2013 overhauls India’s corporate governance framework and has left the country anticipating whether implementation of the Act will be successful in attaining its policy objectives. This Article examines and critiques three provisions of the Act, including mandatory female board directorship, corporate social responsibility, and auditor rotation. The Article uses global business case studies to argue, from a managerial perspective, that each provision will enhance corporate governance and oversight, resulting in a more efficient Indian capital market. Also, the Article comments on how the U.S. could emulate India in adopting a regulation designed to increase …

Admission Of Guilt: Sinking Teeth Into The Sec's Sweetheart Deals, Larissa Lee

Global Markets Law Journal

Throughout its existence, the Securities and Exchange Commission (SEC) has allowed defendants to settle cases without admitting to the allegations of wrongdoing. This “neither admit nor deny” policy has received heavy criticism by judges, Congress, and the public, especially in the wake of the 2008 financial crisis. On June 18, 2013, SEC Chairman Mary Jo White announced the agency’s intention to require admissions of guilt in certain cases. While Chairman White did not articulate a clear standard of when admissions would be required, she did say that the agency would focus on the egregiousness of the defendant’s conduct and the …

Collective Action And The Competence Of Courts: The Lessons Of Nml V. Argentina, Jesse Kaplan

Stanford Journal of Law, Business & Finance

The recent Second Circuit decision in NML Capital v. Argentina, in which the court upended settled understanding of a common provision of sovereign debt contracts, has garnered a great deal of attention for its potential market and debt restructuring implications. This Essay takes a different tack, and instead identifies and elaborates a crucially important yet almost entirely overlooked aspect of the holding: the court’s fundamental misunderstanding of the purpose and function of contractual collective action clauses. The court’s error in this regard raises questions about the capacity of the U.S. judiciary to grapple with the complexities of modern globalized finance.

Pandora's Ballot Box, Or A Proxy With Moxie? The Majority Voting Amendment To Delaware Corporate Law, John Verret

ExpressO

The Delaware General Assembly has recently adopted an amendment to the Delaware General Corporation Law which provides that where shareholders have adopted a majority voting bylaw for corporate elections over the traditional plurality scheme, a corporation may not subsequently amend its bylaws to return to plurality voting without shareholder approval. I will compare this provision to other approaches and try to explain the reasons underlying its adoption. I will also briefly summarize the evolving shareholder empowerment debate and analyze the majority voting provision in the context of that discussion. I will describe some unique and unanticipated interactions between majority voting …

Controlling Family Shareholders In Developing Countries: Anchoring Relational Exchange, Ronald J. Gilson

ExpressO

The Law and Finance account of the ubiquity of controlling shareholders in developing markets is based on conditions in the capital market: poor shareholder protection law prevents controlling shareholders from parting with control out of fear of exploitation by a new controlling shareholder who acquires a controlling position in the market. This explanation, however, does not address why we observe any minority shareholders in such markets, or why controlling shareholders in developing markets are most often family-based. This paper looks at the impact of “bad law” on shareholder distribution in a very different way. Developing countries typically provide not only …

The Application Of Tax Treaties To Investment Funds, Niccolo Pallesi

ExpressO

Among financial investors, investment funds are the ones that mostly have increased their importance in capital markets where the regulation on investment funds is still incipient. By using investment funds, individual investors can have the possibility to participate in various companies as well as in market places worldwide without the need of specific and elaborated knowledge of the same companies and markets. After an introductory chapter I start analyzing the definition and activity of an investment fund, attention is also paid to the UCITS regulation for European investment funds. In the next chapter I analyze how investment funds are taxed …

Of Fine Lines, Blunt Instruments And Half-Truths: Business Acquisition Agreements And The Right To Lie, Jeffrey M. Lipshaw

ExpressO

In this article, I expand upon a happy coincidence (for scholars) in reconciling the overlap between contract and fraud. Both the recent book by Ian Ayres and Gregory Klass and the Delaware Court of Chancery in Abry Partners Acquisition V, L.P. v. F& W Acquisition, LLC addressed the issue of promissory fraud – the making of a contract as to which the promisor had no intention of performing. Each treatment, however, in focusing on fraudulent affirmative representations, falls short of (a) recognizing the fundamental aspect of deceptive promising in a complex deal, namely the half-truth, (b) articulating an appropriate doctrinal …

Contractarianism, Contractualism, And The Law Of Corporate Insolvency, Riz Mokal

ExpressO

What is the appropriate way of theorising about corporate bankruptcy law? That lies, argues this paper, in rejecting Pareto and Kaldor-Hicks efficiency in favour of a particular conception of transaction cost efficiency, and in rejecting the ‘contractarian’ Creditors’ Bargain Model in favour of the ‘contractualist’ Authentic Consent Model. The paper vindicates these arguments with an analysis of the automatic stay which characterises the collective liquidation regime, of the pari passu principle often said to be at the heart of this regime, and of the liability imposed in some jurisdictions on the managers of terminally distressed companies for failing to take …

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

Hostile Takeovers And Hostile Defenses: A Comparative Look At U.S. Board Deference And The European Effort At Harmonization, Tyler A. Theobald

ExpressO

The United States and the European Union have taken very different approaches in dealing with tender offers, especially in respect to the amount of power the board of directors has to block an unwanted takeover attempt. The United States has no single set of guiding principles regarding most of substantive corporate law and the field of tender offers is no different. The European Union, on the other hand, has very recently passed legislation that not only attempts to harmonize the corporate takeover laws of all its member states, but seeks to restrict the power of the board of directors. The …

The Flight From Arbitration: An Empirical Study Of Ex Ante Arbitration Clauses In Publicly-Held Companies’ Contracts, Theodore Eisenberg, Geoffrey Miller

ExpressO

We study a data set of 2,858 contracts contained as exhibits in Form 8-K filings by reporting corporations over a six month period in 2002 for twelve types of contracts and a seven month period in 2002 for merger contracts. Because 8-K filings are required only for material events, these contracts likely are carefully negotiated by sophisticated parties who are well-informed about the contract terms. These contracts, therefore, provide evidence of efficient ex ante solutions to contracting problems. The vast majority of contracts did not require arbitration. Only about 11 percent of the contracts included binding arbitration clauses. The rate …

Confidential Informants In Private Litigation: Balancing Interests In Anonymity And Disclosure, Ethan D. Wohl

ExpressO

Heightened pleading standards and limits on discovery in private securities fraud actions make confidential informants crucial in many cases. While courts have widely recognized the importance of confidential informants and the need to protect them from retaliation, they have not applied consistent standards for how informants must be identified in pleadings, and have failed to take into account substantial bodies of relevant caselaw when deciding whether to require that informants’ names be disclosed in discovery.

This article offers a framework for when and how confidential informants should be identified, taking into account the competing interests in anonymity and disclosure. It …

Whistleblower Protections Under The Sarbanes-Oxley Act: A Primer And A Critique, Valerie J. Watnick

ExpressO

In the wake of scandals involving Enron Corporation, Arthur Andersen and other corporations, Congress enacted the landmark Sarbanes-Oxley Act of 2002, the Corporate and Criminal Fraud Accountability Act of 2002 (hereinafter the “Act” or “Sarbanes-Oxley”).This article critically examines the whistleblower protections afforded employees under Sarbanes-Oxley. Part I of the article considers the statutory language, the legislative history, and the regulations pursuant to the Act. Part II of the article examines recent decisions by the U.S. Department of Labor in Sarbanes-Oxley whistleblower cases (cases under the Act are initially adjudicated by the Department of Labor) and the overall framework for implementation …

A Proposal To Revise The Sec Instructions For Reporting Waivers Of Corporate Codes Of Ethics For Conflicts Of Interest, Madoka Mori

ExpressO

Enron’s collapse focused attention on the application of that company’s Code of Ethics to related-party transactions. That focus produced Section 406 of the Sarbanes-Oxley Act of 2002, which intends to regulate conflicts of interest between officers and their companies through codes of ethics that public companies adopt. Pursuant to SOX Section 406(a), the Securities Exchange Commission issued new regulations requiring each public company to disclose whether it has a code of ethics, and if a company has not adopted such a code, to explain why it has chosen not to do so. SEC rules also require each company that has …

The End Of Corporate Governance Law, Steven A. Ramirez

ExpressO

This article argues that corporate governance is sub-optimal because of special interest influence at both the state and federal level, and because institutionally the mechanisms for promulgating corporate governance are not capable of impounding corporate goverance science. I offer as a solution the creation of depoliticized agency (on par with the Fed) that could administer a federal incorporation regime in an expert manner and without special interest interference. I posit that shareholders should be empowered to select this federal incorporation option.

Knowledge Inputs, Legal Institutions And Firm Structure: Towards A Knowledge-Based Theory Of The Firm, Erica Gorga, Michael Halberstam

ExpressO

Corporate scholars rely on traditional theories of the firm to analyze corporate organization and corporate contracting. Traditional theories of the firm, however, have long neglected the role of knowledge in shaping the internal structure of firms. Current analyses of firm structure that rely on these theories therefore suffer from serious shortcomings. This paper begins to address this gap by analyzing knowledge resources and investigating their influence on internal corporate governance structures. We propose a new typology that explains firm internal governance structure based on the types of knowledge used in the production process. We analyze the interaction of law and …

Shareholder (And Director) Fiduciary Duties And Shareholder Activism, Paula J. Dalley

ExpressO

Recent attention to shareholder activism in the business and academic press has ignored the legal ramifications of that phenomenon. Under current law, shareholders are neither principals nor agents of the corporation, the board of directors, or the other shareholders; those seeking to increase shareholder power must confront this legal reality. Specifically, proposals for increased shareholder power on the one hand and recent investor attempts to gain actual management control on the other must both be considered in light of the shareholders’ lack of fiduciary responsibility. Moreover, all directors, including those representing “activist” shareholders, are obligated to exercise independent judgment about …

Corporations And The Lateral Obligations Of The Social Contract, Benedict Sheehy

ExpressO

Social contract theorists suggest that society at some level is based on the idea that human people surrender freedom for the privilege of participating in society. That participation implicitly requires more than mere minimal compliance with law. Each human person’s contribution to society above the legal baseline, permits humans to create a society that is at least tolerable. Corporations as non-human act without regard for these supra-legal obligations which results in society suffering injustice. Corporate participation in society has become increasingly unjust and has done so to the extent that we may speak of living in a post-ethical world.

Re-Thinking Securities Regulation: A Comparative Study Of Asx, Nyse, And Sgx , Benedict Sheehy

ExpressO

This article approaches the issue of securities regulation starting with an examination of the nature and role of markets and financial markets. It next outlines the various arguments for and against regulation, and then looks at approaches taken by markets and their regulators. The approaches are government regulation, self-regulation and co-regulation, and the structural changes via demutualization and corporate governance. With this background, it turns to examine how these approaches have played out in the markets themselves. The article surveys the regulatory aspects of the ASX, NYSE and the SGX, and reviews the regulatory and financial performance of the markets. …

China-Australia Free Trade Agreement New Icing On An Old Cake-An Opportunity For Fair Trade?, Benedict Sheehy, Jackson N. Maogoto

ExpressO

The on-going challenge in economic development and globalization, particularly for developing countries, is the issue of development and equality in society. The issue becomes particularly problematic when confronted in matters of international trade. Often misnamed anti-globalization activists and pro-globalization activists fail to take note of the underlying assumptions that lead them to conflict—namely, the actual costs and benefits to society that result from their particular positions. In essence, both activists are searching for ways to improve the lives of people in the domestic context and to minimize the damage to their society and environment. China’s impressive economic record is threatened …

Corporations And Social Costs: The Wal-Mart Case Study, Benedict Sheehy

ExpressO

This article examines the role of the corporate vehicle in the creation of social costs. The article identifies some of the political commitments and philosophies behind the differing notions of corporations. Social costs are those activities which result from business activity and cause uncompensated harm to society. The founding contribution to the law and economics discussion by Ronald Coase is given a thorough treatment. The paper next, turns to the dominant explanation of corporate structure, namely the law and economics model developed expounded by Easterbrook and Fischel. It then applies the theoretical discussion in a case study of the world’s …

Un-Fair Trade As Friendly Fire: The Australia-Usa Free Trade Agreement, Benedict Sheehy

ExpressO

Trade, economists and trade theorists advise, is a mutually beneficial exercise. Among this group, a particular set of advocates, claim that “Free Trade” is in the interest of all parties. As will be demonstrated, Free Trade is not truly “free” but an exercise of foreign policy and the implementation of policies favouring wealthy corporate interest groups. Free Trade is controlled by wealthy nations who have stacked the rules in favour of themselves, and in particular their corporate interests, and against the poor producers in poor nations. This control is used contrary to fairness, economic and ecological logic. Fair trade, by …

Privatizing Eminent Domain: The Delegation Of A Very Public Power To Private, Non-Profit And Charitable Corporations, Asmara Tekle Johnson

ExpressO

In an age of privatization of many governmental functions such as health care, prison management, and warfare, this Article poses the question as to whether eminent domain should be among them. Unlike other privatized functions, eminent domain is a traditionally governmental and highly coercive power, akin to the government’s power to tax, to arrest individuals, and to license. It is, therefore, a very public power.

In particular, the delegation of this very public power to private, non-profit and charitable corporations has escaped the scrutiny that for-profit private actors have attracted in the wake of the U.S. Supreme Court’s decision in …

The Group Dynamics Theory Of Executive Compensation, Michael B. Dorff

ExpressO

The corporate governance debate has focused recently on executive compensation. While defenders of the status quo assert that CEO compensation – and corporate governance generally -- is efficient, critics contend that boards have been captured by powerful CEOs who demand excessive pay unconditioned on their performance. Both sides argue that the evidence garnered from CEO compensation justifies their positions on legal reform of corporate governance as a whole. Defenders of the status quo argue that the system works well as is, as demonstrated by the enormous success of U.S. corporations. Critics concerned about managerial power propose reforms that will increase …

Enforcing Foreign Summary/Default Judgments: The Damoclean Sword Hanging Over Pro Se Canadian Corporate Defendants? Case Comment On U.S.A. V. Shield Development, Antonin I. Pribetic

ExpressO

Following the 2003 Supreme Court of Canada decision in Beals v. Saldanha, where the “real and substantial connection” test is otherwise met (i.e. consent-based jurisdiction, presence-based jurisdiction or assumed jurisdiction) the only available defences to a domestic defendant seeking to have a Canadian court refuse enforcement of a foreign judgment are fraud, public policy and natural justice. The 2005 Ontario decision in United States of America v. Shield Development Co., presents an opportunity to critically analyze the defence of natural justice through a juxtaposition of American and Canadian procedural law. The thesis is that procedural justice mandates that “form follow …

Explaining The Value Of Transactional Lawyering, Steven L. Schwarcz

ExpressO

This article attempts, empirically, to explain the value that lawyers add when acting as counsel to parties in business transactions. Contrary to existing scholarship, which is based mostly on theory, this article shows that transactional lawyers add value primarily by reducing regulatory costs, thereby challenging the reigning models of transactional lawyers as “transaction cost engineers” and “reputational intermediaries.” This new model not only helps inform contract theory but also reveals a profoundly different vision than existing models for the future of legal education and the profession.

Compensation Representatives: A Prudent Solution To Excessive Ceo Pay, Lawton W. Hawkins

ExpressO

Currently, CEO pay is determined by a company’s board of directors, subject to limited shareholder approval in certain circumstances. However, as Lucian Bebchuk and Jesse Fried have demonstrated, boards of directors and CEOs do not necessarily engage in real arms length bargaining over CEO pay. Instead, CEOs may exert managerial power to extract economic rents above and beyond what they could have obtained in an arms length negotiation. To address the problem, Bebchuk and Fried have proposed that large shareholders be allowed to nominate candidates for the board, and that companies be required to pay the expenses for any proxy …

Successor Liability For Defective Products: A Redesign Ongoing, Richard L. Cupp

ExpressO

Successor products liability – cases where an injured plaintiff sues a successor business for a defective product sold by a predecessor business -- is a doctrine still under development in the courts, and the doctrine’s unsettled nature seems destined to continue over the next several years. Jurisdictions may be roughly divided into three categories. Several take a restrictive approach toward liability in such cases (sometimes called the “traditional approach”), allowing it only when relatively rare exceptions to a general no-liability rule apply. Several other jurisdictions are less restrictive with successor products liability, allowing recovery under the “product line” or “continuity …

Reverse Monitoring: On The Hidden Role Of Employee Stock Ownership Plans, Sharon Hannes

ExpressO

This paper develops a new understanding of equity-based compensation schemes, such as employee stock option plans. Current literature views such schemes as a measure aimed at motivating the recipient employees to work harder for the firm. Under such a view, this remuneration method either complements or substitutes other measures used to monitor the performance of the recipient employees. In contrast, this paper proposes that the recipient employee be viewed as the potential monitor of other employees and that stock options (or similar types of compensation) motivate her to fulfill this task. This view has many applications and can shed light …