Business Commons^™

Purpose Proposals, Jill E. Fisch

All Faculty Scholarship

Repurposing the corporation is the hot issue in corporate governance. Commentators, investors and increasingly issuers, maintain that corporations should shift their focus from maximizing profits for shareholders to generating value for a more expansive group of stakeholders. Corporations are also being called upon to address societal concerns – from climate change and voting rights to racial justice and wealth inequality.

The shareholder proposal rule, Rule 14a–8, offers one potential tool for repurposing the corporation. This Article describes the introduction of innovative proposals seeking to formalize corporate commitments to stakeholder governance. These “purpose proposals” reflect a new dynamic in the debate …

Selling Antitrust, Herbert J. Hovenkamp

All Faculty Scholarship

Antitrust enforcers and its other defenders have never done a good job of selling their field to the public. That is not entirely their fault. Antitrust is inherently technical, and a less engaging discipline to most people than, say, civil rights or criminal law. The more serious problem is that when the general press does talk about antitrust policy it naturally gravitates toward the fringes, both the far right and the far left. Extreme rhetoric makes for better press than the day-to-day operations of a technical enterprise. The extremes are often stated in overdramatized black-and-white terms that avoid the real …

Leases As Forms, David A. Hoffman, Anton Strezhnev

All Faculty Scholarship

We offer the first large scale descriptive study of residential leases, based on a dataset of ~170,000 residential leases filed in support of over ~200,000 Philadelphia eviction proceedings from 2005 through 2019. These leases are highly likely to contain unenforceable terms, and their pro-landlord tilt has increased sharply over time. Matching leases with individual tenant characteristics, we show that unlawful terms are surprisingly likely to be associated with more expensive leaseholds in richer, whiter parts of the city. This result is linked to landlords' growing adoption of shared forms, originally created by non-profit landlord associations, and more recently available online …

Stakeholderism, Corporate Purpose, And Credible Commitment, Lisa Fairfax

All Faculty Scholarship

One of the most significant recent phenomena in corporate governance is the embrace, by some of the most influential actors in the corporate community, of the view that corporations should be focused on furthering the interests of all corporate stakeholders as well as the broader society. This stakeholder vision of corporate purpose is not new. Instead, it has emerged in cycles throughout corporate law history. However, for much of that history—including recent history—the consensus has been that stakeholderism has not achieved dominance or otherwise significantly influenced corporate behavior. That honor is reserved for the corporate purpose theory that focuses on …

Secured Transactions Law Reform In Japan: Japan Business Credit Project Assessment Of Interviews And Tentative Policy Proposals, Megumi Hara, Kumiko Koens, Charles W. Mooney Jr.

All Faculty Scholarship

This article summarizes key findings from the Japan Business Credit Project (JBCP), which involved more than 30 semi-structured interviews conducted in Japan from 2016 through 2018. It was inspired by important and previously unexplored questions concerning secured financing of movables (business equipment and inventory) and claims (receivables)—“asset-based lending” or “ABL.” Why is the use of ABL in Japan so limited? What are the principal obstacles and disincentives to the use of ABL in Japan? The interviews were primarily with staff of banks, but also included those of government officials and regulators, academics, and law practitioners. The article proposes reforms of …

A Public Option For Employer Health Plans, Allison K. Hoffman, Howell E. Jackson, Amy Monahan

All Faculty Scholarship

Following the 2020 presidential election, health care reform discussions have centered on two competing proposals: Medicare for All and an individual public option (“Medicare for all who want it”). Interestingly, these two proposals take starkly different approaches to employer-provided health coverage, long the bedrock of the U.S. health care system and the stumbling block to many prior reform efforts. Medicare for All abolishes employer-provided coverage, while an individual public option leaves it untouched.

This Article proposes a novel solution that finds a middle ground between these two extremes: an employer public option. In contrast to the more familiar public option …

The History And Revival Of The Corporate Purpose Clause, Elizabeth Pollman

All Faculty Scholarship

The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose …

Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon

All Faculty Scholarship

Corporate purpose is the hot topic in corporate governance. Critics are calling for corporations to shift their purpose away from shareholder value as a means of addressing climate change, equity and inclusion, and other social values. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, what role it serves.

We start by exploring and rejecting historical, doctrinal, and theoretical bases for corporate purpose. We challenge the premise that purpose can serve a useful function either as a legal constraint on managerial discretion or as a …

Commercial Law Intersections, Giuliano Castellano, Andrea Tosato

All Faculty Scholarship

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of these events falls concurrently within the purview of two or more of these commercial law branches - such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation - an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). Some notable examples of transactions that feature CLIs include bank loans secured by shares, supply chain financing arrangements, patent cross-licensing, and blockchain-based …

Frand And Antitrust, Herbert J. Hovenkamp

All Faculty Scholarship

This paper considers when a patentee’s violation of a FRAND commitment also violates the antitrust laws. It warns against two extremes. First, is thinking that any violation of a FRAND obligation is an antitrust violation as well. FRAND obligations are contractual, and most breaches of contract do not violate antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation.

Every antitrust case must consider the market environment in which conduct is to be evaluated. SSOs operated by multiple firms are joint ventures. Antitrust’s role is to …

Toward Fair And Sustainable Capitalism: A Comprehensive Proposal To Help American Workers, Restore Fair Gainsharing Between Employees And Shareholders, And Increase American Competitiveness By Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth And Encouraging Investments In America’S Future, Leo E. Strine Jr.

All Faculty Scholarship

To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make …

Capturing Regulatory Agendas?: An Empirical Study Of Industry Use Of Rulemaking Petitions, Daniel Walters

All Faculty Scholarship

A great deal of skepticism toward administrative agencies stems from the widespread perception that they excessively or even exclusively cater to business interests. From the political right comes the accusation that business interests use regulation to erect barriers to entry that protect profits and stifle competition. From the political left comes the claim that business interests use secretive interactions with agencies to erode and negate beneficial regulatory programs. Regulatory “capture” theory elevates many of these claims to the status of economic law. Despite growing skepticism about capture theory in academic circles, empirical studies of business influence and capture return ambiguous …

The Tcja And The Questionable Incentive To Incorporate, Part 2, Michael S. Knoll

All Faculty Scholarship

The Tax Cuts and Jobs Act (TCJA) has put the question should a business be organized as a passthrough entity or as a corporation at center stage. The TCJA eliminated much of the tax disadvantage from using the corporate form, but did Congress go so far that it advantaged corporations relative to pass-through entities? Some prominent commentators say yes. They argue that the federal income tax now encourages individual owners of pass-through businesses to restructure their business as subchapter C corporations, and they predict that the TCJA will lead to a cascade of incorporations. The principal driver of the shift …

The Tcja And The Questionable Incentive To Incorporate, Michael S. Knoll

All Faculty Scholarship

The Tax Cuts and Jobs Act (TCJA) has put the question should a business be organized as a passthrough entity or as a corporation at center stage. The TCJA eliminated much of the tax disadvantage from using the corporate form, but did Congress go so far that it advantaged corporations relative to pass-through entities? Some prominent commentators say yes. They argue that the federal income tax now encourages individual owners of pass-through businesses to restructure their business as subchapter C corporations, and they predict that the TCJA will lead to a cascade of incorporations. The principal driver of the shift …

Coin-Operated Capitalism, Shaanan Cohney, David A. Hoffman, Jeremy Sklaroff, David A. Wishnick

All Faculty Scholarship

This Article presents the legal literature’s first detailed analysis of the inner workings of Initial Coin Offerings. We characterize the ICO as an example of financial innovation, placing it in kinship with venture capital contracting, asset securitization, and (obviously) the IPO. We also take the form seriously as an example of technological innovation, where promoters are beginning to effectuate their promises to investors through computer code, rather than traditional contract. To understand the dynamics of this shift, we first collect contracts, “white papers,” and other contract-like documents for the fifty top-grossing ICOs of 2017. We then analyze how such projects’ …

Anticompetitive Mergers In Labor Markets, Ioana Marinescu, Herbert J. Hovenkamp

All Faculty Scholarship

Mergers of competitors are conventionally challenged under the federal antitrust laws when they threaten to lessen competition in some product or service market in which the merging firms sell. Mergers can also injure competition in markets where the firms purchase. Although that principle is widely recognized, very few litigated cases have applied merger law to buyers. This article concerns an even more rarefied subset, and one that has barely been mentioned. Nevertheless, its implications are staggering. Some mergers may be unlawful because they injure competition in the labor market by enabling the post-merger firm anticompetitively to suppress wages or salaries. …

Progressive Antitrust, Herbert J. Hovenkamp

All Faculty Scholarship

Several American political candidates and administrations have both run and served under the “progressive” banner for more than a century, right through the 2016 election season. For the most part these have pursued interventionist antitrust policies, reflecting a belief that markets are fragile and in need of repair, that certain interest groups require greater protection, or in some cases that antitrust policy is an extended arm of regulation. This paper argues that most of this progressive antitrust policy was misconceived, including that reflected in the 2016 antitrust plank of the Democratic Party. The progressive state is best served by a …

Before International Tax Reform, We Need To Understand Why Firms Invert, Michael S. Knoll

All Faculty Scholarship

A wave of corporate inversions by U.S. firms over the past two decades has generated substantial debate in academic, business, and policy circles.

The core of the debate hinges on a couple of key economic questions: Do U.S. tax laws disadvantage U.S.-domiciled companies relative to their foreign competitors? And, if so, do inversions improve the competitiveness of U.S. multinational firms both abroad and at home?

There is unfortunately little, if any, empirical work directly determining whether U.S.-based MNCs are currently tax-disadvantaged compared to their foreign rivals, or measuring the amount by which (if any) U.S.-based MNCs improve their competitive position …

Who Bleeds When The Wolves Bite? A Flesh-And-Blood Perspective On Hedge Fund Activism And Our Strange Corporate Governance System, Leo E. Strine Jr.

All Faculty Scholarship

This paper examines the effects of hedge fund activism and so-called wolf pack activity on the ordinary human beings—the human investors—who fund our capital markets but who, as indirect of owners of corporate equity, have only limited direct power to ensure that the capital they contribute is deployed to serve their welfare and in turn the broader social good.

Most human investors in fact depend much more on their labor than on their equity for their wealth and therefore care deeply about whether our corporate governance system creates incentives for corporations to create and sustain jobs for them. And because …

The Separation Of Corporate Law And Social Welfare, William W. Bratton

All Faculty Scholarship

A half century ago, corporate legal theory pursued an institutional vision in which corporations and the law that creates them protect people from the ravages of volatile free markets. That vision was challenged on the ground during the 1980s, when corporate legal institutions and market forces came to blows over questions concerning hostile takeovers. By 1990, it seemed like the institutions had won. But a different picture has emerged as the years have gone by. It is now clear that the market side really won the battle of the 1980s, succeeding in entering a wedge between corporate law and social …

Regulatory Entrepreneurship, Elizabeth Pollman, Jordan M. Barry

All Faculty Scholarship

This Article examines what we term “regulatory entrepreneurship” — pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing “too big to ban,” and mobilizing users for political support. Further, we theorize the business and law-related factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected …

The Challenge Of Regulatory Excellence, Cary Coglianese

All Faculty Scholarship

Regulation is a high-stakes enterprise marked by tremendous challenges and relentless public pressure. Regulators are expected to protect the public from harms associated with economic activity and technological change without unduly impeding economic growth or efficiency. Regulators today also face new demands, such as adapting to rapidly changing and complex financial instruments, the emergence of the sharing economy, and the potential hazards of synthetic biology and other innovations. Faced with these challenges, regulators need a lodestar for what constitutes high-quality regulation and guidance on how to improve their organizations’ performance. In the book Achieving Regulatory Excellence, leading regulatory experts …

Antitrust Balancing, Herbert J. Hovenkamp

All Faculty Scholarship

Antitrust litigation often confronts situations where effects point in both directions. Judges sometimes describe the process of evaluating these factors as “balancing.” In its e-Books decision the Second Circuit believed that the need to balance is what justifies application of the rule of reason. In Microsoft the D.C. Circuit stated that “courts routinely apply a…balancing approach” under which “the plaintiff must demonstrate that the anticompetitive harm…outweighs the procompetitive benefit.” But then it decided the case without balancing anything.

The term “balancing” is a very poor label for what courts actually do in these cases. Balancing requires that two offsetting effects …

Antitrust And Information Technologies, Herbert J. Hovenkamp

All Faculty Scholarship

Technological change strongly affects the use of information to facilitate anticompetitive practices. The effects result mainly from digitization and the many products and processes that it enables. These technologies of information also account for a significant portion of the difficulties that antitrust law encounters when its addresses intellectual property rights. In addition, changes in the technologies of information affect the structures of certain products, in the process either increasing or decreasing the potential for competitive harm.

For example, digital technology affects the way firms exercise market power, but it also imposes serious measurement difficulties. The digital revolution has occurred in …

Copyright And Good Faith Purchasers, Shyamkrishna Balganesh

All Faculty Scholarship

Good faith purchasers for value — individuals who unknowingly and in good faith purchase property from a seller whose own actions in obtaining the property are of questionable legality — have long obtained special protection under the common law. Despite the seller’s own actions being tainted, such purchasers obtain valid title themselves and are allowed to freely alienate the property without any restriction. Modern copyright law, however, does just the opposite. Individuals who unknowingly and in good faith purchase property embodying an unauthorized copy of a protected work are altogether precluded from subsequently alienating such property, or risk running afoul …

Institutional Investors In Corporate Governance, Edward B. Rock

All Faculty Scholarship

This chapter of the Oxford Handbook on Corporate Law and Governance examines the role of institutional investors in corporate governance and the role of regulation in encouraging institutional investors to become active stewards. I approach these topics through asking what lessons we can draw from the U.S. experience for the E.U.’s 2014 proposed amendments to the Shareholder Rights Directive.

I begin by defining the institutional investor category, and summarizing the growth of institutional investors’ equity holdings over time. I then briefly survey how institutional investors themselves are governed and how they organize share voting. This leads me to two central …

The New Synthesis Of Bank Regulation And Bankruptcy In The Dodd-Frank Era, David A. Skeel Jr.

All Faculty Scholarship

Since the enactment of the Dodd-Frank Act in 2010, U.S. bank regulation and bankruptcy have become far more closely intertwined. In this Article, I ask whether the new synthesis of bank regulation and bankruptcy is coherent, and whether it is likely to prove effective.

I begin by exploring some of the basic differences between bank resolution, which is a highly administrative process in the U.S., and bankruptcy, which relies more on courts and the parties themselves. I then focus on a series of remarkable new innovations designed to facilitate the rapid recapitalization of systemically important financial institutions: convertible contingent capital …

The (Il)Legitimacy Of Bankruptcies For The Benefit Of Secured Creditors, Charles W. Mooney Jr.

All Faculty Scholarship

This paper explores the legitimacy—or illegitimacy—of filing and maintaining a case under the Bankruptcy Code when the sole or principal beneficiary or beneficiaries of the case would be a secured creditor or secured creditors. In the situation posited here, the application of the usual distributional priority rules would not produce any distribution for the general, unsecured creditors of the debtor. In the prototypical case virtually all of the assets of the debtor would be subject to secured claims securing obligations that exceed the value of the collateral, i.e., the secured creditor would be undersecured and there would be no equity …

A Market-Oriented Analysis Of The 'Terminating Access Monopoly' Concept, Jonathan E. Nuechterlein, Christopher S. Yoo

All Faculty Scholarship

Policymakers have long invoked the concept of a “terminating access monopoly” to inform communications policy. Roughly speaking, the concept holds that a consumer-facing network provider, no matter how small or how subject to retail competition, generally possesses monopoly power vis-à-vis third-party senders of communications traffic to its customers. Regulators and advocates have routinely cited that concern to justify regulatory intervention in a variety of contexts where the regulated party may or may not have possessed market power in any relevant retail market.

Despite the centrality of the terminating access monopoly to modern communications policy, there is surprisingly little academic literature …

Moore’S Law, Metcalfe’S Law, And The Theory Of Optimal Interoperability, Christopher S. Yoo

All Faculty Scholarship

Many observers attribute the Internet’s success to two principles: Moore’s Law and Metcalfe’s Law. These precepts are often cited to support claims that larger networks are inevitably more valuable and that costs in a digital environment always decrease. This Article offers both a systematic description of both laws and then challenges the conventional wisdom by exploring their conceptual limitations. It also explores how alternative mechanisms, such as gateways and competition, can permit the realization benefits typically attributed to Moore’s Law and Metcalfe’s Law without requiring increases in network size.