Law Commons^™

A Revised Monitoring Model Confronts Today's Movement Toward Managerialism, James D. Cox, Randall S. Thomas

Faculty Scholarship

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand, and economic, social, and political changes on the other hand. Aberrations, however, do arise but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments …

The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg

Faculty Scholarship

This Symposium Article examines how the public/private divide works today and maps out some of the potential implications for major issues in securities law. Classic debates in securities law were often predicated on the idea that public companies are a coherent class of firms that differ markedly from private companies. For more than fifty years after the adoption of the federal securities laws, this view was justified. During that period, the vast majority of successful and growing private firms eventually accepted the regulatory obligations of being public in order to access a wider and deeper pool of capital, among other …

The Giant Shadow Of Corporate Gadflies, Kobi Kastiel, Yaron Nili

Faculty Scholarship

Modern-day shareholders influence corporate America more than ever before. From demanding greater accountability of executives to lobbying for a variety of social and environmental policies, shareholders today have the power to alter how American companies are run. Amazingly, a small group of individual shareholders wields unprecedented power to set corporate agendas and stands at the epicenter of our contemporary corporate governance ecosystem. In fact, the power of these individuals, known as “corporate gadflies,” continues to rise.

Corporate gadflies present a puzzling reality. Although public corporations in the United States are increasingly owned by large institutional investors, much of their corporate …

Beyond Profit, Emilie Aguirre

Faculty Scholarship

Etsy was a crown jewel of socially responsible businesses. It prioritized female entrepreneurship, its employees, and environmental stewardship. It was widely admired as a company pursuing social goals alongside profit goals. But after scaling up through an IPO, Etsy fell apart both socially and financially. Similar stories proliferate in the world of socially conscious business. What happened? Standard accounts point to greedy investors, capitalism, and short-termism as the culprits.

But this Paper identifies a more fundamental problem: business law is not designed to facilitate scale-ups for companies that articulate objectives beyond profit. It lacks a durable commitment mechanism for these …

Regulating Financial Guarantors, Steven L. Schwarcz

Faculty Scholarship

To improve financial regulation, scholars have engaged in extensive research over the past decade to try to understand why systemically important financial firms engage in excessive risk-taking. None of that research fully explains, however, the unusually excessive risk-taking by financial guarantors such as bond insurers, protection sellers under credit-default-swap (CDS) derivatives, credit enhancers in securitization transactions, and even issuers of standby letters of credit. With tens of trillions of dollars of financial guarantees outstanding, the potential for failure is massive. This Article argues that financial guarantor risk-taking is influenced by a previously unrecognized cognitive bias, which it calls “abstraction bias.” …

The Sec's Shareholder Proposal Rule: Creating A Corporate Public Square, James D. Cox, Randall S. Thomas

Faculty Scholarship

In this Article, we take advantage of this Symposium’s goals to think broadly about the future of Rule 14a-8 of the Securities Exchange Act of 1934, the shareholder proposal rule. We set forth a vision for the rule to address boardroom insularity by likening the shareholder proposal rule as the public square for shareholders. The existence of such a forum would redound to the benefit of investors, officers, and boards of directors as a fount of current and useful information about their investors’ and stakeholders’ concerns.

Equality Metrics, Veronica Root Martinez, Gina-Gail S. Fletcher

Faculty Scholarship

This time is different. This time the death of another Black man at the hands of white police officers prompted calls for change not only within police departments, but across all aspects of American life. Those calls for change resulted in significant displays of support for the Black Lives Matter movement and interest in how to eliminate systemic racism and promote racial diversity and justice within one’s daily life and workplace. For the most part, corporations were quick to publicly align themselves with the movement. When carefully examined, however, many of the statements issued by corporations in support of the …

Cleaning Corporate Governance, Jens Frankenreiter, Cathy Hwang, Yaron Nili, Eric L. Talley

Faculty Scholarship

Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.

We make three principal contributions to the literature. First, we label our corpus for a variety of firm- and state-level governance features. Doing so reveals significant infirmities within the most well-known corporate governance datasets, including an error rate exceeding …

Social Corporate Governance, Jeremy Mcclane, Yaron Nili

Faculty Scholarship

Corporate directors, like most people, are social creatures, and their social networks affect their decisions. But directors’ social networks remain both understudied and under-theorized by scholars and inconsistently addressed by courts. This Article comprehensively examines the importance of director networks to corporate governance for the first time. Using qualitative and quantitative data, the Article uncovers the importance of director networks to corporate governance and the implications that network theory poses for the study of corporate law. In doing so, the Article tackles an understudied corner of corporate decision-making at a critical time, when directors have an outsized influence over their …

Whistleblowers: Implications For Corporate Governance, Deborah A. Demott

Faculty Scholarship

Often overlooked in academic accounts of corporate governance and the actors who populate governance structures, whistleblowers are no more visible in formal governance frameworks. Within a corporation, whistleblowers may be lower-rank employees, not directors or officers; they may report perceptions of wrongdoing to others within the corporation or inform governmental or other actors who are externally situated. Nonetheless, it is striking how often retrospective accounts of corporate scandals involve episodes of internal whistleblowing associated with governance and compliance failures. This paper argues that incorporating whistleblowers into formal governance structures could spur more proactive involvement by directors in monitoring compliance with …