Law Commons^™

The Future Of Finance Colloquium, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

On April 25, 2014, the Ira M. Millstein Center for Global Markets and Corporate Ownership and the CFA Institute hosted the Future of Finance Colloquium. The following is a summary of the panel discussions.

On The Use And Misuse Of Stock Price, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

In 2013, in an effort to better understand the purpose, use, and potential misuse of stock prices in public equity markets, the Millstein Center and the Investor Responsibility Research Center Institute (IRRCi) issued a call for papers on the role prices play as a corporate governance mechanism. In lieu of completed projects, proposals were sought for new research that explored how equity prices affect the decision-making processes of corporate management, boards of directors, and investors. On September 19, 2014, the Millstein Center and the IRRCi hosted a gathering entitled the Conference on the Use and Misuse of Stock Price, …

Discussion On Transparent And Effective Disclosure, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

On January 22, 2015, the Ira M. Millstein Center for Global Markets and Corporate Ownership and the Center for Audit Quality hosted a Discussion on Transparent and Effective Disclosure. The following is a summary of the panel discussions.

Inversions: Implications For Tax Planning, Tax Policy, And Corporate Governance, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

On February 27, 2015, the Ira M. Millstein Center for Global Markets and Corporate Ownership, the Richard Paul Richman Center, the Charles Evans Gerber Transactional Studies Center, and David Polk & Wardwell hosted a conference on Inversions: Implications for Tax Planning, Tax Policy, and Corporate Governance. The following is a summary of the panel discussions.

Proxy Access 2.0: A Recap On 1.0 And The Economic Analysis, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

On April 27, 2015, the Ira M. Millstein Center for Global Markets and Corporate Ownership and the CFA Institute hosted a discussion on the state of proxy access. The following is a summary of the panel discussion.

Key Topics In Corporate Governance: Disclosure, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

On June 18, 2015, the Ira M. Millstein Center for Global Markets and Corporate Ownership hosted a symposium on transparency in the corporate and investment communities. The half-day event brought together prominent speakers from the business, regulatory and academic sectors to discuss current trends and emerging issues associated with disclosure. In a related vein, panelists also debated the case for furthering engagement with retail investors whose needs and resources may differ, at times substantially, from their institutional counterparts. The following is a summary of the panel discussions.

Integration Of Corporate And Shareholder Taxes, Michael J. Graetz, Alvin C. Warren

Faculty Scholarship

Integration of the corporate and individual income taxes can be achieved by providing shareholders a credit for corporate taxes paid with respect to corporate earnings distributed as dividends. When such integration was previously considered in the U.S., proponents emphasized that it could reduce or eliminate many of the familiar distortions of a classical corporate income tax. Integration would also provide a framework for addressing current concerns for tax incentives for U.S. companies to shift income to foreign affiliates in lower-taxed countries or to expatriate in "inversion" transactions. A recent Congressional proposal for a corporate dividend deduction coupled with withholding on …

Between Scylla And Charybdis: Taxing Corporations Or Shareholders (Or Both), David M. Schizer

Faculty Scholarship

The United States taxes both corporations and shareholders on corporate profits. In principle, the United States could rely on only one of these taxes, as many commentators have suggested. Although choosing to tax the corporation or its owners may seem like taking money from one pocket or the other, this Essay emphasizes a key difference: These taxes prompt different planning. Relying on one or the other mitigates some distortions and leaks, while exacerbating others. As a result, choosing which to impose is like navigating between Scylla and Charybdis.

In response, this Essay recommends using both taxes for three reasons. First, …

Bringing International Tax Policy Into The 21st Century, Michael J. Graetz

Faculty Scholarship

Michael J. Graetz delivered the following remarks at the Tax Policy Center's "A Corporate Tax for the 21st Century" conference on July 14 in Washington. These remarks are substantially taken from his April 2015 Ross Parsons Lecture at the University of Sydney Law School.

A Model Company Act And A Model Company Court, Ronald J. Gilson

Faculty Scholarship

This paper is a contribution to a symposium on the European Model Company Act ("EMCA ") in which I argue that a model company court powerfully complements the EMCA. A particular characteristic of company law complicates the intermediating role of a model act in a federal system. Because complex corporate transactions inevitably are associated with significant uncertainty, especially when they present conflicts of interest, transaction designers and legislative drafters tend to frame applicable contractual and legal rules as standards, such as fairness and equal treatment, rather than as rules. In turn, the effectiveness of a standard in the face of …

Follow The Money: Essays On International Taxation – Introduction, Michael J. Graetz

Faculty Scholarship

Publicity about tax avoidance techniques of multinational corporations and wealthy individuals has moved discussion of international income taxation from the backrooms of law and accounting firms to the front pages of news organizations around the world. In the words of a top Australian tax official, international tax law has now become a topic of barbeque conversations. Public anger has, in turn, brought previously arcane issues of international taxation onto the agenda of heads of government around the world.

Despite all the attention, however, issues of international income taxation are often not well understood. This Introduction outlines a collection of essays, …

Short-Termism And Long-Termism, Michal Barzuza, Eric L. Talley

Faculty Scholarship

A significant debate in corporate law and finance concerns the role of activist investors (especially hedge funds) in corporate governance. Activists, it is often alleged, imprudently privilege short term earnings over superior (but less liquid) long term investments. Activists counter that they target managers who unjustifiably cling to questionable strategies. While this debate is hardly new, it has grown increasingly fractious of late. We analyze the activism debate within a theoretical securities-market setting. In our framework – which draws from an emerging literature in empirical and experimental finance – managers are differentially overconfident (causing them to favor long-term projects), while …

Impact Investing As A Form Of Lobbying And Its Corporate-Governance Effects, Andrzej Rapaczynski

Faculty Scholarship

Impact investment is attractive to many because it seems to combine support for progressive causes with an apparent commitment to the principles of a market economy. In fact, however, a rational impact investor is not simply creating demand for certain types of corporate actions; he/she is attempting to use corporate governance mechanisms to influence fiduciary decisions of the management. The cost of this tactic for the health of the capitalist economy is potentially very considerable. The American capitalist system relies heavily on a relatively fragile corporate governance arrangement in which the agency problems of a modern corporation are minimized by …

The Wolf At The Door: The Impact Of Hedge Fund Activism On Corporate Governance, John C. Coffee Jr., Darius Palia

Faculty Scholarship

Hedge fund activism has recently spiked, almost hyperbolically. No one disputes this, and most view it as a significant change. But, their reasons differ. Some see activist hedge funds as the natural champions of dispersed and diversified shareholders, who are less capable of collective action in their own interest. A key fact about activist hedge funds is that they are undiversified and typically hold significant stakes in the companies that comprise their portfolios. Given their larger stakes and focused holdings, they are less subject to the “rational apathy” that characterizes more diversified and even indexed investors, such as pension and …

Corporate Control And Idiosyncratic Vision, Zohar Goshen, Assaf Hamdani

Faculty Scholarship

This Article offers a novel theory of corporate control. It does so by shedding new light on corporate-ownership structures and challenging the prevailing model of controlling shareholders as essentially opportunistic actors who seek to reap private benefits at the expense of minority shareholders. Our core claim is that entrepreneurs value corporate control because it allows them to pursue their vision (i.e., any business strategy that the entrepreneur genuinely believes will produce an above-market rate of return) in the manner they see fit. We call the subjective value an entrepreneur attaches to her vision the entrepreneur’s idiosyncratic vision. Our framework identifies …

Preserving The Corporate Superego In A Time Of Activism: An Essay On Ethics And Economics, John C. Coffee Jr.

Faculty Scholarship

This essay focuses on the impact of recent changes in corporate governance on ethical behavior within the public corporation. It argues that a style of corporate behavior – one characterized by a risk tolerant, even reckless, pursuit of short-term profits and a disregard for the interests of non-shareholder constituencies – is attributable in significant part to recent changes in corporate governance, including the rise of hedge fund activism, greater use of incentive compensation, and the appearance of blockholder directors. It then surveys feasible responses intended to strengthen the role of the boards as the corporation’s conscience and superego. Given the …

Duties To Organizational Clients, William H. Simon

Faculty Scholarship

Loyalty to an organizational client means fidelity to the substantive legal structure that constitutes it. Although this principle is not controversial in the abstract, it is commonly ignored in professional discourse and doctrine. This article explains the basic notion of organizational loyalty and identifies some mistaken tendencies in discourse and doctrine, especially the "Managerialist Fallacy" that leads lawyers to conflate the client organization with its senior managers. The article then applies the basic notion to some hard cases, concluding with a critical appraisal of the rationale for confidentiality with organizational clients.

Appraising The "Merger Price" Appraisal Rule, Albert H. Choi, Eric L. Talley

Faculty Scholarship

This paper develops an auction design framework to study how best to measure “fair value” in post-merger appraisal proceedings. Our inquiry spotlights an approach recently embraced by some courts benchmarking fair value against the merger price itself. We show that merger price deference effectively nullifies the role that appraisal can potentially play in establishing a de facto reserve price for company auctions, thereby depressing both acquisition prices and target shareholders’ expected welfare relative to both the optimal appraisal policy and a variety of other valuation measures. We also examine conditions under which deference to the merger price can be optimal. …

Designing Corporate Bailouts, Antonio E. Bernardo, Eric L. Talley, Ivo Welch

Faculty Scholarship

Although common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms, in practice bailouts are difficult to avoid for systemically significant enterprises. Recent experience suggests that bailouts also induce litigation from shareholders and managers complaining about expropriation and wrongful termination by the government. Our model shows how governments can design tax-financed corporate bailouts to reduce these distortions and points to the causes of inefficiencies in real-world implementations such as the Troubled Asset Relief Program. Bailouts with minimal distortion depend critically on the government’s ability to expropriate shareholders …

The New Business Rule And Compensation For Lost Profits, Victor P. Goldberg

Faculty Scholarship

For many years most American jurisdictions applied the “new business” rule, denying recovery of lost profits for new businesses. The majority position today rejects the per se rule, treating the issue as a rule of evidence — lost profits must be proved with “reasonable certainty.” This paper argues that the new business rule ought not be viewed as merely a matter of whether the evidence is sufficient to surmount the “reasonable certainty” hurdle. The confusion arises because courts have lumped together a number of different problems. By breaking these out, a more nuanced picture emerges. For one category, in particular, …

A Machine Learning Classifier For Corporate Opportunity Waivers, Gabriel V. Rauterberg, Eric L. Talley

Faculty Scholarship

Rauterberg & Talley (2017) develop a data set of “corporate opportunity waivers” (COWs) – significant contractual modifications of fiduciary duties – sampled from SEC filings. Part of their analysis utilizes a machine learning (ML) classifier to extend their data set beyond the hand-coded sample. Because the ML approach is likely unfamiliar to some readers, and in the light of its great potential across other areas of law and finance research, this note explains the basic components using a simple example, and it demonstrates strategies for calibrating and evaluating the classifier.

The New Public, Sarah Seo

Faculty Scholarship

By exploring the intertwined histories of the automobile, policing, criminal procedure, and the administrative state in the twentieth-century United States, this Essay argues that the growth of the police’s discretionary authority had its roots in the governance of an automotive society. To tell this history and the proliferation of procedural rights that developed as a solution to abuses of police discretion, this Essay examines the life and oeuvre of Charles Reich, an administrative-law expert in the 1960s who wrote about his own encounters with the police, particularly in his car. The Essay concludes that, in light of this regulatory history …

Corporate Governance Changes As A Signal: Contextualizing The Performance Link, Merritt B. Fox, Ronald J. Gilson, Darius Palia

Faculty Scholarship

Promoting “good” corporate governance has become an important concern. One result has been the creation of indexes that purport to measure the quality of a firm’s corporate governance structure. Prior scholarship reports a positive relationship between firms with good corporate governance index ratings and stock-price-based measures of a firm’s ability to create share value, such as Tobin’s Q. Little work, however, explores why we observe this relationship.

We hypothesize one reason for the relationship is that a rating-altering change in corporate governance structure can be a signal concerning the quality of a firm’s management. Changes in governance structures that result …

Reinterpreting The Status-Contract Divide: The Case Of Fiduciaries, Hanoch Dagan, Elizabeth S. Scott

Faculty Scholarship

The distinction between status and contract permeates legal analyses of categories of cooperative interpersonal interactions in which one party has particular obligations to the other. But the current binary understanding of the distinction has facilitated its use as a foil and thus undermined its conceptual and normative significance. This predicament is understandable given that the innate, comprehensive, and inalienable status as well as the wholly open-ended contract anticipated by commentators are corner — rather than core — alternatives in a liberal polity. Hence, to clarify these normative debates we introduce two further, intermediate conceptions: office and contract type. Like the …