Law Commons^™

Misalignment: Corporate Risk-Taking And Public Duty, Steven L. Schwarcz

Notre Dame Law Review

This Article argues for a “public governance duty” to help manage excessive risk-taking by systemically important firms. Although governments worldwide, including the United States, have issued an array of regulations to attempt to curb that risk-taking by aligning managerial and investor interests, those regulations implicitly assume that investors would oppose excessively risky business ventures. That leaves a critical misalignment: because much of the harm from a systemically important firm’s failure would be externalized onto the public, including ordinary citizens impacted by an economic collapse, such a firm can engage in risk-taking ventures with positive expected value to its investors but …

Wage-Setting Institutions And Corporate Governance, Matthew Dimick, Neel Rao

Journal Articles

Why do corporate governance law and practice differ across countries? This paper explains how wage-setting institutions influence ownership structures and investor protection laws. In particular, we identify a nonmonotonic relationship between the level of centralization in wage-bargaining institutions and the level of ownership concentration and investor protection laws. As wage setting becomes more centralized, ownership concentration within firms at first becomes more, and then less, concentrated. In addition, the socially optimal level of investor protection laws is decreasing in ownership concentration. Thus, as wage-setting institutions become more centralized, investor protection laws become less and then more protective. This explanation is …

Using Proactive Legal Strategies For Corporate Environmental Sustainability, Gerlinde Berger-Walliser, Paul Shrivastava, Adam Sulkowski

Michigan Journal of Environmental & Administrative Law

We argue that proactive law can help organizations be more sustainable. Toward that end, this Article first summarizes proactive law literature as it pertains to corporate sustainability. Next, it examines a series of cases on the pivotal nexus between proactive law and corporate sustainability. It then advances novel propositions that connect proactive law to central organizational design elements. The discussion traces further implications and suggests fruitful avenues for research and ways of using proactive law for firms to become more sustainable.

Disaggregating Corpus Christi: The Illiberal Implications Of Hobby Lobby's Right To Free Exercise, Katharine Jackson

Katharine Jackson

This paper first examines and critiques the group rights to religious exercise derived from the three ontologies of the corporation suggested by different legal conceptions of corporate personhood often invoked by Courts. Finding the implicated groups rights inimical to individual religious freedom, the paper then presents an argument as to why a discourse of intra-corporate toleration and voluntariness does a better job at protecting religious liberty.

Hedge Fund Activism, Poison Pills, And The Jurisprudence Of Threat, William W. Bratton

All Faculty Scholarship

This chapter reviews the single high profile case in which twentieth century antitakeover law has come to bear on management defense against a twenty-first century activist challenge—the Delaware Court of Chancery’s decision to sustain a low-threshold poison pill deployed against an activist in Third Point LLC v. Ruprecht. The decision implicated an important policy question: whether a twentieth century doctrine keyed to hostile takeovers and control transfers appropriately can be brought to bear in a twenty-first century governance context in which the challenger eschews control transfer and instead makes aggressive use of the shareholder franchise. Resolution of the question …

The Rise Of Independent Directors In Australia: Adoption, Reform, And Uncertainty, Luke Nottage, Fady Aoun

University of Miami International and Comparative Law Review

No abstract provided.

The Role Of Comparative Law In Shaping Corporate Statutory Reforms, Marco Ventoruzzo

Marco Ventoruzzo

This Essay discusses how comparative law played and plays a role in the statutory development of corporate laws. The influence of laws of other systems on the development of statutory law is common, explicit, and represents a tradition that accompanied legal reforms since the very beginning of the development of legislation. Focusing on modern corporate law, I argue (but the argument could be extended to many other legal fields) that it is necessary to distinguish two basic ways in which comparative law influences legal reforms in one particular jurisdiction. The first one is through regulatory competition among different systems. In …

Issuing New Shares And Preemptive Rights: A Comparative Analysis, Marco Ventoruzzo

Marco Ventoruzzo

The question of whether the corporate law of Europe and America are converging is still largely unanswered. One fundamental area in which the two systems diverge concerns how they regulate the issuing of new shares, in particular preemptive rights, a problem rarely addressed by comparative corporate law scholars. This essay fills that gap by examining the major comparative differences between the approaches followed on the two sides of the Atlantic, and offers some possible explanations for this divergence.

Economic Crisis And The Integration Of Law And Finance: The Impact Of Volatility Spikes, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Articles

The 2008 financial crisis raised puzzles important for understanding how the capital market prices common stocks and in turn, for the intersection between law and finance. During the crisis, there was a dramatic five-fold spike, across all industries, in “idiosyncratic risk”—the volatility of individual-firm share prices after adjustment for movements in the market as a whole.

This phenomenon is not limited to the most recent financial crisis. This Article uses an empirical review to show that a dramatic spike in idiosyncratic risk has occurred with every major downturn from the 1920s through the recent financial crisis. It canvasses three possible …

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.

Shareholders Vs Stakeholders Capitalism, Fabian Brandt, Konstantinos Georgiou

Comparative Corporate Governance and Financial Regulation

With the growth of the economies worldwide the debate between shareholder and stakeholder capitalism has never been more intense than nowadays. Each country though incorporates this debate differently in its interior market since its corporate governance’s structures present distinguished characteristics. Thus, by bringing into this debate countries like Germany and the USA, the distinction between shareholders and stakeholders’ interests becomes clearer. Countries based on the Anglo-Saxon business model like the USA are in favor of a “shareholder primacy” based system setting as their optimal goal the maximization of shareholder value. On the other hand, countries like Germany seem to have …

Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner

Faculty Scholarship

Corporate directors committed to a failed business strategy or unduly influenced by the company’s debtholders need a dissenting voice—they need shareholder nominees on the board. This article examines the bias, conflicts, and external factors that impact board decisions, particularly when a company faces financial distress. It challenges the conventional wisdom that debt disciplines management, and it suggests that, in certain circumstances, the company would benefit from having the shareholders’ perspective more actively represented on the board. To that end, the article proposes a bylaw that would give shareholders the ability to nominate directors upon the occurrence of predefined events. Such …

The Stewardship Of Trust In The Global Value Chain, Kishanthi Parella

Scholarly Articles

Global governance has not yet caught up with the globalization of business. As a result, our headlines provide daily accounts of the extent and consequences of these "governance gaps." The ability of corporations to evade state control also contributes to an unusual, even frightening, phenomenon: corporations are governing like states. Some governance functions traditionally delivered by state actors are now increasingly undertaken by transnational corporations. One area that is experiencing this substitution is dispute resolution of human rights. Corporations and other business enterprises, individually or collectively, are creating a variety of grievance mechanisms to address human rights and other conflicts …

The New Governance And The Challenge Of Litigation Bylaws, Jill E. Fisch

Brooklyn Law Review

Corporate governance mechanisms designed to ensure that managers act in shareholders’ interest have evolved dramatically over the past 40 years. “Old governance” mechanisms such as independent directors and performance-based executive compensation have been supplemented by innovations that give shareholders greater input into both the selection of directors and ongoing operational decisions. Issuer boards have responded with tools to limit the exercise of shareholder power both procedurally and substantively. This article terms the adoption and use of these tools, which generally take the form of structural provisions in the corporate charter or bylaws, the “new governance.”

Delaware law has largely taken …

How Corporate Governance Is Made: The Case Of The Golden Leash, Matthew D. Cain, Jill E. Fisch, Sean J. Griffith, Steven Davidoff Solomon

All Faculty Scholarship

This Article presents a case study of a corporate governance innovation—the incentive compensation arrangement for activist-nominated director candidates colloquially known as the “golden leash.” Golden leash compensation arrangements are a potentially valuable tool for activist shareholders in election contests. In response to their use, several issuers adopted bylaw provisions banning incentive compensation arrangements. Investors, in turn, viewed director adoption of golden leash bylaws as problematic and successfully pressured issuers to repeal them.

The study demonstrates how corporate governance provisions are developed and deployed, the sequential response of issuers and investors, and the central role played by governance intermediaries—activist investors, institutional …

Quieting The Sharholders' Voice: Empirical Evidence Of Pervasive Bundling In Proxy Solicitations, James D. Cox, Fabrizio Ferri, Colleen Honigsberg, Randall S. Thomas

Faculty Scholarship

The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy “bundling,” or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented.

In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission (“SEC”) in 1992. While we find that the …

Corporate Darwinism: Disciplining Managers In A World With Weak Shareholder Litigation, James D. Cox, Randall S. Thomas

Faculty Scholarship

Because representative shareholder litigation has been constrained by numerous legal developments, the corporate governance system has developed new mechanisms as alternative means to address managerial agency costs. We posit that recent significant governance developments in the corporate world are the natural consequence of the ineffectiveness and inefficiency of shareholder suits to address certain genre of managerial agency costs. We thus argue that corporate governance responses evolve to fill voids caused by the inability of shareholder suits to monitor and discipline corporate managers.

We further claim that these new governance responses are themselves becoming stronger due in part to the rising …

Open Sesame: The Myth Of Alibaba's Extreme Corporate Governance And Control, Yu-Hsin Lin, Thomas Mehaffy

Brooklyn Journal of Corporate, Financial & Commercial Law

In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in U.S capital markets. A significant number of these companies have employed a novel, but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control …

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 …

Officer Accountability, Megan Wischmeier Shaner

Megan Wischmeier Shaner