Law Commons^™

Optimizing The World’S Leading Corporate Law: A 20-Year Retrospective And Look Ahead, Lawrence Hamermesh, Jack B. Jacobs, Leo E. Strine Jr.

All Faculty Scholarship

In a 2001 article (Function Over Form: A Reassessment of Standards of Review in Delaware Corporation Law) two of us, with important input from the other, argued that in addressing issues like hostile takeovers, assertive institutional investors, leveraged buyouts, and contested ballot questions, the Delaware courts had done exemplary work but on occasion crafted standards of review that unduly encouraged litigation and did not appropriately credit intra-corporate procedures designed to ensure fairness. Function Over Form suggested ways to make those standards more predictable, encourage procedures that better protected stockholders, and discourage meritless litigation, by restoring business judgment rule …

Shareholder Wealth Maximization: A Schelling Point, Martin Edwards

St. John's Law Review

(Excerpt)

Imagine a reality television game show where two contestants begin the game in two different places in New York City. The object of the game is for the two contestants to find each other, but they do not know anything about each other and they have no way of communicating. If they succeed, both contestants win a prize. If they fail, they get nothing. With no ability to explicitly bargain over the meeting, the parties have to make an educated guess about what the other person is most likely to do. Most people, confronted with this sort of tacit …

Sustainable Business Law? The Key Role Of Corporate Governance And Finance, Jason J. Czarnezki, Colin Meyers

Elisabeth Haub School of Law Faculty Publications

Lawyers, law schools, and corporate entities have shown an increased interest in sustainable business strategies. This is reflected by the increase in sustainability practice groups, law school courses, and textbooks focusing on the relationship between sustainability and business law; lawyers moving into executive-level sustainability positions in the private sector; and the proliferation of corporate sustainability policies, as well as increased interest in mitigating climate risk and engaging in sustainable finance. But what exactly is sustainable business law, and what role do lawyers play in advancing sustainability in the corporate world? This Article argues that “sustainable business law” has emerged as …

Corporate Governance Gaming: The Collective Power Of Retail Investors, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The GameStop saga and meme stock frenzy have shown the pathway to the most disruptive revolution in corporate governance of the millennium. New generations of retail investors use technologies, online forums, and gaming dynamics to coordinate their actions and obtain unprecedented results. Signals indicate that these investors, whom we can dub wireless investors, are currently expanding their actions to corporate governance. Wireless investors’ generational characteristics suggest that they will use corporate governance to pursue social and environmental causes. In fact, wireless investors can set in motion a social movement able to bring business corporations to serve their original partly-private-partly-public purpose. …

The Separation Of Voting And Control: The Role Of Contract In Corporate Governance, Gabriel V. Rauterberg

Articles

The default rules of corporate law make shareholders’ control rights a function of their voting power. Whether a director is elected or a merger is approved depends on how shareholders vote. Yet, in private corporations shareholders routinely alter their rights by contract. This phenomenon of shareholder agreements—contracts among the owners of a firm— has received far less attention than it deserves, mainly because detailed data about the actual contents of shareholder agreements has been lacking. Private companies disclose little, and shareholder agreements are thought to play a trivial or nonexistent role in public companies. I show that this is false—fifteen …

The “Value” Of A Public Benefit Corporation, Jill E. Fisch, Steven Davidoff Solomon

All Faculty Scholarship

We examine the “value” a PBC form provides for publicly-traded corporations. We analyze the structure of the PBC form and find that other than requiring a designated social purpose it does not differ significantly in siting control and direction with shareholders. We also examine the purpose statements in the charters of the most economically significant PBCs. We find that, independent of structural limitations on accountability, these purpose statements are, in most cases, too vague and aspirational to be legally significant, or even to serve as a reliable checks on PBC behavior. We theorize, and provide evidence, that without a legal …

Just Say Yes? The Fiduciary Duty Implications Of Directorial Acquiescence, Lisa Fairfax

All Faculty Scholarship

The rise in shareholder activism is one of the most significant recent phenomena in corporate governance. Shareholders have successfully managed to enhance their power within the corporation, and much of that success has resulted from corporate managers and directors voluntarily acceding to shareholder demands. Directors’ voluntary acquiescence to shareholder demands is quite simply remarkable. Remarkable because most of the changes reflect policies and practices that directors have vehemently opposed for decades, and because when opposing such changes directors stridently insisted that the changes were not in the corporation’s best interest. In light of that insistence, and numerous statements from directors …

Lifting Labor’S Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance, Leo E. Strine Jr., Aneil Kovvali, Oluwatomi O. Williams

All Faculty Scholarship

In view of the decline in gain sharing by corporations with American workers over the last forty years, advocates for American workers have expressed growing interest in allowing workers to elect representatives to corporate boards. Board level representation rights have gained appeal because they are a highly visible part of codetermination regimes that operate in several successful European economies, including Germany’s, in which workers have fared better.

But board-level representation is just one part of the comprehensive codetermination regulatory strategy as it is practiced abroad. Without a coherent supporting framework that includes representation from the ground up, as is provided …

The Impact Of Corporate Governance On The Continuity Of Family Businesses In Saudi Arabia, Saad Abdulmohsin Alrowaished

Maurer Theses and Dissertations

In small villages, in cities booming with commerce, in remote fishing communities, and massive marketplaces, in tropical destinations, and in corners of the globe few have ever visited, one is always able to find family businesses. From small wares being sold to neighbors, to huge corporations with billions in assets, families hold and always have held a segment of the global market that cannot be ignored. While family businesses have existed throughout history, legal advice and governance specifically geared toward them, which holds the success of the family business at the center of the laws, has never been a focus …

Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton

All Faculty Scholarship

This Article reconsiders the dominant account of corporate law’s duty of loyalty, which asserts that the courts have steadily relaxed standards of fiduciary scrutiny applied to self-dealing by corporate managers across more than a century of history—to the great detriment of the shareholder interest. The account originated in Harold Marsh, Jr.’s foundational article, Are Directors Trustees? Conflicts of Interest and Corporate Morality, published in The Business Lawyer in 1966. Marsh’s showing of historical lassitude has been successfully challenged in a recent book by Professor David Kershaw. This Article takes Professor Kershaw’s critique a step further, asking whether the evolutionary …

Caremark And Esg, Perfect Together: A Practical Approach To Implementing An Integrated, Efficient, And Effective Caremark And Eesg Strategy, Leo E. Strine Jr., Kirby M. Smith, Reilly S. Steel

Ira M. Millstein Center for Global Markets and Corporate Ownership

With increased calls from investors, legislators, and academics for corporations to consider employee, environmental, social, and governance factors (“EESG”) when making decisions, boards and managers are struggling to situate EESG within their existing reporting and organizational structures. Building on an emerging literature connecting EESG with corporate compliance, this Essay argues that EESG is best understood as an extension of the board’s duty to implement and monitor a compliance program under Caremark. If a company decides to do more than the legal minimum, it will simultaneously satisfy legitimate demands for strong EESG programs and promote compliance with the law. Building on …

Unlocking Progressive Corporate Governance: The Black And Brown Hdfc Key, Gregory Louis

American University Business Law Review

No abstract provided.

Delaware's Global Competitiveness, William J. Moon

Faculty Scholarship

For about a hundred years, Delaware has been the leading jurisdiction for corporate law in the United States. The state, which deliberately embarked on a mission to build a haven for corporate law in the early twentieth century, now supplies corporate charters to over two thirds of Fortune 500 companies and a growing share of closely held companies. But Delaware’s domestic dominance masks the important and yet underexamined issue of whether Delaware maintains its competitive edge globally.

This Article examines Delaware’s global competitiveness, documenting Delaware’s surprising weakness competing in the emerging international market for corporate charters. It does so principally …

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 …

Codetermination In Theory And Practice, Grant M. Hayden, Matthew T. Bodie

All Faculty Scholarship

A system of shared corporate governance between shareholders and workers, codetermination has been mostly ignored within the U.S. corporate governance literature. When it has made an appearance, it has largely served as a foil for shareholder primacy and an example of corporate deviance. However, over the last twenty years—and especially in the last five—empirical research on codetermination has shown surprising results as to the system’s efficiency, resilience, and benefits to stakeholders. This Article reviews the extant American legal scholarship on codetermination and provides a fresh look at the current state of codetermination theory and practice. Rather than experiencing the failures …

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.

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 …

The Millennial Corporation, Michal Barzuza, Quinn Curtis, David H. Webber

Faculty Scholarship

In a prior paper, Shareholder Value(s): Index Fund ESG Activism and The New Millennial Corporate Governance, we argued that the index funds’ sudden shift towards socially-responsible investment, after decades of ignoring or opposing it, was driven by the competition to manage growing Millennial wealth. In our view, the main contribution of that paper was identifying sharp differences between Millennials and prior generations over investment, consumption, and employment. It has now become clear that this contribution has implications far beyond index-fund environmental, social and governance (“ESG”) activism and is in fact completely transforming the corporate world, marking a fundamental shift in …

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 …

Looking Back With A Legend: Ira Millstein Reflects On The Impact Of Milton Friedman's Views On Corporate Governance, Eric L. Talley, Ira M. Millstein, Leo E. Strine Jr.

Faculty Scholarship

In this discussion, corporate governance legend and frequent The Business Lawyer contributor Ira M. Millstein reflects on the impact of Milton Friedman and his adherents on our corporate governance system and economy generally, as well as the path forward to an economy that functions better for the many. Millstein takes an historical perspective in conversation with former Chief Justice and Chancellor of Delaware, Leo E. Strine, Jr., moderated by Professor Eric Talley of Columbia Law School. Millstein situates the evolution of our corporate governance system, including the effect of Friedman and the Chicago school on it, within the political dynamics …

From Mandates To Governance: Restructuring The Employment Relationship, Brett Mcdonnell, Matthew T. Bodie

All Faculty Scholarship

Employers are saddled with a dizzying array of responsibilities to their employees. Meant to advance a wide array of workplace policies, these demands have saddled employment with the burden of numerous social ends. However, that system has increasingly come under strain, as companies seek to shed employment relationships and workers lose important protections when terminated. In this Article, we propose that employers and employees should be given greater flexibility with a move from mandates to governance. Many of the employment protections required from employers stem from employees’ lack of organizational power. The imbalance is best addressed by providing workers with …

From Mandates To Governance: Restructuring The Employment Relationship, Brett H. Mcdonnell, Matthew T. Bodie

All Faculty Scholarship

Employers are saddled with a dizzying array of responsibilities to their employees. Meant to advance a wide array of workplace policies, these demands have saddled employment with the burden of numerous social ends. However, that system has increasingly come under strain, as companies seek to shed employment relationships and workers lose important protections when terminated. In this Article, we propose that employers and employees should be given greater flexibility with a move from mandates to governance. Many of the employment protections required from employers stem from employees’ lack of organizational power. The imbalance is best addressed by providing workers with …

Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr.

All Faculty Scholarship

In his excellent article, For Whom is the Corporation Managed in 2020?: The Debate Over Corporate Purpose, Professor Edward Rock articulates his understanding of the debate over corporate purpose. This reply supports Professor Rock’s depiction of the current state of corporate law in the United States. It also accepts Professor Rock’s contention that finance and law and economics professors tend to equate the value of corporations to society solely with the value of their equity. But, I employ a less academic lens on the current debate about corporate purpose, and am more optimistic about proposals to change our corporate governance …

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

Vanderbilt Law School Faculty Publications

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 …

Corporate Finance For Social Good, Dorothy S. Lund

Faculty Scholarship

Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives for public-interested corporate action. Specifically, individuals who value prosocial corporate decisions could finance them by contributing to corporate social responsibility (CSR) bonds that would offset the corporation’s implementation costs. To provide an incentive to depart …

Team Production Revisited, William W. Bratton

All Faculty Scholarship

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Corporate Law For Good People, Yuval Feldman, Adi Libson, Gideon Parchomovsky

All Faculty Scholarship

This article offers a novel analysis of the field of corporate governance by viewing it through the lens of behavioral ethics. It calls for both shifting the focus of corporate governance to a new set of loci of potential corporate wrongdoing and adding new tools to the corporate governance arsenal. The behavioral ethics scholarship emphasizes the large share of wrongdoing generated by "good people" whose intention is to act ethically. Their wrongdoing stems from "bounded ethicality" -- various cognitive and motivational processes that lead to biased decisions that seem legitimate. In the legal domain, corporate law provides the most fertile …

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 …

Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon

All Faculty Scholarship

Although securities regulation is distinct from corporate governance, the two fields have considerable substantive overlap. By increasing the transparency and efficiency of the capital markets, securities regulation can also enhance the capacity of those markets to discipline governance decisions. The importance of market discipline is heightened by the increasingly vocal debate over what constitutes “good” corporate governance.

Securities product innovation offers new tools to address this debate. The rise of index-based investing provides a market-based mechanism for selecting among governance options and evaluating their effects. Through the creation of bespoke governance index funds, asset managers can create indexes that correspond …