Law Commons^™

Team Production Theory Across The Waves, Brian R. Cheffins, Richard Williams

Vanderbilt Law Review

Team production theory, which Margaret Blair developed in tandem with Lynn Stout, has had a major impact on corporate law scholarship. The team production model, however, has been applied sparingly outside the United States. This article, part of a symposium honoring Margaret Blair’s scholarship, serves as a partial corrective by drawing on team production theory to assess corporate arrangements in the United Kingdom. Even though Blair and Stout are dismissive of “shareholder primacy” and the U.K. is thought of as a “shareholder-friendly” jurisdiction, deploying team production theory sheds light on key corporate law topics such as directors’ duties and the …

Fiduciary Duties And Corporate Climate Responsibility, Cynthia A. Williams

Vanderbilt Law Review

Corporate-law scholarship for decades has been occupied with agency costs and how to mitigate them. But when I teach the basic business organizations class, starting with agency law and looking at the fiduciary duties of care, loyalty, and full disclosure of any agent to her principal, we explore both costs and benefits of agency relationships. I do so by introducing Ronald Coase’s theory of the firm. Using an example close to most second-year law students’ experience, that of buying a suit for interviews, I contrast Brooks Brothers establishing its own factories (the “make” decision) with Brooks Brothers using supply chains, …

Dodge V. Ford: What Happened And Why?, Mark J. Roe

Vanderbilt Law Review

Behind Henry Ford’s business decisions that led to the widely taught, famous-in-law-school Dodge v. Ford shareholder primacy decision were three industrial organization structures that put Ford in a difficult business position. First, Ford Motor had a highly profitable monopoly and needed much cash for the just-begun construction of the River Rouge factory, which was said to be the world’s largest when completed. Second, to stymie union organizers and to motivate his new assembly-line workers, Henry Ford raised worker pay greatly; Ford could not maintain his monopoly without sufficient worker buy-in. And, third, if Ford explicitly justified his acts as in …

Team Production Revisited, William W. Bratton

Vanderbilt Law School Faculty Publications

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 …

Federal Corporate Law And The Business Of Banking, Morgan Ricks, Lev Menand

Vanderbilt Law School Faculty Publications

The only profit-seeking business enterprises chartered by a federal government agency are banks. Yet there is barely any scholarship justifying this exception to state primacy in U.S. corporate law.

This Article addresses that gap. It reinterprets the National Bank Act (NBA) the organic statute governing national banks, the heavyweights of the financial sec- tor-as a corporation law and recovers the reasons why Congress wrote this law: not to catalyze private wealth creation or to regulate an existing industry, but to solve an economic governance problem. National banks are federal instrumentalities charged with augmenting the money supply-- a delegated sovereign privilege. …

Foreword--Comparative Corporate Law & Governance, Dan W. Puchniak, Randall S. Thomas

Vanderbilt Journal of Transnational Law

Despite the challenges posed by Covid-19, especially for the student editors of the Journal, this special issue has been published on time and has been superbly edited. On behalf of the authors, NUS Law, and the Law & Business Program of Vanderbilt Law School, we would like to express our sincere appreciation to the editor in chief, Joshua D. Minchin, and the entire editorial team of the Vanderbilt Journal of Transnational Law for their remarkable skill, effort, and dedication in these challenging times. Your performance gives us great hope that the future is extremely bright.

The Misuse Of Tobin’S Q, Robert Bartlett, Frank Partnoy

Vanderbilt Law Review

In recent years, scholars have addressed the most important topics in corporate law based on a flawed assumption: that the ratio of the market value of a corporation’s securities to their book value is a valid measure of the value of the corporation. The topics have included staggered boards, incorporation in Delaware, shareholder activism, dual-class share structures, share ownership, board diversity, and other significant aspects of corporate governance. We trace the history of this flawed assumption, and document how it emerged from Tobin’s q, a concept from an unrelated area in macroeconomics. We show that scholars have misused Tobin’s q, …

Management Succession In Korea: Tunneling, Semi-Tunneling, And The Reaction Of Corporate Law, Kyung-Hoon Chun

Vanderbilt Journal of Transnational Law

Recently in Korea, certain issues of corporate law became the subjects of fierce political debates unlike many other jurisdictions where corporate law issues generally remain in the exclusive realm of professionals and academics. This Article begins with the question of why corporate law issues attracted so much political attention in Korea and whether such political attention actually helped improve the corporate law. In pursuing the answers to such questions, this Article identifies a recurring pattern: (i) existence of strict rules against seeking private benefits; (ii) various clever measures to circumvent such rules; (iii) failure of the courts to regulate such …

The Shifting Tides Of Merger Litigation, Randall Thomas, Matthew D. Cain, Jill Fisch, Steven D. Solomon

Vanderbilt Law School Faculty Publications

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award. We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger …

Delaware's Retreat, Randall Thomas, James D. Cox

Vanderbilt Law School Faculty Publications

The 1980’s is appropriately considered the Golden Age of Delaware corporate law. Within that era, the Delaware courts won international attention by not just erecting the legal pillars that frame today’s corporate governance discourse but by interjecting a fresh perspective on the rights of owners and the prerogatives of managers. Four decisions stand out within a melodious chorus of great decisions of that era - Revlon , Inc. v. MacAndrews & Forbes Holding, Inc., Weinberger v. UOP, Inc., Unocal Corp. v. Mesa Petroleum Co., and Blasius Industries, Inc. v. Atlas Corporation. We refer collectively to the decisions as the Golden …

Quieting The Shareholders' Voice, Randall Thomas, James D. Cox, Fabrizio Ferri

Vanderbilt Law School Faculty Publications

No abstract provided.

Say On Pay Around The World, Randall Thomas, Christoph Van Der Elst

Vanderbilt Law School Faculty Publications

Shareholders have long complained that top executives are overpaid by corporate directors irrespective of their performance. Largely powerless to stop these practices, in 2002, they prevailed upon the U.K. Parliament to adopt legislation requiring public companies to permit their shareholders to have a mandatory, non-binding vote on the compensation of their top executives (Say on Pay). Since that time, there has been a wave of such legislation enacted in countries around the world, including the U.S., Australia, Belgium, the Netherlands, and Sweden, while Switzerland, Germany and France appear to be moving rapidly in the same direction. In this article, we …

Shareholder Voting In An Age Of Intermediary Capitalism, Paul H. Edelman, Randall S. Thomas, Robert B. Thompson

Vanderbilt Law School Faculty Publications

Shareholder voting is a key part of contemporary American corporate governance. As numerous contemporary battles between corporate management and shareholders illustrate, voting has never been more important. Yet, traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote). In the first section of the article, we address this deficiency directly by developing a new theory of corporate voting that offers three strong and complementary reasons for shareholder voting. In the middle section, we apply our theory …

Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse Fried, Darian Ibrahim

Vanderbilt Law School Faculty Publications

Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law, as well as the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a “lingua franca” for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence consistent with this lingua-franca explanation. Indeed, the lingua-franca effect appears to be more important than other factors that …

The Role Of Independent Directors In Startup Firms, Brian Broughman

Vanderbilt Law School Faculty Publications

This Article develops a new theory to explain the widespread use of independent directors in the governance of startup firms. Privately held startups often assign a tie-breaking board seat to a third-party independent director. This practice cannot be explained by the existing corporate governance literature, which relies on diffuse ownership and passive investment-features unique to the publicly traded firm. To develop an alternative theory, I model a financing contract between an entrepreneur and a venture capital investor. I show that allocating a tie- breaking vote to an unbiased third party can prevent opportunistic behavior that would occur if the firm …

Clearing Away The Mist: Suggestions For Developing A Principled Veil Piercing Doctrine In China, Bradley C. Reed

Vanderbilt Journal of Transnational Law

It was less than thirty years ago that China stood economically isolated from the rest of the world. Times have certainly changed. Today China's economy is one of the fastest growing in the world, and Western businesses are inundating the country to access the abundance of cheap labor. Corporate activity is progressing, yet it was only twelve years ago that China enacted its first corporate law which officially recognized the concept of limited liability. And it was not until less than a year ago that China recognized one of the most important (and most often litigated) corporate law doctrines: piercing …

From Fretting Takeovers To Vetting Cfius: Finding A Balance In U.S. Policy Regarding Foreign Acquisitions Of Domestic Assets, Gaurav Sud

Vanderbilt Journal of Transnational Law

Merger law in the United States has historically relied on a system of private ordering with as little intervention from the federal government as possible. This scheme lies in stark contrast to the merger law of many other developed nations and, as such, has become a trademark of U.S. corporate law. Recent events, however, have brought into question the system's desirability in cross-border transactions where foreign entities are investing in U.S. assets. Proponents of reform argue that the federal government should become more involved in the approval process for these transactions given increased concerns of national security, while opponents argue …

A New Approach To Corporate Choice Of Law, Jens Dammann

Vanderbilt Journal of Transnational Law

The state of incorporation doctrine, which now applies both in the United States and in the European Community, allows corporations to choose the state law governing their internal affairs by incorporating in the appropriate state. Most scholars believe that this freedom to choose benefits both shareholders and society as a whole. Against this background, an obvious question is whether the state of incorporation doctrine is really the most efficient way of granting corporations the right to choose. In this Article, the Author argues that while there are sound reasons for retaining the state of incorporation doctrine as one mechanism for …

What Is Corporate Law's Place In Promoting Societal Welfare?: An Essay In Honor Of Professor William Klein, Randall Thomas

Vanderbilt Law School Faculty Publications

This is a short essay on what should be the fundamental criterion used to evaluate corporate law. I argue that the overall goal of good corporate law should be to assist private parties to create wealth for themselves and the economy in a manner that does not inflict uncompensated negative externalities upon third parties. Private businesses that produce goods and services should be encouraged by the state because creating greater wealth is generally beneficial to society. Corporate law can act as a helpful precondition for faster economic growth by protecting the parties' expectations, encouraging savings and investment, reducing transaction costs, …

The Globalization (Americanization?) Of Executive Pay, Randall Thomas, Brian R. Cheffins

Vanderbilt Law School Faculty Publications

In the United States, the remuneration packages of top executives are characterized by a strong emphasis on pay-for-performance and by a highly lucrative "upside." There is much discussion of the possibility that executive pay practices will globalize in accordance with this pattern. This Article assesses whether such convergence is likely to occur. After surveying briefly the key components of managerial remuneration and after examining the essential elements of the "U.S. pay paradigm," the Article considers market-oriented dynamics that could constitute a "global compensation imperative." These include wider dispersion of share ownership, more cross-border hiring of executives, growing international merger and …

700 Families To Feed: The Challenge Of Corporate Citizenship, Tara J. Radin

Vanderbilt Journal of Transnational Law

When Howard Lutnick, CEO of Cantor Fitzgerald, was first interviewed after September 11, 2001, a tragedy that devastated his firm and stole the life of his brother, Lutnick stated that he now had "700 families to feed." The view that he expressed was that his firm was responsible to the families of the wage earners lost in the tragedy, even though the firm was not responsible for the events that had occurred. Such assumed corporate responsibility, consistent with a stakeholder-based approach to management, is often considered to conflict with the law. The purpose of this Article is to demonstrate that …

Conceptions Of The Corporation And The Prospects Of Sustainable Peace, Jeffrey Nesteruk

Vanderbilt Journal of Transnational Law

This Article examines the role of corporate law in promoting sustainable peace. The Author argues that corporate legal theory can make a distinctive contribution to a more peaceful world by exposing some deeper roots of corporate law doctrines. Beginning with a brief overview of the corporation in legal discourse, the Article addresses the corporation as property, person, contract, and community. Next, the Article explores the significance of legal language, detailing the ways the law, through language, constructs and impacts the "character," "culture," and "community" of society. The Article then analyzes the dominance that the property and contract conceptions of the …

Litigating Challenges To Executive Pay: An Exercise In Futility?, Randall Thomas, Kenneth J. Martin

Vanderbilt Law School Faculty Publications

This paper is an empirical analysis of plaintiffs' success rates in executive compensation litigation. Using data from publicly available files, this study examines a sample of 124 cases where shareholders have challenged executive compensation levels and practices at public and closely held corporations. This data set shows that shareholders are successful in at least some stage of this litigation in a significant percentage of these cases. Our most robust result is that plaintiffs win a greater percentage of the time in compensation cases against closely held companies than against publicly held companies. This result is consistent for every stage of …

The Zen Of Corporate Capital Structure Neutrality, Herwig J. Schlunk

Vanderbilt Law School Faculty Publications

Given the current tax rate structure - where the marginal tax rate of some persons exceeds the corporate tax rate and the marginal tax rate of others is exceeded by it - corporations are generally well advised to employ both debt and equity in their capital structures. The former will be held by low tax rate taxpayers and will serve to lower the effective aggregate tax rate6 on the corporation's taxable income. The latter will be held by high tax rate taxpayers and will serve to keep low the effective aggregate tax rate on the corporation's unrecognized economic income (such …

Improving Shareholder Monitoring Of Corporate Management By Expanding Statutory Access To Information, Randall Thomas

Vanderbilt Law School Faculty Publications

A central issue in contemporary corporate law is the effectiveness of shareholders as monitors of corporate management. For example, in a series of recent articles, legal scholars have debated whether the rapid growth in the equity ownership positions of institutional investors, the relative stability of their shareholdings in each company, and their increased activism in corporate governance matters, will lead to better monitoring by shareholders and improved corporate performance. However, two predicates to effective shareholder monitoring are that dispersed investors have information about the companies they invest in and that they can communicate this information to other investors so that …

Private International Law As A Means To Control The Multinational Enterprise, Dimitris Tzouganatos

Vanderbilt Journal of Transnational Law

This Article explores the different approaches taken by the academic and judicial communities of Germany and the United States in their respective attempts to derive the optimal legal policy to deal with the multinational enterprise phenomenon. It attempts to assess the success of the Private International Law method as applied in most European countries by examining whether its criteria are operational and a reflection of economic reality. The Article also analyzes whether application of such criteria ensures the enforcement of the policies of the forum. It concludes by questioning whether the Private International Law approach is a viable alternative to …

The Recent Decline And Fall Of Freedom Of The Press In English Law, Vaughan T. Bevan

Vanderbilt Journal of Transnational Law

A television company broadcasts a program criticizing a nationalized corporation and disclosing documents passed to it secretly by one of the corporation's employees. The corporation asks the television company to reveal the identity of the employee. The television company refuses and eight of nine judges ultimately decide that the refusal is unjustified.

That, in essence, is the story of British Steel Corp. v. Granada Television, Ltd. If this situation had arisen in the United States, legal consequences probably would be unremarkable in view of the law's considerable experience with such matters. The novelty posed for English law, however, and the …

Duty Of Directors With Respect To Potential Violations Of U.S. Law By Foreign Subsidiaries, Stephanie M. Phillips

Vanderbilt Journal of Transnational Law

This article considers whether the directors of a parent corporation breach their fiduciary duty to the shareholders and the corporation when they fail to obtain information concerning the business affairs and activities of a foreign subsidiary or to investigate fully the activities of a subsidiary, when those directors have information that the subsidiary may be violating United States law. These issues were originally raised in connection with alleged violations of the Rhodesian Sanctions Regulations and United States restrictions concerning sales to South Africa and Namibia by the wholly owned foreign subsidiaries of United States corporations. In response to allegations that …

Products Liability--Liability Of Transferee For Defective Products Manufactured By Transferor, P. Anthony Lannie

Vanderbilt Law Review

In the landmark decision, Greenman v. Yuba Power Products,Inc., , the California Supreme Court eliminated a similar barrier to consideration of products liability goals-the breach of warranty theory designed to meet the needs of commercial transactions. Justice Traynor addressed the central question-"When should the manufacturer be responsible to those injured by his products?"'-and concluded that "rules . . .that were developed to meet the needs of commercial transactions cannot properly be invoked to govern the manufacturer's liability to those injured by their defective products unless those rules also serve the purposes for which such liability is imposed."' Confronted with another …

The Original Issue Discount Deduction In Bonds-For-Noncash Property Exchanges, Charles L. Almond

Vanderbilt Law Review

The first codification of the United States Internal Revenue laws gave a corporation a deduction from income of "[a]ll interest paid or accrued within the taxable year on its indebtedness. ...This same language is presently in force in the Internal Revenue Code of 1954. The statutory language authorizing the interest deduction has never dealt explicitly with the deductibility of discount arising upon a corporation's original issuance of bonds. Treasury Regulations promulgated pursuant to the interest deduction sections, however, have recognized continually that the statutory language embodies a deduction for original issue discount. 'The latest pre-1969 regulation, which limits itself to …