Law Commons^™

The Ascertainable Standards That Define The Boundaries Of The Sec’S Rulemaking Authority, Bernard S. Sharfman

The University of Chicago Business Law Review

On the heels of the U.S. Supreme Court’s decision in West Virginia v. Environmental Protection Agency, the “major questions” doctrine quickly came to be perceived as a significant impediment to the finalization of the Securities and Exchange Commission’s proposed rule on climate-related disclosures.

This Article presents a new argument against finalization, an argument that does not require the application of the major questions doctrine. This argument finds its authority in the policy objectives and the one policy constraint found in the statutes that underlie the proposed rule. These policy standards, referred to as ascertainable standards in the Article, not only …

Can Machines Commit Crimes Under U.S. Antitrust Laws?, Aslihan Asil, Thomas G. Wollmann

The University of Chicago Business Law Review

Generative artificial intelligence is being rapidly deployed for corporate tasks including pricing. Suppose one of these machines communicates with the pricing manager of a competing firm, proposes to collude, receives assent, and raises price. Is this a crime under U.S. antitrust laws, and, if so, who is liable? Based on the observed behavior of the most widely adopted large language model, we argue that this conduct is imminent, satisfies the requirements for agreement and intent under Section 1 of the Sherman Act, and could confer criminal liability to both firms as well as the pricing manager of the competing firm.

“Killer Acquisitions” Reexamined: Economic Hyperbole In The Age Of Populist Antitrust, Jonathan M. Barnett

The University of Chicago Business Law Review

Major competition regulators, and substantial portions of the scholarly community, have rapidly adopted the view that “killer acquisitions” and “kill zones” constitute significant sources of competitive risk arising from incumbent acquisitions of emerging firms in digital markets. Based on this view, policymakers in the United States, European Union, and other jurisdictions have advocated for, and in some cases have taken, substantial changes to merger review policies that would erect significant obstacles to incumbent/startup acquisitions. A review of the relevant body of evidence finds that these widely-held views concerning incumbent/startup acquisitions rest on meager support, confined to ambiguous evidence drawn from …

Insider Abstention And Rule 10b5-1 Plans, David Rosenfeld

The University of Chicago Business Law Review

Company insiders will typically be in possession of material non-public information (MNPI) about their companies. In order to allow insiders the opportunity to trade, the SEC adopted Rule 10b5-1, which provides an affirmative defense to insider trading liability if the trades are made pursuant to a written plan or trading instruction entered into when the trader was not aware of MNPI. Over the years, there has been considerable concern that insiders were abusing Rule 10b5-1 plans by adopting plans just prior to trading, adopting multiple plans, or even terminating plans when they turned out to be unprofitable. The SEC recently …

Corporate Governance And Risk-Taking: A Statistical Approach, Steven L. Schwarcz

The University of Chicago Business Law Review

Because prudent corporate governance often requires managers to take risks based on statistically expected outcomes, corporate failures that have a small but finite chance of occurring cannot always be prevented. This Article makes three related claims about risk-taking in corporate governance.

This Article’s first claim is that managers should not automatically be presumed to be at fault for corporate failures that result from risk-taking decisions based on statistical methodologies that reasonably justify the decisions ex ante. Conceptually, the business judgment rule should protect corporate managers for engaging in a reasonable decision-making process, including one that is statistically based. Jurisdictionally, however, …

The (Mis)Uses Of The S&P 500, Adriana Z. Robertson

The University of Chicago Business Law Review

The S&P 500 is widely used to (i) direct capital through “passive” investing, (ii) benchmark investment portfolios, and (iii) evaluate firm performance. The securities regulatory regime’s approach to each of these uses is fundamentally flawed. I show that the index is neither neutral nor constant: it represents substantial amounts of discretionary decision-making and is simply one particular large-cap portfolio. I then argue that an “S&P 500 fund” is not meaningfully passive, the mutual fund prospectus benchmark requirement is flawed, and the requirement that index constituents compare their performance to that of the index is nonsensical. I propose regulatory changes to …

Antitrust Reform In The Digital Era: A Skeptical Perspective, Robert W. Crandall, Thomas W. Hazlett

The University of Chicago Business Law Review

The rise of large digital platforms, accompanied by claims of increasing industrial concentration, has prompted calls for antitrust policy reform. Yet, the observed market trends are consistent with improvements in welfare, as economies of scale often decentralize effective choices and disintermediate previously dominant structures, unleashing entrepreneurship. Evidence of deleterious impacts from the rise of the leading platforms—via mergers, predation, vertical foreclosure, and tying practices— is scant. The difficulty in amassing such evidence is implied in the argument that antitrust enforcement should no longer be focused on estimating consumer welfare impacts using traditional price theory. Recommendations for the creation of an …

The Commission Goes To Walmart: Changing Patterns Of Ftc Enforcement, Jed Greenberg

The University of Chicago Business Law Review

The FTC Act allows the FTC to recover monetary relief only in certain circumstances. Under Sections 5 and 19, the Commission can recover monetary relief in federal court by showing that a party violated a final cease and desist order issued through administrative processes. Until recently, the FTC extensively used Section 13 of the Act, which courts had interpreted to provide some pathways to monetary relief. But the Supreme Court recently ruled in AMG that Section 13 only permits injunctive, rather than monetary, relief. After the case had been decided, many, including the FTC chair, predicted that this would erode …

A Disclosure Gap In The Market For Order, Joshua Nathanson

The University of Chicago Business Law Review

Wholesalers in U.S. equity markets are once again a focus of the SEC and scholarly debate. In this Comment, building on the empirical work of Schwarz, et. al. (2022), I present a model of the broker-wholesaler relationship based on the duty of best execution under FINRA Rule 5310 and the antifraud provisions of the federal securities laws as well as public disclosures by brokers and wholesalers. I suggest that the arrangement between a broker and a wholesaler on any given day is determined by the technology of the wholesaler, the likelihood of adverse selection, and the overall strategy of the …

A Critique Of The American Law Institute’S Draft Restatement Of The Corporate Objectiv, Stephen M. Bainbridge

The University of Chicago Business Law Review

The American Law Institute (ALI) is currently working on a Restatement of the Law of Corporate Governance (Restatement). At the ALI’s May 2022 annual meeting, the membership approved, inter alia, § 2.01, which purports to restate the objective of the corporation. Section 2.01 differentiates between what the drafters refer to as common law jurisdictions and stakeholder jurisdictions. The latter are those states that have adopted a constituency statute (a.k.a. a non-shareholder constituency statute).

The drafters assert that, in common law jurisdictions, the corporate objective is to “enhance the economic value of the corporation, within the boundaries of the law . …

Proceduralism: Delaware’S Legacy, Dalia T. Mitchell

The University of Chicago Business Law Review

“for law students or others who think of law as just a kind of a blunt instrument in which there are judgments and damages at the end of it, the fact is that the law grows through a sort of a conversation in the opinions . . .”¹

This article examines the Delaware courts’ 1980s shift from managerialism to a theory I label proceduralism. I argue that managerialism, which justified corporate law’s deference to directors in the preceding fifty years, was corporate law’s response to social, political, and cultural concerns outside corporations. At the turn of the twentieth century, …

Banking On The Edge, Graham S. Steele‏‏‎‎

The University of Chicago Business Law Review

What’s old is new again. The risks of international banking have returned to prominence in the wake of the Russian invasion of Ukraine. Global banks are playing a central role in the economic sanctions regime imposed upon Russia in response to its acts of military aggression. Foreign banks have retrenched from serving the Russian economy. International markets for debt, equity, and commodities are experiencing significant disruptions. The solvency measures and quarterly earnings of global banks have been impacted. These risks are new versions of an old story. International banking has been a fraught endeavor dating back more than a century. …

Unplugging Heartbeat Trades And Reforming The Taxation Of Etfs, Jeffrey M. Colon

The University of Chicago Business Law Review

The much-touted tax efficiency of equity exchange traded funds (ETFs) has historically been built upon portfolios that track indices with low turnover and the tax exemption for in-kind distributions of appreciated property.

This rule permits ETFs to distribute appreciated shares tax-free to redeeming authorized participants (APs) and reduce a fund’s future capital gains. ETFs and APs, working together, exploit this rule in so-called heartbeat trades in which an ETF distributes shares of a specific company or companies to a redeeming AP, instead of a pro rata basket of the ETF’s portfolio. The distributed securities are appreciated shares of companies that …

Material Regulation Of Out-Of-State Production Processes As Impermissible Extraterritorial Law, Rebecca Zhu

The University of Chicago Business Law Review

A circuit split exists on whether the Supreme Court limited the Dormant Commerce Clause’s extraterritoriality doctrine to price affirmation statutes in Pharmaceutical Research & Manufacturers of America v. Walsh. This Comment argues that the Supreme Court has never drawn this limiting principle—in Walsh or otherwise—such that the Ninth Circuit incorrectly characterized Walsh in National Pork Producers Council v. Ross, and it should have held that the district court’s dependence on this reading constituted clear error in North American Meat Institute v. Becerra. Through synthesis of canonical and recent case law, this Comment proposes a new test for determining impermissible extraterritorial …

The Chinese Antitrust Paradox, Wentong Zheng

The University of Chicago Business Law Review

Antitrust law faces a fundamental paradox between protecting competition and protecting competitors. This paradox is more structurally durable in China than in Western societies thanks to the oversized role of the Chinese state in its economy. This Article examines the changing market conditions in China following the adoption of China’s Antimonopoly Law (AML), and how these changes have led to paradoxical developments in Chinese antitrust. In a number of areas relating to enforcement authorities, transparency, courts, State-Owned Enterprises, cartels, internet platforms, and foreign companies, the tensions between protecting competition and protecting competitors have persisted or even deepened in the post-AML …

How To Fix Doj Privilege Teams, Anna Dincher

The University of Chicago Business Law Review

The federal government frequently executes searches and seizures in the course of criminal investigations. Many of the premises searched contain materials protected by privileges, placing them outside the reach of the Department of Justice. However, again and again those materials are swept up, potentially landing in the hands of government attorneys who are not permitted to review them—placing defendants’ Sixth Amendment right to effective assistance of counsel at risk of being violated. To rectify this risk, the DOJ employs “privilege teams” to filter through seized materials, removing those that are protected by privilege, before handing off the remaining materials to …

Workers Of The World, Differentiate: Expanding Protections For Workers In The Age Of Labor Antitrust, Sarah Hammond Roberts

The University of Chicago Business Law Review

Antitrust has traditionally served consumers—how can the law regulate firms in a manner that prevents monopolization and preserves competition among sellers of goods? A recent turn in scholarship and shifting application of antitrust law from a regulatory perspective suggests the possibility for a broader expansion of antitrust protections into the labor market. Rather than considering monopoly effects in a market (where a market is dominated by a single seller), this line of work suggests a turn to focus on monopsony effects (where a market—such as a labor market—is dominated by a single buyer), and a particular focus on the risk …

Shadow Contracts, Jessica S. Jeffers, Anne M. Tucker

The University of Chicago Business Law Review

This project explores side letters in private market funds. Side letters, separate agreements between a fund and an investor, act as an invisible amendment to the main contract. This article introduces a new use case for side letters: impact investments, where funds target social, as well as financial, returns. Using a hand-collected data set, we examine the scope and role of side letters in this growing space. Side letters as “shadow contracts” demonstrate the Easterbrook/Fischel theories in action, namely that parties “write their own tickets,” tailoring agreement terms to their specific needs within the framework of corporate governance rules. Expressing …

Endogenous Choice Of Stakes Under Common Ownership, C. Scott Hemphill, Marcel Kahan

The University of Chicago Business Law Review

We present a simple model of common ownership in which an investor chooses its stake in competing firms in light of the effects on firm behavior and firm profits. Two firms compete in Cournot duopoly, and ownership affects a firm’s objective function in the manner posited by Bresnahan & Salop (1986) and Salop & O’Brien (2000). We show that an investor with equal stakes in both firms—a so-called common concentrated owner (CCO)—places a greater value on an additional share of a firm, compared to atomistic owners. The same is true of a noncommon concentrated owner (NCO) with a stake in …

The New Corporate Governance, Oliver Hart, Luigi Zingales

The University of Chicago Business Law Review

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.

Not-For-Profits, Esgs, And The Economic Structure Of Corporate Law, Saul Levmore

The University of Chicago Business Law Review

A compelling point in The Economic Structure of Corporate Law is that the single goal of maximizing shareholder value is efficient and generally desirable because it gives the managers one aim—while leaving room for law and private contracts to impose constraints on the firm in order to control negative externalities and other social concerns. Easterbrook and Fischel say that: “A manager told to serve two masters (a little for the equity holder, a little for the community) has been freed of both and is answerable to neither.” The point is an especially good one when the manager has more of …

Should There Be Corporate Governance Police?, M. Todd Henderson

The University of Chicago Business Law Review

If a company misbehaves, lawsuits are one way of providing a remedy and encouraging that company and others to behave in the future. If the misbehavior is securities fraud, there are two potential plaintiffs—traders allegedly injured by the fraud may bring a private suit, and the government (through the SEC or DOJ) may sue to enforce the public interest in truthful disclosures of corporate information. If the misbehavior is violations of corporate governance rules, however, only private suits are available. Despite the parallel rationales for marrying private and public attorneys general, the toolkit for protecting the public interest in corporate …

Pills In A World Of Activism And Esg, Caley Petrucci, Guhan Subramanian

The University of Chicago Business Law Review

Easterbrook and Fischel’s The Economic Structure of Corporate Law advances their now famous passivity thesis, which posits that managers should remain passive in the face of an unsolicited tender offer for the company’s shares. Consistent with the broader Chicago-school economic belief, Easterbrook and Fischel argue that markets are generally efficient, and therefore restrictions on the market (like poison pills) are bad. In doing so, Easterbrook and Fischel also consider and reject externalities that might cause the market for corporate control to not function well. Thirty years have passed since Easterbrook and Fischel’s seminal work and the world has changed in …

Just Say No? Shareholder Voting On Securities Class Actions, Albert H. Choi, Stephen J. Choi, A. C. Pritchard

The University of Chicago Business Law Review

The U.S. securities laws allow security-holders to bring a class action suit against a public company and its officers who make materially misleading statements to the market. The class action mechanism allows individual claimants to aggregate their claims. This procedure mitigates the collective action problem among claimants, and also creates potential economies of scale. Despite these efficiencies, the class action mechanism has been criticized for being driven by attorneys and also encouraging nuisance suits. Although various statutory and doctrinal “solutions” have been proposed and implemented over the years, the concerns over the agency problem and nuisance suits persist. This paper …

The Win-Win That Wasn’T: Managing To The Stock Market’S Negative Effects On American Workers And Other Corporate Stakeholders, Aneil Kovvali, Leo E. Strine Jr.

The University of Chicago Business Law Review

Easterbrook and Fischel’s work suggests that society as a whole would achieve the best results if corporate leaders focused only on raising stock prices, leaving other institutions to tend to all other interests. But the idea that making societally important corporations govern to the whims of the stock market would be a win-win for investors, other corporate stakeholders, and our society as a whole has proven incorrect. At bottom, Easterbrook and Fischel failed to contend with the real- world realities that allow investors to profit by shifting distributions and political power to themselves, while shifting costs and risks to workers, …

Purpose Proposals, Jill E. Fisch

The University of Chicago Business Law Review

Repurposing the corporation is the hot issue in corporate governance. Commentators, investors, and increasingly issuers, maintain that corporations should shift their focus from maximizing profits for shareholders to generating value for a more expansive group of stakeholders. Corporations are also being called upon to address societal concerns—from climate change and voting rights to racial justice and wealth inequality.

The shareholder proposal rule, Rule 14a–8, offers one potential tool for repurposing the corporation. This Article describes the introduction of innovative proposals seeking to formalize corporate commitments to stakeholder governance. These “purpose proposals” reflect a new dynamic in the debate over stakeholder …

Rereading The “One Share, One Vote” Principle: Is It Also A Matter Of Competition?, Federico Ghezzi, Chiara Mosca, Maria ‎‏‏‎ Lucia‎ Passador ‎‏‏‎ ‎‏‏‎

The University of Chicago Business Law Review

Despite being a cumbersome principle of corporate governance, the “one share, one vote” principle à la Easterbrook and Fischel is constantly challenged by several attempts to circumvent the original structure of capitalism democracy, based on the provision (often a default provision) that no more and no less than one vote is attributed to each share.

The possibility of adopting categories of shares with multiple voting rights and that of resorting to mechanisms that multiply voting rights upon the occurrence of specific conditions (oftentimes linked to a loyalty bonus for long-term shareholders), depends on the articles of association’s autonomy granted to …

Easterbrook And Fischel On Corporate Purpose, Edward B. Rock

The University of Chicago Business Law Review

Frank Easterbrook and Daniel Fischel’s comments on corporate purpose are as fresh today as they were when they were first published in the 1980s. Starting from the “contractarian” perspective, they asked a key question about questions such as “what is the goal of the corporation?”, namely, “Who cares?”

In this contribution to the symposium volume in their honor, I examine the current corporate purpose debate through the lens of their rather brief comments that first appeared in their 1989 article, “The Corporate Contract.” In doing so, I focus on a variety of issues raised by their analysis: What are the …

The Ftc And The Cpra’S Regulation Of Dark Patterns In Cookie Consent Notices, Danyang Li

The University of Chicago Business Law Review

Dark patterns are designed to confuse and manipulate users to select the option preferred by website owners. Dark patterns are especially prevalent in cookie consent notices, which are notices that websites display to inquire users regarding their cookie preferences. Cookies are often used by websites to track and store user information for functional and marketing purposes. Dark patterns exploit various psychological biases, and the interaction among the biases will likely exacerbate their effects. This Article examines 100 cookie consent notices from the most popular ecommerce websites in the United States and offers a set of empirical data on the current …

Domestic Corporations And The Alien Tort Statute, Joseph Downey

The University of Chicago Business Law Review

This Comment analyzes the history, jurisprudence, and contemporary status of the Alien Tort Statute, which allows foreign citizens to bring suit in US courts for violations of international law. It attempts to answer two unresolved questions relating to the Alien Tort Statute. First, can domestic corporations be sued under the statue? Based on an analysis of the statute’s text, its history, and lower court decisions, this Comment argues that they rightly should be. This Comment will also define what sort of conduct suffices for an Alien Tort Statute lawsuit to be brought against a domestic corporation and concludes that a …