Law Commons^™

The Personification Of The Partnership, Harwell Wells

Vanderbilt Law Review

What does it mean to say a business association is a legal person? The question has shadowed the law of business organizations for at least two centuries. When we say a business is a legal person we may be claiming that the law distinguishes its assets, liabilities, and obligations from those of its owners; or that it has a “real will” and personality apart from its owners; or that it in some way can carry or assert rights generally ascribed to natural persons. This Article sheds new light on these old questions by looking at an oft-overlooked business form, the …

The Other Janus And The Future Of Labor’S Capital, David H. Webber

Vanderbilt Law Review

Two forms of labor’s capital—union funds and public pension funds— have profoundly reshaped the corporate world. They have successfully advocated for shareholder empowerment initiatives like proxy access, declassified boards, majority voting, say on pay, private fund registration, and the CEO-to-worker pay ratio. They have also served as lead plaintiffs in forty percent of federal securities fraud and Delaware deal class actions. Today, much-discussed reforms like revised shareholder proposal rules and mandatory arbitration threaten two of the main channels by which these shareholders have exercised power. But labor’s capital faces its greatest, even existential, threats from outside corporate law. This Essay …

Automating Securities Class Action Settlements, Jessica Erickson

Vanderbilt Law Review

This Article argues that the time has come to modernize the distribution of settlement funds in securities class actions. There are two possible ways to modernize this process. The first approach relies on market innovation, proposing an automated system that collects the relevant transaction data from individual banks and brokers. Claims administrators could then use this data to calculate every class member’s pro rata share of the settlement and send them their money. The second approach relies on regulatory innovation using the SEC’s Consolidated Audit Trail, which, once it is up and running, will contain a complete record of nearly …

Corporate Oversight And Disobedience, Elizabeth Pollman

Vanderbilt Law Review

This Article explores the public-regarding purpose of the obedience and oversight duties in corporate law and provides a descriptive account of how they are applied in practice. The Article argues that the fidelity to external law required by the duty of good faith largely serves a legitimizing role for corporate law. Expressing obligations of legal compliance and oversight within corporate law acknowledges societal interests in the rule of law and preserves the ability of courts to flexibly respond to particularly salient and egregious violations of public trust, should they arise, without upending case law developed over decades.

Further, this Article …

The Missing Regulatory State: Monitoring Businesses In An Age Of Surveillance, Rory V. Loo

Vanderbilt Law Review

An irony of the information age is that the companies responsible for the most extensive surveillance of individuals in history-large platforms such as Amazon, Facebook, and Google-have themselves remained unusually shielded from being monitored by government regulators. But the legal literature on state information acquisition is dominated by the privacy problems of excess collection from individuals, not businesses. There has been little sustained attention to the problem of insufficient information collection from businesses. This Article articulates the administrative state's normative framework for monitoring businesses and shows how that framework is increasingly in tension with privacy concerns. One emerging complication is …

Incapacitating Criminal Corporations, W. Robert Thomas

Vanderbilt Law Review

If there is any consensus in the fractious debates over corporate punishment, it is this: a corporation cannot be imprisoned, incarcerated, jailed, or otherwise locked up. Whatever fiction the criminal law entertains about corporate personhood, having a physical "body to kick"-and, by extension, a body to throw into prison-is not one of them. The ambition of this project is not to reject this obvious point but rather to challenge the less-obvious claim it has come to represent: incapacitation, despite long being a textbook justification for punishing individuals, does not bear on the criminal law of corporations.

This Article argues that …

Regulating Offshore Finance, William J. Moon

Vanderbilt Law Review

From the Panama Papers to the Paradise Papers, massive document leaks in recent years have exposed trillions of dollars hidden in small offshore jurisdictions. Attracting foreign capital with low tax rates and environments of secrecy, a growing number of offshore jurisdictions have emerged as major financial havens hosting thousands of hedge funds, trusts, banks, and insurance companies. While the prevailing account has examined offshore financial havens as "tax havens" that facilitate the evasion or avoidance of domestic tax, this Article uncovers how offshore jurisdictions enable business entities to opt out of otherwise mandatory domestic regulatory laws. Specifically, recent U.S. Supreme …

Combating The Enemy Within: Regulating Employee Misappropriation Of Business Information, Danielle J. Reid

Vanderbilt Law Review

Technological advancements vastly improve efficiency and productivity in the workplace. However, technology also brings with it the ability to transmit mass amounts of business information with ease. As technology continues to evolve and become increasingly prevalent in the modern workplace, the insider presents a considerable threat to employers. In fact, employers increasingly face disgruntled employees who are all too eager to download their employers' sensitive, confidential, and proprietary information before terminating the employment relationship. However, the digital age, a global economy, and a highly mobile workforce have rendered the law utterly unreliable in addressing employee misappropriation. In enacting the Defend …

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

Vanderbilt Law Review

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 …

Regulating Business Innovation As Policy Disruption: From The Model T To Airbnb, Eric Biber, Sarah E. Light, J.B. Ruhl, James Salzman

Vanderbilt Law Review

Many scholars have invoked the term "disruptive innovation" when addressing the platform (sharing) economy, with sweeping claims about the dramatic changes this development promises for law, regulation, and the economy. The challenges raised by the platform economy are surely important, but we argue that recent scholarship focusing on the immediacy and novelty of the platform economy has been ahistorical, and has therefore missed the bigger picture about how to regulate it. History is full of technological and management advances that fundamentally disrupted business models for a brief period of time. When business innovation upends a preexisting business model in a …

Monopolies In Multidistrict Litigation, Elizabeth Chamblee Burch

Vanderbilt Law Review

When transferee judges receive a multidistrict proceeding, they select a few lead plaintiffs' lawyers to efficiently manage litigation and settlement negotiations. That decision gives those attorneys total control over all consolidated plaintiffs' claims and rewards them richly in common-benefit fees. It's no surprise then that these are coveted positions, yet empirical evidence confirms that the same attorneys occupy them time and again.

Anytime repeat players exist and exercise both oligopolistic leadership control across multidistrict proceedings and monopolistic power within a single proceeding, there is concern that they will use their dominance to enshrine practices and norms that benefit themselves at …

Constitutionalizing Corporate Law, Elizabeth Pollman

Vanderbilt Law Review

The Supreme Court has recently decided some of the most important and controversial cases involving the federal rights of corporations in over two hundred years of jurisprudence. In rulings ranging from corporate political spending to religious liberty rights, the Court has dramatically expanded the zone in which corporations can act free from regulation. This Article argues these decisions represent a doctrinal shift, even from previous cases granting rights to corporations. The modern corporate rights doctrine has put unprecedented weight on state corporate law to act as a mechanism for resolving disputes among corporate participants regarding the expressive and religious activity …

Intrafirm Monitoring Of Executive Compensation, Robert J. Rhee

Vanderbilt Law Review

This Article argues that employees should serve as intrafirm monitors of executive performance and pay. Employees and shareholders, labor and capital, can monitor executive performance and pay at different levels. Diffuse, diversified, and short durational shareholders currently monitor performance and pay through the market mechanism of public disclosures and share price. Employees can add an effective layer of monitoring by leveraging private information. Employees possess the corporation's entire information content; the assessment derived from this content would be relevant to the board's assessment of executive performance and pay. Corporate employees are also a major constituent of the corporate system and …

How Algorithmic Trading Undermines Efficiency In Capital Markets, Yesha Yadav

Vanderbilt Law Review

This Article argues that the rise of algorithmic trading undermines efficient capital allocation in securities markets. It is a bedrock assumption in theory that securities prices reveal how effectively public companies utilize capital. This conventional wisdom rests on the straightforward premise that prices reflect available information about a security and that investors look to prices to decide where to invest and whether their capital is being productively used. Unsurprisingly, regulation relies pervasively on prices as a proxy for the allocative efficiency of investor capital. Algorithmic trading weakens the ability of prices to function as a window into allocative efficiency.

This …

Empowering Shareholders, Or Overburdening Companies? Analyzing The Potential Use Of Instant Runoff Voting In Corporate Elections, G. Scott Edwards

Vanderbilt Law Review

Although hotly debated today, one of the prevailing theories in the mind of the public as to why the shareholders of a corporation possess the right to vote in corporate elections is the fact that shareholders "own" the corporation. Even though one academic has written that this theory is the "worst" argument for shareholder primacy, the notion that shareholders should vote in corporations because the corporation "belongs" to them is strongly entrenched in the minds of the general public; in fact, this theory of shareholder primacy often creeps into judicial opinions, showing that even judges are influenced by the theory. …

Human Equity? Regulating The New Income Share Agreements, Shu-Yi Oei, Diane Ring

Vanderbilt Law Review

A controversial new financing phenomenon has recently emerged. New "income share agreements" ("ISAs") enable an individual to raise funds by pledging a percentage of her future earnings to investors for a certain number of years. These contracts, which have been offered by entities such as Fantex, Upstart, Pave, and Lumni, raise important questions for the legal system: Are they a form of modern-day indentured servitude or an innovative breakthrough in human financing? How should they be treated under the law? This Article comprehensively addresses the public policy and legal issues raised by ISAs and articulates an analytical approach to evaluating …

The Case For A Market In Debt Governance, Yesha Yadav

Vanderbilt Law Review

Scholars have long lamented that the growth of modern finance has given way to a decline in debt governance. According to current theory, the expansive use of derivatives that enable lenders to trade away the default risk of their loans has made these lenders uninterested, even reckless, when it comes to exercising creditor discipline. In contrast to current theory, this Article argues that such derivatives can prove a positive and powerful influence in debt governance. Theory has overlooked those who sell credit protection to lenders and assume default risk on the borrower. These protection sellers are left holding the economic …

The Supercharged Ipo, Victor Fleischer, Nancy Staudt

Vanderbilt Law Review

A new innovation on the IPO landscape has emerged in the last two decades, allowing owner-founders to extract billions of dollars from newly public companies. These IPOs-labeled supercharged IPOs-have been the subject of widespread debate and controversy: lawyers, financial experts, journalists, and members of Congress have all weighed in on the topic. Some have argued that supercharged IPOs are "brilliant, just brilliant," while others have labeled them "underhanded" and "bizarre."

In this Article, we explore the supercharged IPO and explain how and why this new deal structure differs from the more traditional IPO. We then outline various theories of financial …

What Should We Do About Multijurisdictional Litigation In M&A Deals?, Randall S. Thomas

Vanderbilt Law Review

Companies and their investors have been battling over the value of representative shareholder litigation since at least the 1940s. Investors argue that managerial agency costs are high and that class actions and derivative suits are key shareholder monitoring mechanisms that they can deploy to keep managers in line. Companies, on the other hand, believe that the plaintiffs' bar drives representative litigation claims, as agency costs in contingency fee suits make the lawyer the real party in interest. Over the past several decades, there have been numerous skirmishes between these two sets of actors, manifesting themselves, for example, in congressional debates …

Fee Shifting And The Free Market, Jonathan T. Molot

Vanderbilt Law Review

It is uncontroversial that litigation is too expensive. Controversy abounds, however, over who is to blame and what is to be done about the problem. Plaintiffs and defendants each accuse the other of pursuing weak or meritless litigation positions that inflict needless expense. This Article suggests that regardless of who is correct-and who is more often at fault-the same set of solutions may be available to assuage the problem. The Article embraces a combination of procedural reforms and market mechanisms designed to improve matters for both sides and to make it less likely that a party with a meritorious litigation …

The Market For Preclusion In Merger Litigation, Sean J. Griffith, Alexandra D. Lahav

Vanderbilt Law Review

Delaware dominates the corporate law market.' More than half of all public companies and over sixty percent of the Fortune 500 are incorporated in Delaware. These companies are subject to Delaware's corporate law regardless of where their businesses are physically located. Although academics continue to debate whether it is good or bad, they have long agreed that Delaware's dominance is a result of its law and its judiciary. As a corollary, it was widely understood that Delaware courts decided most cases involving Delaware corporations. The discovery that litigation involving these corporations very often takes place outside of Delaware therefore came …

Public(Ly Oriented) Companies: B Corporations And The Delaware Stakeholder Provision Dilemma, Steven J. Haymore

Vanderbilt Law Review

During his 2007 commencement address at Harvard University, Bill Gates called on the graduates to invent "a more creative capitalism" where "we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities." A number of entrepreneurs, including those that started online bookstore Better World Books ("BWB"), are doing their best to create a more creative capitalism. BWB sells approximately 10,000 books a day and brought in $30 million in revenue in 2010. BWB sells its products to return a profit …

Symposium On Executive Compensation Keynote Address, Kenneth R. Feinberg

Vanderbilt Law Review

I want to thank Richard Nagareda for inviting me to Vanderbilt; he's an old friend. I am very honored to return to Vanderbilt. I taught a course at Vanderbilt, and I loved teaching here. I loved going to the Country Music Hall of Fame and learning more about Patsy Cline and Johnny Cash. Really, it was great. I've already received an invitation from Dean Jim Bradford to come back to the business school and the law school and to participate in an interdisciplinary look at executive compensation. I hope to return. But when I saw that the Vanderbilt Law Review …

Comparing Ceo Employment Contract Provisions: Differences Between Australia And The United States, Jennifer G. Hill, Ronald W. Masulis, Randall S. Thomas

Vanderbilt Law Review

This study compares CEO employment contracts across two common law countries: the United States and Australia. Although the regulatory regimes of these jurisdictions enjoy many comparable features, there are also some important institutional differences in terms of capital market, tax, and regulatory structures, which are discussed here. Debate has raged in the United States on the issue of whether executive compensation is efficient and determined at arm's length, or skewed by a power imbalance between managers and shareholders. A comparative analysis of the kind undertaken in our study provides an additional perspective on the optimal contracting and managerial power models …

Executive Compensation Consultants And Ceo Pay, Martin J. Conyon

Vanderbilt Law Review

This Article surveys recent empirical studies on the relation between compensation consultants and CEO pay. The economic rationale for using executive compensation consultants is that they supply valuable data, information, and professional expertise to client firms. However, critics argue that the consultant's independence might be compromised because of conflicts of interest arising from the cross selling of business services or because of the consultant's desire to obtain repeat business. The emergent empirical evidence suggests that pay consultants are important in explaining executive compensation, although the findings are sometimes mixed and the precise effects of consultants on pay are yet to …

Insider Trading And Ceo Pay, M. Todd Henderson

Vanderbilt Law Review

This Article presents evidence showing that boards of directors "bargain" with executives about the profits they expect to make from trades in firm stock. The evidence suggests that executives whose trading freedom increased using Rule 10b5-1 trading plans experienced reductions in other forms of pay to offset the potential gains from trading. There are two potential benefits from trading-portfolio optimization and informed trading profits- and this Article allows us to isolate them. The data show that boards pay executives in a way that reflects the profits they are expected to earn from informed trades. It also casts some doubt on …

Economics, Politics, And The International Principles For Sound Compensation Practices: An Analysis Of Executive Pay At European Banks, Guido Ferrarini, Maria C. Ungureanu

Vanderbilt Law Review

In this Article, we submit that the compensation structures at banks before the financial crisis were not necessarily flawed and that recent reforms in this area largely reflect already existing best practices. In Part I we review recent empirical studies on corporate governance and executive pay at banks and suggest that there is no strong support for regulating bankers' compensation structures. We also argue that detailed regulation of incentives would subtract essential decisionmaking powers from boards of directors and make compensation structures too rigid.

In Part II we note that political support for regulating bankers' pay has been strong and …

Evolving Executive Equity Compensation And The Limits Of Optimal Contracting, David I. Walker

Vanderbilt Law Review

Executive equity compensation in the United States is evolving. At the turn of the millennium, stock options dominated the equity pay landscape, accounting for over half of the aggregate ex ante value of senior executive pay at large public companies, while restricted stock and similar compensation accounted for only about ten percent. Beginning in 2006, stock grants have displaced options as the single largest component of senior executive compensation at these firms. Accompanying this shift has been increased variation among companies in their relative emphasis on stock and options in equity pay packages. Both phenomena provide an opportunity for a …

Paying For Advice: The Role Of The Remuneration Consultant In U.K. Listed Companies, Ruth Bender

Vanderbilt Law Review

Compensation consultants are an integral part of the process of determining executive pay in large listed companies. This study reports interview-based research with protagonists in setting executive compensation in twelve FTSE 350 companies and addresses why the consultants are used, what they do, and how they are perceived.

Consultants have several important roles. Firstly, they act as experts, providing market data and advising on plan design and implementation. Because of this role, they not only guide their clients as to the requirements of the market, they also help create those selfsame market practices and norms. They also have a role …

Shotgun Weddings: Director And Officer Fiduciary Duties In Government-Controlled And Partially-Nationalized Corporations, David M. Barnes

Vanderbilt Law Review

Corporate law considers the affairs of a corporation to be private activity. The prevailing concept of the firm is a nexus of private contract rights among participants in an economic enterprise. But for many U.S. auto and financial services corporations, the events of the fall of 2008 and the winter of 2009 turned this presumption on its head. The U.S. government's $700 billion bailout injected an alien actor-the United States Treasury-into this once-private enterprise. The bailout enabled the Treasury to take a direct equity stake in many of the nation's struggling auto and financial services corporations. In the fall of …