Law Commons^™

Duty And Diversity, Chris Brummer, Leo E. Strine, Jr.

Vanderbilt Law Review

In the wake of the brutal deaths of George Floyd and Breonna Taylor, lawmakers and corporate boards from Wall Street to the West Coast have introduced a slew of reforms aimed at increasing Diversity, Equity, and Inclusion (“DEI”) in corporations. Yet the reforms face difficulties ranging from possible constitutional challenges to critical limitations in their scale, scope, and degree of legal obligation and practical effects.

In this Article, we provide an old answer to the new questions facing DEI policy and offer the first close examination of how corporate law duties impel and facilitate corporate attention to diversity. Specifically, we …

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 …

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, …

The Trouble With Corporate Conscience, James D. Nelson

Vanderbilt Law Review

Accomplished corporate law scholars claim that modern businesses need an infusion of morality. Disappointed by conventional regulatory responses to recurring corporate scandal, these scholars argue that corporate conscience provides a more fruitful path to systemic economic reform. In Burwell v. Hobby Lobby, which held that for-profit businesses can claim religious exemptions from general laws, the Supreme Court gave this notion of corporate conscience added momentum. Emboldened by the Court's embrace of business goals extending beyond shareholder profit, proponents of a moralized marketplace now celebrate corporate conscience as an idea whose time has come. This Essay criticizes the leading arguments for …

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 …

Arrow's Theorem And The Exclusive Shareholder Franchise, Grant Hayden, Matthew Bodie

Vanderbilt Law Review

The doctrine of shareholder primacy has received substantial attention from its legions of proponents, its indefatigable opponents, and even its disinterested observers. The notion that a corporation should be run in the interests of its shareholders is the theoretical foundation upon which modern corporate law stands. Almost all empirical study in corporate law is premised on a notion of shareholder primacy, and these results would lose much of their meaning if the theory were somehow disproved. Perhaps most importantly, shareholders do in fact have primacy of place within the corporation, as they alone generally have the right to elect the …

A Fresh Look At Director "Independence": Mutual Fund Fee Litigation And "Gartenberg" At Twenty-Five, Lyman Johnson

Vanderbilt Law Review

Today, the concept of the "independent" director is widely, if not universally, regarded as critical to the healthy governance of public corporations.' The concept remains fiercely contested, however, in the governance of investment companies, including mutual funds. This resistance appears on two fronts, one of which is quite visible, while the other is often overlooked. The more obvious battle over director independence has occurred in response to the Securities and Exchange Commission's ("SEC's") rulemaking effort to alter the standard for granting certain regulatory privileges under the Investment Company Act (the "Act").' The SEC, among its other reforms, sought to limit …

A Prescription To Retire The Rhetoric Of "Principles-Based Systems" In Corporate Law, Securities Regulation, And Accounting, Lawrence A. Cunningham

Vanderbilt Law Review

This Article corrects widespread misconception about whether complex regulatory systems can be described fairly as either "rules-based" or "principles-based" (also called "standards-based'). Promiscuous use of these labels has proliferated in the years since the implosion of Enron Corp. Users show an increasing habit of celebrating systems dubbed principles-based and scorning those called rules-based. While the concepts of rules and principles (or standards) are useful to classify individual provisions, they are not scalable to the level of complex regulatory systems. The Article uses examples from corporate law, securities regulation, and accounting to illustrate this problematic phenomenon. To describe or design systems …

Symbiotic Federalism And The Structure Of Corporate Law, Marcel Kahan, Edward Rock

Vanderbilt Law Review

Enron. Worldcom. Adelphia. Global Crossing. Tyco. Corporate scandals have made the front pages. Congress has gotten in the act. Members have held numerous hearings, given speeches, and, ultimately, passed the Sarbanes-Oxley Act. The Securities and Exchange Commission ("SEC") has been busy writing regulations and leaning on the stock exchanges to modify their listing requirements, all in order to restore "investor confidence." Federal prosecutors have indicted executives of Enron, Worldcom, and Adelphia and their minions in the auditing and investment banking industries. State officials have also been active. Several states have passed statutes that resemble or go beyond the strictures of …

A Team Production Theory Of Bankruptcy Reorganization, Lynn M. Lopucki

Vanderbilt Law Review

In the year before United Airlines filed for bankruptcy reorganization, the firm lost $3.2 billion. Fierce competition in the airline industry prevents United from stemming its losses solely through increases in revenues. Costs will have to be cut. The necessary expense reductions could come from reductions in employee pay and benefits, reductions in the amounts owing to creditors (which reduce interest expense), or both. Which should it be? United's situation is complicated by the fact that its employees own 55 percent of its stock and that their wage levels are protected by a collective bargaining agreement. But if we assume …

The Business Judgment Rule As Abstention Doctrine, Stephen M. Bainbridge

Vanderbilt Law Review

The business judgment rule is corporate law's central doctrine, pervasively affecting the roles of directors, officers, and controlling shareholders. Increasingly, moreover, versions of the business judgment rule are found in the law governing the other types of business organizations, ranging from such common forms as the general partnership to such unusual ones as the reciprocal insurance exchange. Yet, curiously, there is relatively little agreement as to either the theoretical underpinnings of or policy justification for the rule. This gap in our understanding has important doctrinal implications. As this paper demonstrates, a string of recent decisions by the Delaware supreme court …

Corporate Ownership Structure And The Evolution Of Bankruptcy Law: Lessons From The United Kingdom, John Armour, Brian R. Cheffins, David A. Skeel, Jr.

Vanderbilt Law Review

The corporate world today subdivides into rival systems of dispersed and concentrated ownership, each characterized by different corporate governance structures. The United States falls into the former category, whereas major industrial rivals such as Japan and Germany are members of the latter. The past decade has seen intense academic debate over possible explanations for the different systems of ownership and control in key developed economies. Anecdotal evidence suggesting that market forces may be serving to destabilize traditional business structures and foster some form of convergence in a U.S. direction has given the controversy powerful current relevance.

For those seeking to …

Why A Board? Group Decisionmaking In Corporate Governance, Stephen M. Bainbridge

Vanderbilt Law Review

This Article begins by briefly describing the role of the board both in law and in practice. Part II explores the distinction be- tween consensus and authority as modes of institutional decision- making. As hierarchical institutions, corporations rely far more heavily on authority than on consensus. Yet, at the apex of the hierarchy is a collegial body that functions mainly by consensus.

Part III is the core of the Article. In order to evaluate corporate law's preference for collective decisionmaking, we need to know whether group decisionmaking is superior to that of individuals. A wealth of experimental data suggests that …

An Evolutionary Theory Of Corporate Law And Corporate Bankruptcy, David A. Skeel, Jr.

Vanderbilt Law Review

In this Article, Professor Skeel argues that the important recent literature exploring historical and political influences on American corporate law has neglected a crucial component of corporate governance: corporate bankruptcy. Only by appreciating the complementary relationship between corporate law and corporate bankruptcy can we understand how corporate governance operates in any given nation.

To show this, the Article contrasts American corporate governance with that of Japan and Germany. America's market-driven corporate governance can only function effectively if the bankruptcy framework includes a manager-driven reorganization option. The relational shareholding that characterizes Japanese and German corporate governance, by contrast, requires a much …

Indeterminacy: The Final Ingredient In An Interest Group Analysis Of Corporate Law, Douglas M. Branson

Vanderbilt Law Review

Legal realists emphasized the contradictory norms of law. Contradictory norms permitted judges to reach conclusions about what basic equities and broadly accepted social interests required in particular cases. Judges then used whatever norm of law suited them to reason in support of their a priori conclusions about what these equities or broad social interests required.

Critical Legal Studies (CLS) has inherited and enhanced the legacy of questioning the value of legal rules. CLS thinkers maintain that law is indeterminate, drawing heavily upon linguists who have explored the indeterminacy of language.' CLS scholars go beyond realists, however,both in positing contradictory norms …

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 …

Section 355'S Active Business Rule--An Outdated Inefficacy, John A. Stemmler

Vanderbilt Law Review

In order to delineate the problems inherent in the active business rule, this Note first will examine the legislative history of tax-free separations, isolating the primary purpose and policy of section 355. Regulatory and judicial interpretations of section 355 will also be analyzed to determine their propriety in light of the statute's purpose and to illustrate the confusion that exists in the area. This, in turn, will lead to a suggested approach for dealing with section 355 transactions in the future.

Rule 10b-5 And The Stockholder's Derivative Action, Lewis D. Lowenfels

Vanderbilt Law Review

This article focuses upon a new, emerging private cause of action based upon section 10(b) and rule 10b-5-a stockholder's derivative action initiated on behalf of a corporation which has been defrauded in connection with the purchase or sale of securities. Five reported cases, three decided in the last three months of 1964, have sustained a stockholder's derivative suit based upon section 10(b) and rule 10b-5. The significance of these decisions becomes apparent, not only when one considers that the derivative suit has traditionally been an internal corporate matter governed exclusively by state law, but also when one focuses upon the …

William 0. Douglas -- His Work In Policing Bankruptcy Proceedings, John W. Hopkirk

Vanderbilt Law Review

William 0. Douglas, while associated with the Securities and Exchange Commission during the mid-nineteen thirties, was responsible for a study of methods and procedures of corporate reorganization. By examining this area of Douglas' work, we can compare the position on corporate reorganization which the Justice developed as an administrative official for the New Deal with his later consideration of the same problems as a member of the Supreme Court of the United States. Through this comparison we can observe a number of basic attitudes which were manifested by Douglas both before and since he has joined the Court. Important among …

Book Reviews, Estes Kefauver, Senator, Stanley D. Rose, W. Edward Sell, Harold G. Wren, Robert N. Covington

Vanderbilt Law Review

Congress and the Court By Walter F. Murphy. Chicago: The University of Chicago Press, 1962. Pp. xi, 308. $6.95. (judicial power)

reviewer: Senator Estes Kefauver

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Interstate Apportionment of Business Income for State Income Tax Purposes By Charles E. Ratliff, Jr. Chapel Hill: The University of North Carolina Press, 1962. Pp. xi, 132. $4.00. (tax law)

reviewer: Stanley D. Rose

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Expulsion or Oppression of Business Associates By F. Hodge O'Neal and Jordan Derwin. Durham, N.C.: Duke University Press,1961. Pp. vii, 263. $10.00. (business organizations)

reviewer: W. EDWARD SELL

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The Ideologies of Taxation By Louis Eisenstein. New York: The …

Book Reviews, Law Review Staff

Vanderbilt Law Review

Decision at Law

By David W. Peck.

New York: Dodd, Mead & Co.,1961. Pp. vii, 303.

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Corporation Lawyer: Saint or Sinner? By Beryl Harold Levy.

Philadelphia and New York: Chilton Co., 1961. Pp. x, 175.

reviewer: Elliott E. Cheatham

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Criminal Psychology Edited by Richard W. Nice. New York: Philosophical Library, Inc., 1962. Pp. 284.

reviewer: J. Paschall Davis

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Symposium on the Labor-Management Reporting and Disclosure Act of 1959 Edited by Ralph Slovenko. Baton Rouge: Claitor's Bookstore, 1961. Pp. xliv, 1237. $20.00.

reviewer: Robert N. Covington

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Handling Accident Cases, Vol. 3

By Albert Averbach.

Rochester: The Lawyers …

Business Associations -- 1961 Tennessee Survey, Kenneth L. Roberts

Vanderbilt Law Review

I. CASES

A. Disregard of Corporate Entity

B. Action in Corporate Name After Revocation of Charter

C. Effect of Merger

1. Privilege Tax

2. Statute of Limitations

D. Judicial Intervention in Internal Corporate Affairs

E. Disregard of Fictitious Corporate Records

F. Criminal Liability of Corporation for Acts of Agents

G. Corporate Venue Under Federal Anti-Trust Laws

II. STATUTES

A. Unincorporated Associations Treated as Corporations

B. Amendments to Securities Law

C. Massachusetts Trust Act

D. Industrial Development Corporation "Projects"

E. Amendments Relating to General Welfare Corporations

F. Miscellany

Federal Jurisdiction In Personam Of Corporations And Due Process, Thomas F. Green Jr.

Vanderbilt Law Review

A great deal has been written about the personal jurisdiction of state courts and particularly about the applicable due process requirements.' Much less has been contributed by commentators on the subject of due process requirements applying to in personam jurisdiction of a United States district court. Perhaps the reason is the difficulty of finding a rationale in the pertinent decisions. These fail to distinguish between the conditions necessary for valid service of federal court process as contrasted with those essential to the proper service of state process. They also fail to explain why the constitutional provision brings about the result …

Extent Of The Legislature's Reserve Power To Change Common Law Attributes Of Corporations, Edward R. Hayes

Vanderbilt Law Review

Does a stockholder have a right, at common law, to dissent and have his stock repurchased when his corporation purchases the assets of another business? If he does, is this a common law attribute of corporations? What other common law attributes may there be? To what extent has a legislature power to alter or modify these attributes, or to authorize alteration or modification by the holders of a majority of a corporation's stock? The discussion will be directed first to what attributes a corporation has apart from those bearing on its relations with its stockholders; next, to what attributes are …

Corporate Law Department Communications--Privilege And Discovery, Thomas R. Hunt

Vanderbilt Law Review

With the growth in number and size of corporate law departments, there is increased interest in determining the conditions and areas in which their communications' may be called for, and used, in litigation. As business becomes more complex, requiring adherence to legislation and regulation which allows small tolerance between the licit and illicit, or demanding close attention to administrative detail, the role of the lawyer is amplified. Concurrently, corporate counsel is engaged in areas where the distinction between business and legal considerations becomes decreasingly apparent.

Tax Considerations In Selecting A Form Of Foreign Business Organization, Walter W. Brudno

Vanderbilt Law Review

The provisions of the Internal Revenue Code which are of particular relevance to the planning of foreign operations are few in number and are generally deceptively simple in phraseology. The substantive provisions consist of those sections which specify rules for determining the source of income, for calculating the credit for foreign taxes paid in respect of foreign source income, and for allowance of concessional treatment accorded Western Hemisphere Trade Corporations, United States Possessions Corporations, and China Trade Act Corporations. Measures designed to prevent tax avoidance which are of particular relevance are those which relate to acquisition of corporate control for …

Stockholders' Derivative Suits In Southern Jurisdictions, W. Jack Williams

Vanderbilt Law Review

The stockholders' derivative suit has been of increasing prominence during the past several decades. As an action in equity instituted by individual stockholders, the suit is representative in nature in that the stockholder prosecutes the action for all stockholders who are similarly situated. Yet, as the suit is in behalf of the corporate entity and not the stockholders personally, it is derivative.'

As in most other areas of corporate law in southern jurisdictions,there exists no comprehensive body of statutory or case law dealing with all facets of stockholders' derivative suits. The greater part of the body of law in this …