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Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton Jan 2021

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

Faculty Scholarship at Penn Law

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


The Post-Chicago Antitrust Revolution: A Retrospective, Christopher S. Yoo Dec 2020

The Post-Chicago Antitrust Revolution: A Retrospective, Christopher S. Yoo

Faculty Scholarship at Penn Law

A symposium examining the contributions of the post-Chicago School provides an appropriate opportunity to offer some thoughts on both the past and the future of antitrust. This afterword reviews the excellent papers with an eye toward appreciating the contributions and limitations of both the Chicago School, in terms of promoting the consumer welfare standard and embracing price theory as the preferred mode of economic analysis, and the post-Chicago School, with its emphasis on game theory and firm-level strategic conduct. It then explores two emerging trends, specifically neo-Brandeisian advocacy for abandoning consumer welfare as the sole goal of antitrust and the ...


Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr. Dec 2020

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

Faculty Scholarship at Penn Law

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


A Babe In The Woods: An Essay On Kirby Lumber And The Evolution Of Corporate Law, Lawrence Hamermesh Dec 2020

A Babe In The Woods: An Essay On Kirby Lumber And The Evolution Of Corporate Law, Lawrence Hamermesh

Faculty Scholarship at Penn Law

This essay examines the development of corporate law during the time span of the author's career, focusing on the interrelated subjects of valuation, corporate purpose, and shareholder litigation.


Antitrust And Platform Monopoly, Herbert J. Hovenkamp Nov 2020

Antitrust And Platform Monopoly, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. As a result, competition can be made to work in most of them. Further, antitrust enforcement, with its accommodation of firm variety, is generally superior to any form of statutory regulation that generalizes over large numbers.

Assuming that an antitrust violation is found, what should be the remedy? Breaking up large firms subject to extensive ...


Network Effects In Action, Christopher S. Yoo Nov 2020

Network Effects In Action, Christopher S. Yoo

Faculty Scholarship at Penn Law

This Chapter begins by examining and exploring the theoretical and empirical limits of the possible bases of network effects, paying particular attention to the most commonly cited framework known as Metcalfe’s Law. It continues by exploring the concept of network externalities, defined as the positive external consumption benefits that the decision to join a network creates for the other members of the network, which is more ambiguous than commonly realized. It then reviews the structural factors needed for models based on network effects to have anticompetitive effects and identifies other factors that can dissipate those effects. Finally, it identifies ...


The Costs Of Critical Habitat Or Owl’S Well That Ends Well, Jonathan Klick, J.B. Ruhl Nov 2020

The Costs Of Critical Habitat Or Owl’S Well That Ends Well, Jonathan Klick, J.B. Ruhl

Faculty Scholarship at Penn Law

When the Fish and Wildlife Service designated land in four counties of Arizona as “critical habitat” necessary for the protection of the endangered cactus ferruginous pygmy‐owl, property values dropped considerably. When the owl was later delisted, property values jumped back up. We use difference-in-difference and synthetic control designs to identify this effect with Zillow property value data. The results provide an estimate of the costs of this critical habitat designation, and they are considerable, contrary to the regulators’ position that critical habitat protection imposes no incremental costs beyond the original endangered species listing.


Covid And Crime: An Early Empirical Look, David S. Abrams Nov 2020

Covid And Crime: An Early Empirical Look, David S. Abrams

Faculty Scholarship at Penn Law

Data from 25 large U.S. cities is assembled to estimate the impact of the onset of the COVID-19 pandemic on crime. There is a widespread immediate drop in both criminal incidents and arrests most heavily pronounced among drug crimes, theft, residential burglaries, and most violent crimes. The decline appears to precede stay-at-home orders, and arrests follow a similar pattern as reports. There is no decline in homicides and shootings, and an increase in non-residential burglary and car theft in most cities, suggesting that criminal activity was displaced to locations with fewer people. Pittsburgh, New York City, San Francisco, Philadelphia ...


Deregulatory Deceptions: Reviewing The Trump Administration’S Claims About Regulatory Reform, Cary Coglianese, Natasha Sarin, Stuart Shapiro Nov 2020

Deregulatory Deceptions: Reviewing The Trump Administration’S Claims About Regulatory Reform, Cary Coglianese, Natasha Sarin, Stuart Shapiro

Faculty Scholarship at Penn Law

President Donald Trump and his supporters like to point to the positive economic trends the United States experienced prior to the COVID pandemic. They argue that these positive conditions stemmed from the President’s policies, especially his emphasis on deregulation. But what has the Trump Administration really accomplished when it comes to deregulation? The answer is much less than the Administration has claimed—and much less than probably most members of the public would surmise. We compare the claims the Administration has made about its deregulatory accomplishments with what the evidence can sustain. Drawing on an original compilation of data ...


Toward Racial Equality: The Most Important Things The Business Community Can Do, Leo E. Strine Jr. Oct 2020

Toward Racial Equality: The Most Important Things The Business Community Can Do, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In this address, former Chief Justice Strine kicked-off an important series, the Conference on Racial Equity in Corporate Governance, co-sponsored by the Millstein Center for Global Markets and Corporate Governance, Columbia Law School; the Institute for Law & Economics, University of Pennsylvania; the Rock Center for Corporate Governance, Stanford University; and the Stanford Center for Racial Justice, Stanford Law School.

The address explains the importance of institutional investors and corporations contributing to ending the persistent inequality suffered by black Americans. And it focuses on the reality that we would have made huge strides toward closing the race gap if our corporate governance and political systems ...


Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp Oct 2020

Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

The antitrust enforcement Agencies' 2020 Vertical Merger Guidelines introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic.

However, we have been there before. The introduction of concentration indexes, particularly the HHI, in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again ...


Stewardship 2021: The Centrality Of Institutional Investor Regulation To Restoring A Fair And Sustainable American Economy, Leo E. Strine Jr. Oct 2020

Stewardship 2021: The Centrality Of Institutional Investor Regulation To Restoring A Fair And Sustainable American Economy, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In this essay, which formed the basis for the luncheon keynote speech at the Rethinking Stewardship online conference presented by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School and ECGI, the European Corporate Governance Institute, the essential, but not sufficient, role of regulation to promote more effective stewardship by institutional investors is discussed. To frame specific policy recommendations that align the responsibilities of institutional investors with the best interests of their human investors in sustainable wealth creation, environmental responsibility, the respectful treatment of stakeholders, and, in particular, the fair pay and treatment of ...


Influence Through Intimidation: Evidence From Business Lobbying And The Regulatory Process, Alex Acs, Cary Coglianese Oct 2020

Influence Through Intimidation: Evidence From Business Lobbying And The Regulatory Process, Alex Acs, Cary Coglianese

Faculty Scholarship at Penn Law

Interest group influence in the policy process is often assumed to occur through a mechanism of exchange, persuasion, or subsidy. Here, we explore how business groups may also exert influence by intimidating policymakers—a form of persuasion, but one based not on the provision of policy information but of political information. We develop a theory where a business firm lobbies a regulator to communicate political information about its capacity to commit to future influence-seeking activities that would sanction the regulator. The regulator assesses the credibility of this message by evaluating the firm’s commitment to lobbying. Guided by our theory ...


The “Value” Of A Public Benefit Corporation, Jill E. Fisch, Steven Davidoff Solomon Oct 2020

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

Faculty Scholarship at Penn Law

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


The Looming Crisis In Antitrust Economics, Herbert J. Hovenkamp Oct 2020

The Looming Crisis In Antitrust Economics, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

As in so many areas of law and politics in the United States, antitrust’s center is at bay. It is besieged by a right wing that wants to limit antitrust even more than it has been limited over the last quarter century. On the left, it faces revisionists who propose significantly greater enforcement.

One thing the two extremes share, however, is denigration of the role of economics in antitrust analysis. On the right, the Supreme Court’s two most recent antitrust decisions at this writing reveal that economic analysis no longer occupies the central role that it once had ...


The Irony Of Health Care’S Public Option, Allison K. Hoffman Sep 2020

The Irony Of Health Care’S Public Option, Allison K. Hoffman

Faculty Scholarship at Penn Law

The idea of a public health insurance option is at least a half century old, but has not yet had its day in the limelight. This chapter explains why if that moment ever comes, health care’s public option will fall short of expectations that it will provide a differentiated, meaningful alternative to private health insurance and will spur health insurance competition.

Health care’s public option bubbled up in its best-known form in California in the early 2000s and got increasing mainstream attention in the lead up to the 2010 health reform, the Patient Protection and Affordable Care Act ...


Uncertainty > Risk: Lessons For Legal Thought From The Insurance Runoff Market, Tom Baker Sep 2020

Uncertainty > Risk: Lessons For Legal Thought From The Insurance Runoff Market, Tom Baker

Faculty Scholarship at Penn Law

Insurance ideas inform legal thought: from tort law, to health law and financial services regulation, to theories of distributive justice. Within that thought, insurance is conceived as an ideal type in which insurers distribute determinable risks through contracts that fix the parties’ obligations in advance. This ideal type has normative appeal, among other reasons because it explains how tort law might achieve in practice the objectives of tort theory. This ideal type also supports a restrictive vision of liability-based regulation that opposes expansions and supports cutbacks, on the grounds that uncertainty poses an existential threat to insurance markets.

Prior work ...


Compliance Management Systems: Do They Make A Difference?, Cary Coglianese, Jennifer Nash Aug 2020

Compliance Management Systems: Do They Make A Difference?, Cary Coglianese, Jennifer Nash

Faculty Scholarship at Penn Law

Regulatory compliance is vital for promoting the public values served by regulation. Yet many businesses remain out of compliance with some of the regulations that apply to them—presenting not only possible dangers to the public but also exposing themselves to potentially significant liability risk. Compliance management systems (CMSs) may help reduce the likelihood of noncompliance. In recent years, managers have begun using CMSs in an effort to address compliance issues in a variety of domains: environment, workplace health and safety, finance, health care, and aviation, among others. CMSs establish systematic, checklist-like processes by which managers seek to improve their ...


Fiduciary Law And The Preservation Of Trust In Business Relationships, Brian J. Broughman, Elizabeth Pollman, D. Gordon Smith Aug 2020

Fiduciary Law And The Preservation Of Trust In Business Relationships, Brian J. Broughman, Elizabeth Pollman, D. Gordon Smith

Faculty Scholarship at Penn Law

This chapter explores the role of mandatory fiduciary obligations in preserving trust between business parties. Because contracts are inevitably incomplete, after investment there is always a risk of opportunism. While the parties could try to draft a more detailed agreement prohibiting various forms of opportunism, the very act of haggling over such protections may signal distrust, eliciting costly reactions (defensive measures/hedging/lack of intrinsic motivation) in the counterparty. In the absence of fiduciary protections, a vulnerable party may decide to forgo important protections against opportunism, not because such protections are suboptimal or hard to specify ex ante but because ...


Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon Aug 2020

Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

The hot topic in corporate governance is the debate over corporate purpose and, in particular, whether corporations should shift their purpose from the pursuit of shareholder wealth to pursuing a broader conception of stakeholder or societal value. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, why,

We address these questions by examining the historical, legal and theoretical justifications for corporate purpose. We find that none of the three provides a basis for requiring a corporation to articulate a particular purpose or for a given ...


Appraisal Waivers, Jill E. Fisch Aug 2020

Appraisal Waivers, Jill E. Fisch

Faculty Scholarship at Penn Law

A judicial determination of fair value in a private company can be a difficult and imprecise process. This difficulty coupled with variations in way mergers are negotiated and structured and the potential for conflicts of interest lend uncertainty to appraisal proceedings. As a result, corporate participants have powerful reasons to seek to limit the uncertainty associated with an appraisal proceeding ex ante. The response has been the growing use of shareholder agreements that limit appraisal rights.

Appraisal waivers also offer a potentially attractive solution to a somewhat different concern, the growth of appraisal litigation in publicly traded companies. As with ...


Private Ordering And The Role Of Shareholder Agreements, Jill E. Fisch Aug 2020

Private Ordering And The Role Of Shareholder Agreements, Jill E. Fisch

Faculty Scholarship at Penn Law

Corporate law has embraced private ordering -- tailoring a firm’s corporate governance to meet its individual needs. Firms, particularly venture-capital backed start-ups, are increasingly adopting firm-specific governance provisions such as dual-class voting structures, arrangements to create stable shared control rights among a coalition of minority shareholders, and provisions that limit the permissible fora for shareholder litigation. Courts have broadly upheld these provisions as consistent with the contractual theory of the firm. Commentators too, while finding some governance provisions objectionable, nonetheless support a private ordering approach as facilitating innovation and enhancing efficiency.

Although most analyses of private ordering focus on provisions ...


Caremark And Esg, Perfect Together: A Practical Approach To Implementing An Integrated, Efficient, And Effective Caremark And Eesg Strategy, Leo E. Strine Jr., Kirby M. Smith, Reilly S. Steel Jul 2020

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

Faculty Scholarship at Penn Law

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


Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon Jul 2020

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

Faculty Scholarship at Penn Law

Scholars, practitioners and policymakers continue to debate what constitutes “good” corporate governance. Academic efforts to evaluate the effect of governance provisions such as dual class voting structures, staggered boards of directors and separating the positions of CEO and Chairman of the Board, have produced inconsistent or inconclusive results. The consequence is that the debate over corporate governance is increasingly political and discordant.

We offer a way to address this debate. The rise of index-based investing provides a market-based alternative to governance regulation. Through the creation of bespoke governance index funds, asset managers can offer investors the opportunity to choose an ...


Implicit Communication And Enforcement Of Corporate Disclosure Regulation, Ashiq Ali, Michael T. Durney, Jill E. Fisch, Hoyoun Kyung Jul 2020

Implicit Communication And Enforcement Of Corporate Disclosure Regulation, Ashiq Ali, Michael T. Durney, Jill E. Fisch, Hoyoun Kyung

Faculty Scholarship at Penn Law

This study examines the challenge of implicit communication -- qualitative statements, tone, and non-verbal cues -- to the effectiveness of enforcing corporate disclosure regulation. We use a Regulation Fair Disclosure (Reg FD) setting, given that the SEC adopted the regulation recognizing that managers can convey non-public information privately not just through explicit quantitative disclosures but also through implicit communication. In a high-profile enforcement action, however, the court focused on a literal examination of the manager’s language rather than his positive spin to conclude that the SEC had been “too demanding” in examining the manager’s statements and that its enforcement policy ...


Antitrust: What Counts As Consumer Welfare?, Herbert J. Hovenkamp Jul 2020

Antitrust: What Counts As Consumer Welfare?, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust’s consumer welfare principle is accepted in some form by the entire Supreme Court and the majority of other writers. However, it means different things to different people. For example, some members of the Supreme Court can simultaneously acknowledge the antitrust consumer welfare principle even as they approve practices that result in immediate, obvious, and substantial consumer harm. At the same time, however, a properly defined consumer welfare principle is essential if antitrust is to achieve its statutory purpose, which is to pursue practices that injure competition. The wish to make antitrust a more general social justice statute is ...


Understanding The Revenue Potential Of Tax Compliance Investment, Natasha Sarin, Lawrence H. Summers Jul 2020

Understanding The Revenue Potential Of Tax Compliance Investment, Natasha Sarin, Lawrence H. Summers

Faculty Scholarship at Penn Law

In a July 2020 report, the Congressional Budget Office estimated that modest investments in the IRS would generate somewhere between $60 and $100 billion in additional revenue over a decade. This is qualitatively correct. But quantitatively, the revenue potential is much more significant than the CBO report suggests. We highlight five reasons for the CBO’s underestimation: 1) the scale of the investment in the IRS contemplated is modest and far short of sufficient even to return the IRS budget to 2011 levels; 2) the CBO contemplates a limited range of interventions, excluding entirely progress on information reporting and technological ...


The Social Cost Of Contract, David A. Hoffman, Cathy Hwang Jun 2020

The Social Cost Of Contract, David A. Hoffman, Cathy Hwang

Faculty Scholarship at Penn Law

When private parties perform contracts, the public bears some of the costs. But what happens when society confronts unexpected contractual risks? During the COVID-19 pandemic, completing particular contracts—such as following through with weddings, conferences, and other large gatherings—will greatly increase the risk of rapidly spreading disease. A close reading of past cases illustrates that when social hazards sharply increase after formation, courts have sometimes rejected, reformed, and reinterpreted contracts so that parties who breach to reduce external harms are not left holding the bag.

This Essay builds on that observation in making two contributions. Theoretically, it characterizes contracts ...


When Standards Collide With Intellectual Property: Teaching About Standard Setting Organizations, Technology, And Microsoft V. Motorola, Cynthia L. Dahl Jun 2020

When Standards Collide With Intellectual Property: Teaching About Standard Setting Organizations, Technology, And Microsoft V. Motorola, Cynthia L. Dahl

Faculty Scholarship at Penn Law

Technology lawyers, intellectual property (IP) lawyers, or even any corporate lawyer with technology clients must understand standard essential patents (SEPs) and how their licensing works to effectively counsel their clients. Whether the client’s technology is adopted into a voluntary standard or not may be the most important factor in determining whether the company succeeds or is left behind in the market. Yet even though understanding SEPs is critical to a technology or IP practice, voluntary standards and specifically SEPs are generally not taught in law school.

This article aims to address this deficiency and create more practice-ready law school ...


Long-Term Care Policy After Covid-19 — Solving The Nursing Home Crisis, Rachel M. Werner, Allison K. Hoffman, Norma B. Coe May 2020

Long-Term Care Policy After Covid-19 — Solving The Nursing Home Crisis, Rachel M. Werner, Allison K. Hoffman, Norma B. Coe

Faculty Scholarship at Penn Law

Nursing homes have been caught in the crosshairs of the coronavirus pandemic. As of early May 2020, Covid-19 had claimed the lives of more than 28,000 nursing home residents and staff in the United States. But U.S. nursing homes were unstable even before Covid-19 hit. The tragedy unfolding in nursing homes is the result of decades of neglect of long-term care policy.

Beyond the pandemic, we will have to transform the way we pay for and provide long-term care. First, Medicaid programs need to invest considerably more in care in all settings, including home-based settings as Medicaid shifts ...