Law Commons^™

Little Power Struggles Everywhere: Attacks On The Administrative State At The Securities And Exchange Commission, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Delaware's New Competition, William J. Moon

Faculty Scholarship

According to the standard account in American corporate law, states compete to supply corporate law to American corporations, with Delaware dominating the market. This “competition” metaphor in turn informs some of the most important policy debates in American corporate law.

This Article complicates the standard account, introducing foreign nations as emerging lawmakers that compete with American states in the increasingly globalized market for corporate law. In recent decades, entrepreneurial foreign nations in offshore islands have used permissive corporate governance rules and specialized business courts to attract publicly traded American corporations. Aided in part by a select group of private sector …

Enhancing Efficiency At Nonprofits With Analysis And Disclosure, David M. Schizer

Faculty Scholarship

The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature.

First, this Article …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

The textbook model of commercial contracts between sophisticated parties holds that terms are proposed, negotiated and ultimately priced by the parties. Parties reach agreement on contract provisions that best suit their transaction with the goal of maximizing the joint surplus from the contract. The reality, of course, is that the majority of the provisions in contemporary commercial contracts are boilerplate terms derived from prior transactions and even the most sophisticated contracting parties pay little attention to these standard terms, focusing instead on the price of the transaction. With standard-form or boilerplate contracts, this dynamic of replicating by rote the terms …

Taking Compliance Seriously, John Armour, Jeffrey N. Gordon, Geeyoung Min

Faculty Scholarship

How can we ensure corporations play by the “rules of the game” – that is, laws encouraging firms to avoid socially harmful conduct? Corporate compliance programs play a central role in society’s current response. Prosecutors give firms incentives – through discounts to penalties – to implement compliance programs that guide and monitor employees’ behavior. However, focusing on the incentives of firms overlooks the perspective of managers, who decide how much firms invest in compliance.

We show that stock-based pay, ubiquitous for corporate executives, creates systematic incentives to short-change compliance. Compliance is a long-term investment for firms, whereas managers’ time horizon …

Foreign Corruption As Market Manipulation, Gina-Gail S. Fletcher

Faculty Scholarship

No abstract provided.

Anticipating Venezuela’S Debt Crisis: Hidden Holdouts And The Problem Of Pricing Collective Action Clauses, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

A creditor who asks for stronger enforcement rights upon its debtor’s default will rationally accept a lower interest rate reflecting the greater expected recovery the exercise of those rights provides. Over a dozen studies, however, have failed to document this basic relationship in the context of the collective action clause, a key provision in sovereign bonds. We conjecture that this failure is because enforcing the rights in question requires collective decision-making among anonymous creditors with different interests, impeding market predictions regarding future price effects. The pricing of rights that require collective enforcement thus turns on whether the market observes an …

Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar

Faculty Scholarship

A key question at the intersection of state and federal law is whether corporations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Securities Act of 1933 (“1933 Act”). The decision held that the internal affairs doctrine, which is the bedrock of U.S. corporate law, does not permit charter and bylaw provisions …

Petition For Rulemaking On Short And Distort, John C. Coffee Jr., Joshua Mitts, James D. Cox, Peter Molk, Edward Greene, Randall S. Thomas, Meyer-Eisenberg, Robert B. Thompson, Colleen Honigsberg, Andrew Verstein, Donald C. Langevoort, Charles K. Whitehead

Faculty Scholarship

Today, some hedge funds attack public companies for the sole purpose of inducing a short-lived panic which they can exploit for profit. This sort of market manipulation harms average investors who entrust financial markets with their retirement savings. While short selling serves a critical function in the capital markets, some short sellers disseminate negative opinion about a company, inducing a panic and sharp decline in the stock price, and rapidly close that position for a profit prior to the price partially or fully rebounding. We urge the SEC to enact two rules which will discourage manipulative short selling. The petition …

The New Mechanisms Of Market Inefficiency, Kathryn Judge

Faculty Scholarship

Mechanisms of market inefficiency are some of the most important and least understood institutions in financial markets today. A growing body of empirical work reveals a strong and persistent demand for “safe assets,” financial instruments that are sufficiently low risk and opaque that holders readily accept them at face value. The production of such assets, and the willingness of holders to treat them as information insensitive, depends on the existence of mechanisms that promote faith in the value of the underlying assets while simultaneously discouraging information production specific to the value of those assets. Such mechanisms include private arrangements, like …

Stakeholder Preferences And Priorities For The Next Wto Director General, Matteo Fiorini, Bernard Hoekman, Petros C. Mavroidis, Douglas Nelson, Robert Wolfe

Faculty Scholarship

The WTO is looking for a new Director-General (DG). What does the trade community think is needed? This paper reports on the results of an expert survey undertaken as part of a research project on global trade governance at the European University Institute to solicit views on what WTO members and the international trade community consider the most important attributes of candidates for the position, as well as views on the substantive policy and institutional reform priorities confronting the WTO – and thus the new DG. The results suggest strong support for someone with managerial and political experience, and a …

Short And Distort, Joshua Mitts

Faculty Scholarship

Pseudonymous attacks on public companies are followed by stock price declines and sharp reversals. These patterns are likely driven by manipulative stock options trading by pseudonymous authors. Among 1,720 pseudonymous attacks on mid- and large-cap firms from 2010 to 2017, I identify over $20.1 billion in mispricing. Reputation theory suggests these reversals persist because pseudonymity allows manipulators to switch identities without accountability.

Don't Go Chasing Waterfalls: Fiduciary Duties In Venture Capital Backed Startups, Sarath Sanga, Eric L. Talley

Faculty Scholarship

Venture-capital-backed startups are often crucibles of conflict between common and preferred shareholders, particularly around exit decisions. Such conflicts are so common, in fact, that they have catalyzed an emergent judicial precedent – the Trados doctrine – that requires boards to prioritize common shareholders' interest and to treat preferred shareholders as contractual claimants. We evaluate the Trados doctrine using a model of startup governance that interacts capital structure, corporate governance, and liability rules. The nature and degree of inter-shareholder conflict turns not only on the relative rights and options of equity participants, but also on a firm's intrinsic value as well …

Board Compliance, John Armour, Brandon L. Garrett, Jeffrey N. Gordon, Geeyoung Min

Faculty Scholarship

What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulations. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic problems. Both case law on boards’ fiduciary duties and guidance from prosecutors suggest that the board should have a continuing role in overseeing compliance activity. Yet very little is actually known about the role of boards in compliance. This paper offers the first empirical account of public companies’ engagement with compliance …

A Mission Statement For Mutual Funds In Shareholder Litigation, Sean J. Griffith, Dorothy S. Lund

Faculty Scholarship

This Article analyzes the conduct of mutual funds in shareholder litigation. We begin by reviewing the basic forms of shareholder litigation and the benefits such claims might offer mutual fund investors. We then investigate, through an in-depth docket review, whether and how the ten largest mutual funds participate in shareholder litigation. We find that although shareholder suits offer potential benefits, the largest mutual funds have essentially forfeited their use of litigation. This finding is particularly striking given that index funds and other long-term oriented mutual funds generally cannot sell their shares when they are dissatisfied with company performance, leaving them …

Insulating A Wto Investment Facilitation Framework From Isds, George A. Bermann, N. Jansen Calamita, Manjiao Chi, Karl P. Sauvant

Faculty Scholarship

The authors identify several ways in which a WTO investment facilitation framework for development can be insulated from investor-state dispute settlement provisions in international investment agreements, and suggest specific formulations in this respect.

For Coöperation And The Abolition Of Capital, Or, How To Get Beyond Our Extractive Punitive Society And Achieve A Just Society, Bernard E. Harcourt

Faculty Scholarship

In hindsight, the term "capitalism" was always a misnomer, coined paradoxically by its critics in the nineteenth century. The term misleadingly suggests that the existence of capital produces a unique economic system or that capital itself is governed by economic laws. But that's an illusion. In truth, we do not live today in a system in which capital dictates our economic circumstances. Instead, we live under the tyranny of what I would call "tournament dirigisme": a type of state-directed gladiator sport where our political leaders bestow spoils on the wealthy, privileged elite.

We need to displace this tournament dirigisme with …

Making Sense Of The Arbitrator’S Ruling In Ds 316 Ec And Certain Member States – Measures Affecting Trade In Large Civil Aircraft (Article 22.6-Ec): A Jigsaw Puzzle With (At Least) A Couple Missing Pieces, Petros C. Mavroidis, Kamal Saggi

Faculty Scholarship

“The U.S. won a $7.5 Billion award from the World Trade Organization against the European Union, who has for many years treated the USA very badly on Trade due to Tariffs, Trade Barriers, and more. This case going on for years, a nice victory”, tweeted President Trump’s on October 3, 2019. The United States (US) won not only the highest amount of retaliation ever adjudicated in the history of the WTO but also an ongoing right to retaliate on an annual basis until such time as the EU had complied by either removing the subsidies it granted Airbus or somehow …

Tepoel Lecture: Bond Trustees And The Rising Challenge Of Activist Investors, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.