Law Commons^™

The Effects Of Shareholder Primacy, Publicness, And “Privateness” On Corporate Cultures, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

There is widespread belief in both scholarship and business practice that internal corporate cultures materially affect economic outcomes for firms. In turn, there is also a growing belief that corporate governance arrangements materially affect corporate cultures. If this is true, it suggests an intriguing three-link causal chain: governance choices influence corporate performance, at least in part via their effects on internal culture. This essay, written for the “Berle XI” symposium, explores that possibility. This subject is important to lawyers and legal scholars because of the symbiotic nature of law and governance, with an increasing risk of enhanced corporate criminal and …

Beyond Beholden, Da Lin

Law Faculty Publications

Corporate law has long been concerned with director independence. In controlled companies, the conventional wisdom focuses on "beholdenness" as the main threat to independence. The prevailing theory argues that directors might feel pressured to reciprocate a past kindness from the controlling shareholder or fear retaliation. This Article argues that this conventional narrative is troublingly incomplete. I show that directors are also influenced by the prospect of rewards, or patronage, from the controller.

This Article is the first to identify controlling shareholder patronage as a systemic phenomenon and to explore how anticipation of future patronage can affect director behavior. It presents …

Activist Directors And Agency Costs: What Happens When An Activist Director Goes On The Board?, John C. Coffee Jr., Robert J. Jackson Jr., Joshua Mitts, Robert Bishop

Faculty Scholarship

We develop and apply a new and more rigorous methodology by which to measure and understand both insider trading and the agency costs of hedge fund activism. We use quantitative data to show a systematic relationship between the appointment of a hedge fund nominated director to a corporate board and an increase in informed trading in that corporation’s stock (with the relationship being most pronounced when the fund’s slate of directors includes a hedge fund employee). This finding is important from two different perspectives. First, from a governance perspective, activist hedge funds represent a new and potent force in corporate …

Reassessing Self-Dealing: Between No Conflict And Fairness, Andrew F. Tuch

Scholarship@WashULaw

Scholars have long disagreed on which of two rules is more effective when a fiduciary engages in self-dealing. Some defend the “strict” no-conflict rule, which categorically bans self-dealing. Others prefer the “flexible” and “pragmatic” fairness rule, which allows self-dealing if it is fair to beneficiaries. The centrality of this debate cannot be overstated: corporate law as a field is fundamentally concerned with self-dealing by fiduciaries. Yet a lack of firm data means that this debate has dragged on for decades, with no end in sight. This article makes a simple but powerful point: the entire debate is somewhat misguided because, …

Proxy Advisor Influence In A Comparative Light, Andrew F. Tuch

Scholarship@WashULaw

The reform of proxy advisors is on the U.S. regulatory agenda, with debate focusing on the extent of influence that these actors exert over institutional investors and corporate managers. But the debate examines the U.S. position in isolation from other systems. If we broaden our focus, we see that the factors usually cited for proxy advisors’ influence exist similarly in the United Kingdom but that proxy advisors there exert significantly weaker influence than they do in the United States. Why this difference when we would expect a similar role for proxy advisors in both systems based on the presence of …

Lead Plaintiff Incentives In Aggregate Litigation, Charles R. Korsmo, Minor Myers

Faculty Publications

The lead plaintiff role holds out considerable promise in promoting the deterrence and compensation goals of aggregate litigation. The prevailing approach to compensating lead plaintiffs, however, provides no real incentive for a lead plaintiff to bring claims on behalf of a broader group. The policy challenge is to induce sophisticated parties to press claims not in their individual capacity but instead in a representative capacity, conferring a positive externality on all class members by identifying attractive claims, financing ongoing litigation, and managing the work of attorneys. We outline what an active and engaged lead plaintiff could add to the civil …

Delaware’S Retreat From Judicial Scrutiny Of Mergers, Charles R. Korsmo

Faculty Publications

This Article evaluates recent dramatic developments in Delaware law surrounding merger litigation and concludes that they have gone too far in limiting the ability to challenge managerial wrongdoing in the takeover context. The past three years have seen a sea change in merger litigation, brought on by the twin earthquakes of the Delaware Supreme Court’s decision in Corwin v. KKR and the Delaware Court of Chancery’s decision in In re Trulia. Both of these decisions were inspired by a perceived crisis in merger litigation. By 2015, the percentage of economically significant deals challenged by at least one lawsuit had been …