Law Commons^™

Barbarians Inside The Gates: Raiders, Activists, And The Risk Of Mistargeting, Zohar Goshen, Reilly S. Steel

Faculty Scholarship

This Article argues that the conventional wisdom about corporate raiders and activist hedge funds — raiders break things and activists fix them — is wrong. Because activists have a higher risk of mistargeting — mistakenly shaking things up at firms that only appear to be underperforming — they are much more likely than raiders to destroy value and, ultimately, social wealth.

As corporate outsiders who challenge the incompetence or disloyalty of incumbent management, raiders and activists play similar roles in reducing “agency costs” at target firms. The difference between them comes down to a simple observation about their business models: …

Crime And The Corporation: Making The Punishment Fit The Corporation, John C. Coffee Jr.

Faculty Scholarship

The debate over corporate criminal liability has long involved a fight between proponents who argue that corporate liability is necessary for effective deterrence and opponents who claim that it “punishes the innocent.” This Article agrees and disagrees with both sides. Corporate criminal liability could play a critical role in establishing an effective deterrent to organizational misconduct, but today it largely fails. Currently, we have a system that combines Deferred Prosecution Agreements, Non-Prosecution Agreements, and extraordinarily generous sentencing credits for compliance plans that have failed, and the result is a system that is more carrots than sticks. The evidence seems clear …

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 …

The Agency Costs Of Activism: Information Leakage, Thwarted Majorities, And The Public Morality, John C. Coffee Jr.

Faculty Scholarship

Few doubt that hedge fund activism has radically changed corporate governance in the United States – for better or for worse. Proponents see activists as desirable agents of change who intentionally invest in underperforming companies to organize more passive shareholders to support their proposals to change the target’s business model and/or management. So viewed, the process is fundamentally democratic, with institutional shareholders determining whether or not to support the activist’s proposals.

Skeptics respond that things do not work this simply. Actual proxy contests are few, and most activist engagements are resolved through private settlement negotiations between the activists, who rarely …

A Machine Learning Classifier For Corporate Opportunity Waivers, Gabriel V. Rauterberg, Eric L. Talley

Faculty Scholarship

Rauterberg & Talley (2017) develop a data set of “corporate opportunity waivers” (COWs) – significant contractual modifications of fiduciary duties – sampled from SEC filings. Part of their analysis utilizes a machine learning (ML) classifier to extend their data set beyond the hand-coded sample. Because the ML approach is likely unfamiliar to some readers, and in the light of its great potential across other areas of law and finance research, this note explains the basic components using a simple example, and it demonstrates strategies for calibrating and evaluating the classifier.

Making Corporate Governance Codes More Effective: A Response To The European Commission's Action Plan Of December 2012, Peter Böckli, Paul L. Davies, Eilis Ferran, Guido Ferrarini, José M. Garrido Garcia, Klaus J. Hopt, Alain Pietrancosta, Katharina Pistor, Markus Roth, Rolf Skog, Stanislaw Soltysinski, Jaap W. Winter, Eddy Wymeersch

Faculty Scholarship

This paper contains the European Company Law Experts' response to one of the main issues raised in the European Commission’s Action Plan of 12 December 2012, namely how to make corporate governance codes more effective. The concept of “codes’ effectiveness” has two meanings: effectiveness of the comply-explain mechanism (disclosure effectiveness) and level of adoption of the codes’ recommendations themselves (substantive effectiveness). The ECLE believes that it is of crucial importance to keep the advantages of regulation by codes while finding adequate improvements of the quality of the reports and the explanations. The relationship between the content of corporate governance codes …