Law Commons^™

Should A Duty To The Corporation Be Imposed On Institutional Shareholders?, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Market Symmetry And The Tax Efficiency Of Equity Compensation, David I. Walker

Faculty Scholarship

At first blush, the deferral of employee income recognition associated with equity compensation appears to provide a tax advantage in a rising market but an offsetting disadvantage in a declining market. Merton Miller and Myron Scholes argued, however, that this apparent symmetry is misleading and that employees can hedge to ensure tax efficiency despite market uncertainty. This article demonstrates that the effect of employee hedging is fairly small, but that a combination of factors, including capital loss limitations, the possibility of employee-favorable ex post adjustments to equity compensation arrangements, and employee hedging, do cause compensatory stock grants and nonqualified options …

Between Mandate And Market: Contract Transition In The Shadow Of The International Order, Robert B. Ahdieh

Faculty Scholarship

Boilerplate in sovereign debt contracts issued in the United States has long dictated the unanimous consent of bondholders to any debt restructuring. This requirement persisted for decades, notwithstanding wide consensus that such unanimous action provisions increased transaction costs, produced inefficient delays in debt restructuring, enhanced the moral hazards of the sovereign debt market, and otherwise encouraged collective action failures. Yet the sovereign debt markets has recently made an about-face, replacing the unanimity requirement for debt restructuring with a less demanding provision for collective, or majority, action by creditors. Completed over the course of just a few months in 2003, this …

Reassessing The Scope Of Conduct Prohibited By Section 10(B) And The Elements Of Rule 10b-5: Reflections On Securities Fraud And Secondary Actors, Andrew S. Gold

Faculty Scholarship

No abstract provided.

Independent Legal Significance, Good Faith, And The Interpretation Of Venture Capital Contracts, D. Gordon Smith

Faculty Scholarship

Venture capital contracts are inherently incomplete. When interpreting such contracts, courts could deal with the expectations of parties formally by inquiring only about the plain meaning of the contract or qualitatively by enforcing the presumed expectations of the parties, regardless of whether those expectations are expressed in the contract. The Delaware courts have opted for a formal approach. In doing so, they appear to be engaged in an effort to force contracting parties toward completeness. While the duty of good faith appears to respond to the inevitable incompleteness of contracts, the courts largely ignore this duty in preferred stock cases. …

Whistleblowing And The Public Director: Countering Corporate Inner Circles, James A. Fanto

Faculty Scholarship

No abstract provided.

Subtle Hazards Revisited: The Corruption Of A Financial Holding Company By A Corporate Client's Inner Circle, James A. Fanto

Faculty Scholarship

No abstract provided.

Learning Business Law By Doing It: Real Transactions In Law School Clinics, Eric J. Gouvin

Faculty Scholarship

This Article discusses the business clinic movement and how legal educators view them as being an excellent vehicle for inculcating the values and practices that business lawyers hold dear. Business clinics may help students better appreciate the challenges of business lawyering, which they sometimes misunderstand as merely a forms practice. The Author believes that by putting students in the middle of real transactions, they gain a deeper understanding of the subtleties of making a transaction come together.

Achieving The Double Bottom Line: A Framework For Corporations Seeking To Deliver Profits And Public Services, Lisa M. Fairfax

Faculty Scholarship

Achieving the Double Bottom Line: A Framework for Corporations Seeking to Deliver Profits and Public Services argues that many people who object to for-profit corporations that deliver public services, such as kindergarten through 12th grade education or foster care, have greatly exaggerated the extent to which the for-profit regime will compel such corporations to subordinate the delivery of those services to financial considerations. Because of this over-exaggeration, these opponents have not focused on designing a framework that would assist these entities in meeting their double bottom line—achieving profit for their shareholders while also delivering a high quality public service. The …

The Reporter's Rejoinder, Daniel S. Kleinberger

Faculty Scholarship

The word "rejoinder" connotes a reply to criticism, and that connotation sets the scope of this short essay. This Rejoinder will leave aside (albeit with thanks) the articles that explain the background to, the context for, or particular aspects of the Uniform Limited Partnership Act (2001). Instead, this Rejoinder will focus on the three articles that purport to find a blemish (Professor Bishop), a general theoretical deficiency (Mr. Callison and Dean Vestal), or a fundamental misconception (Professor Ribstein) in the new Act.

A User's Guide To The New Uniform Limited Partnership Act, Daniel S. Kleinberger

Faculty Scholarship

The shelf life on uniform entity acts seems to be decreasing. The original Uniform Partnership Act (UPA) lasted eight decades, and the original Uniform Limited Partnership Act (ULPA (1916)) lasted six. In contrast, the 1976 Revised Uniform Limited Partnership Act (RULPA (1976)) warranted major revisions after just nine years (RULPA (1985)), and only sixteen years later NCCUSL recommended to the states that they adopt ULPA (2001) to replace RULPA in toto. NCCUSL's Revised Uniform [General] Partnership Act - RUPA - was first approved in 1992 and went through five official versions in its first five years of existence. NCCUSL's Uniform …

Diversity Jurisdiction For Llcs? Basically, Forget About It, Daniel S. Kleinberger, Carter G. Bishop

Faculty Scholarship

No abstract provided.

Charging Orders And The New Uniform Limited Partnership Act: Dispelling The Rumors Of Disaster, Daniel S. Kleinberger, Carter G. Bishop, Thomas Geu

Faculty Scholarship

Last year, an article published in this magazine focused on the charging order as "the Exclusive Remedy Against a Partnership Interest" and announced the "[s]hocking [r]evelation" that ULPA (2001)--the new Uniform Limited Partnership Act--undermines the "exclusive remedy" limitation on charging orders. The authors asserted categorically that, "from an asset protection perspective, the 2001 Act is considerably less protective of a partner's partnership interest than the 1976 Act." Elizabeth M. Schurig & Amy P. Jetel, A Charging Order Is the Exclusive Remedy Against a Partnership Interest: Fact or Fiction?, Prob. & Prop. 57, 58 (Nov./Dec. 2003).

As this article will show, …

Gatekeeper Failure And Reform: The Challenge Of Fashioning Relevant Reforms, John C. Coffee Jr.

Faculty Scholarship

Securities markets have long employed "gatekeepers" – independent professionals who pledge their reputational capital – to protect the interests of dispersed investors who cannot easily take collective action. The clearest examples of such reputational intermediaries are auditors and securities analysts, who verify or assess corporate disclosures in order to advise investors in different ways. But during the late 1990s, these protections seemingly failed, and a unique concentration of financial scandals followed, all involving the common denominator .of accounting irregularities. What caused this sudden outburst of scandals, involving an apparent epidemic of accounting and related financial irregularities, that broke over the …

What Caused Enron? A Capsule Social And Economic History Of The 1990s, John C. Coffee Jr.

Faculty Scholarship

The sudden explosion of corporate accounting scandals and related financial irregularities that burst over the financial markets between late 2001 and the first half of 2002 – Enron, WorldCom, Tyco, Adelphia and others – raises an obvious question: Why now? What explains the concentration of financial scandals at this moment in time? Much commentary has rounded up the usual suspects and placed the blame on a decline in business morality, an increase in "infectious greed," or other similarly subjective trends that cannot be reliably measured. Although none of these possibilities can be dismissed out of hand, approaches that simply reason …

The Alien Tort Statute, Civil Society, And Corporate Responsibility, Sarah H. Cleveland

Faculty Scholarship

The topic of this panel is civil participation in the global trading system, with a particular focus on Doe v. Unocal Corp. and use of the Alien Tort Statute (ATS) to enforce fundamental human rights norms against multinational corporations. These comments will therefore attempt to locate Doe v. Unocal and other ATS litigation in the broader efforts of civil society to establish and maintain normative principles for corporate responsibility in the global trading regime. This comment first explains the role of ATS litigation in the broader civil society context and the contribution of ATS cases to the development and enforcement …

Prescribing The Pill In Japan?, Curtis J. Milhaupt

Faculty Scholarship

Contrary to popular belief, corporate Japan is changing incrementally, to be sure, but changing nonetheless. One of the areas of greatest potential change is the legal and business environment for mergers and acquisitions ("M&A"), including hostile M&A. Recent amendments to Japan's Commercial Code in the areas of stock swaps and divestitures are helping to facilitate M&A transactions.¹ At the same time, the constellation of shareholders in Japanese firms is changing as cross-shareholding declines and foreign investment increases. M&A activity in Japan has increased significantly in recent years.²

Partnoy's Complaint: A Response, John C. Coffee Jr.

Faculty Scholarship

My article attempts to strike a balance and find a middle ground between the polar positions of those who favor strict liability (of whom Professor Partnoy is probably the most notable) and recent critics who believe it would produce market failure. Necessarily, those who take a middle position are exposed to fire from both sides. Although I admire Professor Partnoy's originality and incisive style, I do not believe that the market could easily survive his reforms and suspect that he has undervalued the hidden costs of strict liability. Deterrence is needed – but there can be too much of a …

Economic Organization In The Construction Industry: A Case Study Of Collaborative Production Under High Uncertainty, William A. Klein, Mitu Gulati

Faculty Scholarship

No abstract provided.

Law's Signal: A Cueing Theory Of Law In Market Transition, Robert B. Ahdieh

Faculty Scholarship

Securities markets are commonly assumed to spring forth at the intersection of an adequate supply of, and a healthy demand for, investment capital. In recent years, however, seemingly failed market transitions - the failure of new markets to emerge and of existing markets to evolve - have called this assumption into question. From the developed economies of Germany and Japan to the developing countries of central and eastern Europe, securities markets have exhibited some inability to take root. The failure of U.S. securities markets, and particularly the New York Stock Exchange, to make greater use of computerized trading, communications, and …

Uncorporated Professionals, John Romley, Eric L. Talley

Faculty Scholarship

Professional service providers who wish to organize as multi-person firms have historically been limited to the partnership form. Such organizational forms trade the benefit of risk diversification off against the costs of diluted incentives and liability exposure in choosing their optimal size. More recently, states have permitted limited-liability entities that combine the simplicity, flexibility and tax advantages of a partnership with the liability shield of a corporation. We develop a game theoretic model of professional-firm organization that integrates the provision of incentives in a multi-person firm with the choice of business form. We then test the model's predictions with a …

The Sarbanes-Oxley Act: A Bird's-Eye View, Niels Schaumann

Faculty Scholarship

It is the goal of this article to provide a brief reference to the multitude of changes in the law wrought by SOX. The author's hope is that this will be of use to students, scholars, and practitioners seeking an overview of the extensive changes resulting from this legislation. The discussion is broader than it is deep; indeed, a work attempting to examine SOX in depth would soon become a treatise and not just an article. The remainder of this article, then, will seek to provide a big-picture view of SOX: Part II of this article will address SOX regulation …

Measuring Share Price Accuracy, Merritt B. Fox

Faculty Scholarship

This Article concerns how to measure share price accuracy. It is prompted by the fact that many scholars believe that the prices established in the stock market affect the efficiency of the real economy. In their view, more accurate prices increase the amount of value added by capital-utilizing enterprises as these enterprises use society's scarce resources for the production of goods and services. More accurate share prices help improve both the quality of choice among new proposed investment projects in the economy and the operation of existing real assets currently in corporate hands.

The proposition that more accurate share prices …

The Poison Pill In Japan: The Missing Infrastructure, Ronald J. Gilson

Faculty Scholarship

The coming of hostile takeovers to Japan has been anticipated, and anticipated, and anticipated. Each report of a reduction in the size of crossholdings among Japanese companies and in the size of Japanese bank stockholdings in their clients has given rise to an expectation that now, at last, hostile offers would emerge. It is not surprising that commentators looked forward, optimistically, to the arrival of a potentially disruptive takeover technique. The extended Japanese recession, together with management resistance to internally implemented restructurings and the barriers to externally imposed restructurings, has created the potential for substantial private and social gain from …

Market Design With Endogenous Preferences, Aviad Heifetz, Ella Segev, Eric L. Talley

Faculty Scholarship

This paper explores the interdependence between market structure and an important class of extra-rational cognitive biases. Starting with a familiar bilateral monopoly framework, we characterize the endogenous emergence of preference distortions during bargaining which cause negotiators to perceive their private valuations differently than they would outside the adversarial negotiation context. Using this model, we then demonstrate how a number of external interventions in the structure and/or organization of market interactions (occurring before trade, after trade, or during negotiations themselves) can profoundly alter the nature of these dispositions. Our results demonstrate that many such interventions frequently (though not always) share qualitatively …

Choice As Regulatory Reform: The Case Of Japanese Corporate Governance, Ronald J. Gilson, Curtis J. Milhaupt

Faculty Scholarship

The fact of a small number of hostile takeover bids in Japan the recent past, together with technical amendments of the Civil Code that would allow a poison pill-like security, raises the question of how a poison pill would operate in Japan should it be widely deployed. This paper reviews the U.S. experience with the pill to the end of identifying what institutions operated to prevent the poison pill from fully enabling the target board to block a hostile takeover. It then considers whether similar ameliorating institutions are available in Japan, and concludes that with the exception of the court …

Globalizing Corporate Governance: Convergence Of Form Or Function, Ronald J. Gilson

Faculty Scholarship

Globalization has led to a remarkable resurgence in the study of comparative corporate governance. This area of scholarship had been largely the domain of taxonomists, intent on cataloguing the central characteristics of national corporate governance systems, and then classifying different systems based on the specified attributes. The result was an interesting, if perhaps somewhat dry, enterprise. We learned that national corporate governance systems differed dramatically along a number of seemingly important dimensions. Some corporate governance systems, notably those of the United States and other Anglo-Saxon countries, are built on the foundation of a stock market-centered capital market. Other systems, like …

What's So Special About Multinational Enterprises: A Comment On Avi-Yonah, Merritt B. Fox

Faculty Scholarship

My analysis of the legal challenges posed by the growth of MNEs is based on an examination of a number of the examples used by Avi-Yonah to illustrate the working of his framework: piercing the corporate veil for mass torts (as in the Bhopal toxic chemical release), bribery, bankruptcy, child labor and antitrust. My approach focuses on the ways in which MNEs are special. To what extent do particular forms of behavior occurring within MNEs raise regulatory problems similar to problems raised by the same behavior occurring within other institutional arrangements, and to what extent does it raise problems that …

Enron.Org: Why Sarbanes-Oxley Will Not Ensure Comprehensive Nonprofit Accountability, Dana Brakman Reiser

Faculty Scholarship

No abstract provided.

Corporate Governance, Executive Compensation And Securities Litigation, Eric L. Talley, Gudrun Johnsen

Faculty Scholarship

It is generally accepted that good corporate governance, executive compensation and the threat of litigation are all important mechanisms for incentivizing managers of public corporations. While there are significant and robust literatures analyzing each of these policy instruments in isolation, their mutual relationship and interaction has received somewhat less attention. Such neglect is mildly surprising in light of a strong intuition that the three devices are structurally related to one another (either as complements or substitutes). In this paper, we construct an agency cost model of the firm in which corporate governance protections, executive compensation levels, and litigation incentives are …