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Business Organizations Law

Corporate governance

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Full-Text Articles in Law

Making Sustainability Disclosure Sustainable, Jill E. Fisch Apr 2019

Making Sustainability Disclosure Sustainable, Jill E. Fisch

Faculty Scholarship at Penn Law

Sustainability is receiving increasing attention from issuers, investors and regulators. The desire to understand issuer sustainability practices and their relationship to economic performance has resulted in a proliferation of sustainability disclosure regimes and standards. The range of approaches to disclosure, however, limit the comparability and reliability of the information disclosed. The Securities & Exchange Commission (SEC) has solicited comment on whether to require expanded sustainability disclosures in issuer’s periodic financial reporting, and investors have communicated broad-based support for such expanded disclosures, but, to date, the SEC has not required general sustainability disclosure.

This Article argues that claims about the relationship ...


Board Governance For The Twenty-First Century, Faith Stevelman, Sarah C. Haan Apr 2019

Board Governance For The Twenty-First Century, Faith Stevelman, Sarah C. Haan

Faculty Scholarship

A decade after the global financial crisis, corporate governance is in a state of flux. A conceptual shift is underway. Years ago, in "first wave" governance, boards had a cozy relationship with the company C-suite. In "second wave" governance, which took hold in the 1970s, legal academics reimagined the board's role, conceptualizing directors as monitors charged with limiting waste and abuse that can arise in agency relationships. Now, we find ourselves at the threshold of "third wave" governance, in which boards are asked to grapple immediately and candidly with both the financial aspects of business and new environmental, social ...


Mandatory Corporate Social Responsibility? Legislative Innovation And Judicial Application In China, Li-Wen Lin Mar 2019

Mandatory Corporate Social Responsibility? Legislative Innovation And Judicial Application In China, Li-Wen Lin

Faculty Publications

Corporate social responsibility (CSR) is often understood as voluntary corporate behavior beyond legal compliance. The recent emergence of CSR legislation is challenging this typical understanding. A number of countries including China, Indonesia and India have expressly stated in corporate law that companies shall undertake CSR. The CSR law is controversial. Critics of CSR see the law as an unwise effort to challenge profit maximization as the only social responsibility of the corporation. Even CSR advocates welcome the CSR law with great caution. Given the vague statutory language of CSR, the practical application of the law places high demands on the ...


Mandatory Corporate Social Responsibility? Legislative Innovation And Judicial Application In China, Li-Wen Lin Mar 2019

Mandatory Corporate Social Responsibility? Legislative Innovation And Judicial Application In China, Li-Wen Lin

Faculty Publications

No abstract provided.


Shareholder Collaboration, Jill E. Fisch, Simone M. Sepe Mar 2019

Shareholder Collaboration, Jill E. Fisch, Simone M. Sepe

Faculty Scholarship at Penn Law

Two models dominate the debate on the theory of the firm. Under the management-power model, decision-making power exclusively belongs to corporate insiders (officers and directors). The competing shareholder-power model contemplates increasing shareholder power to limit managerial authority. Both models are focused on managerial agency costs and address the appropriate allocation of power between insiders and shareholders to minimize these costs. Both models also assume that insiders and shareholders are engaged in a competitive struggle for corporate power.

Corporate practice has moved on, however. Increasingly, the insider-shareholder dynamic is collaborative, not competitive. This Article traces the development of insider-shareholder collaboration and ...


The New Titans Of Wall Street: A Theoretical Framework For Passive Investors, Jill E. Fisch, Asaf Hamdani, Steven Davidoff Solomon Mar 2019

The New Titans Of Wall Street: A Theoretical Framework For Passive Investors, Jill E. Fisch, Asaf Hamdani, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

Passive investors — ETFs and index funds — are the most important development in modern day capital markets, dictating trillions of dollars in capital flows and increasingly owning much of corporate America. Neither the business model of passive funds, nor the way that they engage with their portfolio companies, however, is well understood, and misperceptions of both have led some commentators to call for passive investors to be subject to increased regulation and even disenfranchisement. Specifically, this literature takes a narrow view both of the market in which passive investors compete to manage customer funds and of passive investors’ participation in the ...


Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone Sepe Jan 2019

Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone Sepe

Faculty Scholarship at Penn Law

In recent times, there has been an unprecedented shift in power from managers to shareholders, a shift that realizes the long-held theoretical aspiration of market control of the corporation. This Article subjects the market control paradigm to comprehensive economic examination and finds it wanting.

The market control paradigm relies on a narrow economic model that focuses on one problem only, management agency costs. With the rise of shareholder power, we need a wider lens that also takes in market prices, investor incentives, and information asymmetries. General equilibrium theory (GE) provides that lens. Several lessons follow from reference to this higher-order ...


The Problem Of Sunsets, Jill E. Fisch, Steven Davidoff Solomon Jan 2019

The Problem Of Sunsets, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

An increasing percentage of corporations are going public with dual class stock in which the shares owned by the founders or other corporate insiders have greater voting rights than the shares sold to public investors. Some commentators have criticized the dual class structure as unfair to public investors by reducing the accountability of insiders; others have defended the value of dual class in encouraging innovation by providing founders with insulation from market pressure that enables them to pursue their idiosyncratic vision.

The debate over whether dual class structures increase or decrease corporate value is, to date, unresolved. Empirical studies have ...


Reconstructing The Corporation: A Mutual-Control Model Of Corporate Governance, Grant M. Hayden, Matthew T. Bodie Jan 2019

Reconstructing The Corporation: A Mutual-Control Model Of Corporate Governance, Grant M. Hayden, Matthew T. Bodie

All Faculty Scholarship

The consensus around shareholder primacy is crumbling. Investors, long assumed to be uncomplicated profit-maximizers, are looking for ways to express a wider range of values in allocating their funds. Workers are agitating for greater voice at their workplaces. And prominent legislators have recently proposed corporate law reforms that would put a sizable number of employee representatives on the boards of directors of large public companies. These rumblings of public discontent are echoed in recent corporate law scholarship, which has cataloged the costs of shareholder control, touted the advantages of nonvoting stock, and questioned whether activist holders of various stripes are ...


Social License And Publicness, Hillary A. Sale Jan 2019

Social License And Publicness, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

This article deploys the sociological theory of social license, or the acceptance of a business or organization by the relevant communities and stakeholders, in the context of the board of directors and corporate governance. Corporations are generally regulated and treated as “private” actors, and corporate law falls into the zone of “private” law. The construct of the corporation as “private” allows for considerable latitude. Yet, corporate decision makers are the beneficiaries of economic and political power and, the decisions they make have impacts that extend well beyond the boundaries of the entities they represent. Using Wells Fargo and Uber as ...


A One-Size-Fits-All Approach To Corporate Governance Codes And Compliance By Smaller Listed Firms: An Examination Of Companies Listed In Hong Kong And Singapore, Christopher C. H. Chen Jan 2019

A One-Size-Fits-All Approach To Corporate Governance Codes And Compliance By Smaller Listed Firms: An Examination Of Companies Listed In Hong Kong And Singapore, Christopher C. H. Chen

Research Collection School Of Law

This article examines the impact of aone-size-fits-all corporate governance code on smaller listed firms, which shouldhave fewer resources to hire more qualified independent directors for theirboards and board committees. After examining data from a sample of companieslisted in Hong Kong and Singapore, we find some limited support for these resources-basedarguments. While smaller firms do not necessarily have a lower proportion ofboard members who are independent directors, some evidence suggests that smallerfirms do pay less to independent directors and that these directors have toserve on multiple board committees. Although many larger firms also share theproblem of overloading their independent directors, the ...


Fiduciary Blind Spot: The Failure Of Institutional Investors To Prevent The Illegitimate Use Of Working Americans' Savings For Corporate Political Spending, Leo E. Strine Jr. Dec 2018

Fiduciary Blind Spot: The Failure Of Institutional Investors To Prevent The Illegitimate Use Of Working Americans' Savings For Corporate Political Spending, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

For decades, American workers have been subjected to increasing pressure to become forced capitalists, in the sense that to provide for retirement for themselves, and to pay for college for their children, they must turn part of their income every month over to mutual funds who participate in 401(k) and 529 programs. These “Worker Investors” save for the long term, often hold portfolios that are a proxy for the entire economy, and depend on the economy’s ability to generate good jobs and sustainable growth in order for them to be able to have economic security. In recent years ...


Index Funds And The Future Of Corporate Governance: Theory, Evidence, And Policy, Scott Hirst Dec 2018

Index Funds And The Future Of Corporate Governance: Theory, Evidence, And Policy, Scott Hirst

Faculty Scholarship

Index funds own an increasingly large proportion of American public companies, currently more than one fifth and steadily growing. The stewardship decisions of index fund managers—how they monitor, vote, and engage with their portfolio companies can be expected to have a profound impact on the governance and performance of public companies and the economy. Understanding index fund stewardship, and how policy making can improve it, is critical for corporate law scholarship. This Article contributes to such understanding by providing a comprehensive theoretical, empirical, and policy analysis of index fund stewardship.

We begin by putting forward an agency-costs theory of ...


The Diminishing Duty Of Loyalty, Julian Velasco Sep 2018

The Diminishing Duty Of Loyalty, Julian Velasco

Journal Articles

Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. The justification for this dichotomy is twofold. First, differential treatment is appropriate because of the relative urgencies of the underlying subject matter: loyalty issues pose greater risks than do care issues. Second, the deference ...


To Understand Us V. Microsoft, Consider 'Acme V. Shamrock', Peter B. Rutledge, Amanda W. Newton Feb 2018

To Understand Us V. Microsoft, Consider 'Acme V. Shamrock', Peter B. Rutledge, Amanda W. Newton

Popular Media

The February 27, 2018, Supreme Court argument in United States v. Microsoft Corp. raises profound questions about issues of executive power, corporate governance, technology, judicial power and international affairs. At stake for the government is the scope of its investigative authority to obtain information located in a foreign country, irrespective of that country’s laws. At stake for Microsoft is its ability to organize its international corporate affairs and the predictability of the laws that will govern those affairs. This article analyzes the potential effects of this critical Supreme Court case.


Contested Visions: The Value Of Systems Theory For Corporate Law, Tamara Belinfanti, Lynn A. Stout Feb 2018

Contested Visions: The Value Of Systems Theory For Corporate Law, Tamara Belinfanti, Lynn A. Stout

Cornell Law Faculty Publications

Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remains hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. Although the prevailing narrative for the past quarter-century has been that corporations “belong” to shareholders and should pursue “shareholder value,” support for this approach, which has been justified as essential for managerial accountability, is eroding. It persists today primarily in the form of the argument that corporations should seek “long-term” shareholder value. Yet, as this Article shows, when shareholder value ...


Governance By Contract: The Implications For Corporate Bylaws, Jill E. Fisch Jan 2018

Governance By Contract: The Implications For Corporate Bylaws, Jill E. Fisch

Faculty Scholarship at Penn Law

Boards and shareholders are increasing using charter and bylaw provisions to customize their corporate governance. Recent examples include forum selection bylaws, majority voting bylaws and advance notice bylaws. Relying on the contractual conception of the corporation, Delaware courts have accorded substantial deference to board-adopted bylaw provisions, even those that limit shareholder rights.

This Article challenges the rationale for deference under the contractual approach. With respect to corporate bylaws, the Article demonstrates that shareholder power to adopt and amend the bylaws is, under Delaware law, more limited than the board’s power to do so. As a result, shareholders cannot effectively ...


Too-Big-To-Fail Shareholders, Yesha Yadav Jan 2018

Too-Big-To-Fail Shareholders, Yesha Yadav

Vanderbilt Law School Faculty Publications

To build resilience within the financial system, post-Crisis regulation relies heavily on banks to fund themselves more fully by issuing equity. This reserve of value should buttress failing banks by providing a mechanism to pay off creditors and depositors and preserve the health of financial markets. In the process, shareholders are wiped out. Scholars and policymakers, however, have neglected to examine which equity investors, in fact, are purchasing bank equity and taking on the default risk of U.S. banks. This Article addresses this question. First, it shows that five asset managers - BlackRock, Vanguard, State Street Global Advisors, Fidelity and ...


The Shifting Tides Of Merger Litigation, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon, Randall S. Thomas Jan 2018

The Shifting Tides Of Merger Litigation, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon, Randall S. Thomas

Faculty Scholarship at Penn Law

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award.

We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger ...


Distributed Ledgers, Traceable Shares, And The Division Of Power In Corporate Law, Christopher M. Bruner Jan 2018

Distributed Ledgers, Traceable Shares, And The Division Of Power In Corporate Law, Christopher M. Bruner

Scholarly Works

Review of Traceable Shares and Corporate Law, 113 Nw. U. L. Rev. __ by George S. Geis (forthcoming 2018)


Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke Jan 2018

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It ...


Individual Autonomy In Corporate Law, Elisabeth De Fontenay Jan 2018

Individual Autonomy In Corporate Law, Elisabeth De Fontenay

Faculty Scholarship

The field of corporate law is riven with competing visions of the corporation. This Article seeks to identify points of broad agreement by negative implication. It examines two developments in corporate law that have drawn widespread criticism from corporate law scholars: the Supreme Court's recognition of corporate religious rights in Burwell v. Hobby Lobby and the Nevada legislature's decision to eliminate mandatory fiduciary duties for corporate directors and officers. Despite their fundamental differences, both resulted in expanding individual rights or autonomy within the corporation-for shareholders and managers, respectively.

The visceral critiques aimed at these two developments suggest a ...


Delaware's Retreat: Exploring Developing Fissures And Tectonic Shifts In Delaware Corporate Law, James D. Cox, Randall S. Thomas Jan 2018

Delaware's Retreat: Exploring Developing Fissures And Tectonic Shifts In Delaware Corporate Law, James D. Cox, Randall S. Thomas

Faculty Scholarship

No abstract provided.


The Public Cost Of Private Equity, William Magnuson Jan 2018

The Public Cost Of Private Equity, William Magnuson

Faculty Scholarship

This Article presents a theory of the corporate governance costs of private equity. In doing so, it challenges the common view that private equity’s governance structure has resolved, or at least significantly mitigated, one of the fundamental tensions in corporate law, that is, the conflict between management and ownership. The Article argues that this widespread perception about the corporate governance benefits of private equity overlooks the many ways in which the private equity model, far from eliminating agency costs, in fact exacerbates them. These governance costs include compensation structures that incentivize excessive risk-taking, governance rights that provide investors with ...


Piling On? An Empirical Study Of Parallel Derivative Suits, Stephen J. Choi, Jessica Erickson, Adam C. Pritchard Nov 2017

Piling On? An Empirical Study Of Parallel Derivative Suits, Stephen J. Choi, Jessica Erickson, Adam C. Pritchard

Articles

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and ...


China's 'Corporatization Without Privatization' And The Late 19th Century Roots Of A Stubborn Path Dependency, Nicholas Howson Oct 2017

China's 'Corporatization Without Privatization' And The Late 19th Century Roots Of A Stubborn Path Dependency, Nicholas Howson

Articles

This Article analyzes the contemporary program of “corporatization without privatization” in the People's Republic of China (PRC) directed at China's traditional state-owned enterprises (SOEs) through a consideration of long ago precursor enterprise establishments--starting from the last Chinese imperial dynasty's creation of “government-promoted/-supervised, merchant-financed/-operated” (guandu shangban) firms in the latter part of the nineteenth century. While analysts are tempted to see the PRC corporations with listings on international exchanges that dominate the global economy and capital markets as expressions of “convergence,” this Article argues that such firms in fact show deeply embedded aspects of path dependency ...


Who Bleeds When The Wolves Bite? A Flesh-And-Blood Perspective On Hedge Fund Activism And Our Strange Corporate Governance System, Leo E. Strine Jr. Apr 2017

Who Bleeds When The Wolves Bite? A Flesh-And-Blood Perspective On Hedge Fund Activism And Our Strange Corporate Governance System, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

This paper examines the effects of hedge fund activism and so-called wolf pack activity on the ordinary human beings—the human investors—who fund our capital markets but who, as indirect of owners of corporate equity, have only limited direct power to ensure that the capital they contribute is deployed to serve their welfare and in turn the broader social good.

Most human investors in fact depend much more on their labor than on their equity for their wealth and therefore care deeply about whether our corporate governance system creates incentives for corporations to create and sustain jobs for them ...


To Thine Own Ceo Be True: Tailoring Ceo Compensation To Individual Personality And Circumstances, William O. Fisher Jan 2017

To Thine Own Ceo Be True: Tailoring Ceo Compensation To Individual Personality And Circumstances, William O. Fisher

Law Faculty Publications

Eight-figure compensation. Cash. Restricted stock. Options. Performance shares. And more. Companies shower their CEOs with pay in large amounts, delivered in multiple ways, and dependent on complex and intricate formulae. It is all intended to motivate the top officers to make decisions that will best benefit their companies. Common sense tells us that the value of a complicated, multifaceted pay package- and hence its ability to motivate- will depend on the psychological characteristics and financial circumstances of the particular executive being paid. Economic theory and empirical studies confirm this intuition. Yet, companies generally ignore these vital factors. Substantive and disclosure ...


Corporate Officers As Agents, Deborah A. Demott Jan 2017

Corporate Officers As Agents, Deborah A. Demott

Faculty Scholarship

Although officers are crucial to corporate operations, scholarly and theoretical accounts tend to slight officers and amalgamate them with directors into a single category, "managers." This essay anchors officers within the common law of agency-as does black-letter law-which crisply differentiates officers from directors. Understanding that agency is central of the legal account of officers' positions and responsibilities is crucial to seeing why, like directors, officers are fiduciaries, but distinctively so, not as instances of generic "corporate fiduciaries." Officers, like directors, owe duties of loyalty, but also particularized duties of care, competence, and diligence. Additionally, officers' duties of performance encompass two ...


The Separation Of Corporate Law And Social Welfare, William W. Bratton Jan 2017

The Separation Of Corporate Law And Social Welfare, William W. Bratton

Faculty Scholarship at Penn Law

A half century ago, corporate legal theory pursued an institutional vision in which corporations and the law that creates them protect people from the ravages of volatile free markets. That vision was challenged on the ground during the 1980s, when corporate legal institutions and market forces came to blows over questions concerning hostile takeovers. By 1990, it seemed like the institutions had won. But a different picture has emerged as the years have gone by. It is now clear that the market side really won the battle of the 1980s, succeeding in entering a wedge between corporate law and social ...