Law Commons^™

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 …

Sexual Harassment And Corporate Law, Daniel Hemel, Dorothy S. Lund

Faculty Scholarship

The #MeToo movement has shaken corporate America in recent months, leading to the departures of several high-profile executives as well as sharp stock price declines at a number of firms. Investors have taken notice and taken action: Shareholders at more than a half dozen publicly traded companies have filed lawsuits since the start of 2017 alleging that corporate fiduciaries breached state law duties or violated federal securities laws in connection with sexual harassment scandals. Additional suits are likely in the coming months.

This Article examines the role of corporate and securities law in regulating and remedying workplace sexual misconduct. We …

Fiduciary Duties Of Corporate Directors In Uncertain Times, Ellen J. Odoner, Stephen A. Radin, Lyuba A. Goltser, Andrew E. Blumberg

Ira M. Millstein Center for Global Markets and Corporate Ownership

Directors addressing new political uncertainties, a host of heightened challenges and asserted “best practices” from many sources may understandably ask whether their fiduciary duties have changed as well. This paper synthesizes the latest decisions of the Delaware courts on the standards of conduct for directors and the standards by which their conduct is reviewed. While directors should expect uncertainty to be a fact of corporate life for the foreseeable future, this paper emphasizes that neither the fiduciary duties of directors nor the protections afforded them have changed. Disinterested and independent directors acting in good faith continue to have broad protections …

Board Excellence And Fiduciary Duties Of Corporate Directors, E. Norman Veasey, Ira M. Millstein

Ira M. Millstein Center for Global Markets and Corporate Ownership

This article is intended for corporate directors and explores the key issues that directors should understand with respect to their fiduciary duties. An accompanying paper authored by Ellen Odoner, Stephen Radin, Lyuba Goltser, and Andrew Blumberg of Weil, Gotshal & Manges LLP provides a detailed analysis of the concepts discussed in this article and is recommended to general counsel, as they advise their corporate boards with respect to their fiduciary duties, as well as directors who wish to have a better understanding of their own fiduciary duties.

Law And Corporate Governance, Robert P. Bartlett, Eric L. Talley

Faculty Scholarship

Pragmatic and effective research on corporate governance often turns critically on appreciating the legal institutions surrounding corporate entities – yet such nuances are often unfamiliar or poorly specified to economists and other social scientists without legal training. This chapter organizes and discusses key legal concepts of corporate governance, including statutes, regulations, and jurisprudential doctrines that “govern governance” in private and public companies, with concentration on the for-profit corporation. We review the literature concerning the nature and purpose of the corporation, the objects of fiduciary obligations, the means for decision making within the firm, as well as the overlay of state …

Required Disclosure And Corporate Governance, Merritt B. Fox

Faculty Scholarship

One of the most distinctive features of U.S. business law is the stringent requirements of ongoing disclosure imposed on issuers of publicly traded securities. This scheme usually has been justified as necessary to protect investors from making poor trading decisions as a result of being uninformed. Little scholarly attention, however, has been paid to the corporate governance effects of such required disclosure. In analyzing these effects, this article concludes that required disclosure can improve corporate governance in important ways. Indeed, improving corporate governance, not investor protection, provides the most persuasive justification for imposing on issuers the obligation to provide ongoing …

New Myths And Old Realities: The American Law Institute Faces The Derivative Action, John C. Coffee Jr.

Faculty Scholarship

Nothing in The American Law Institute's (ALI) Principles of Corporate Governance: Analysis and Recommendations (Principles) proved more controversial than the effort to develop fair and balanced standards for the derivative action. Only the topic of corporate takeovers seems to evoke an equally intense level of emotion among corporate lawyers. Not surprisingly then, Part VII (Remedies) of the Principles attracted the same attention from critics that a lightning rod does in a thunderstorm.

Unlike other ALI Restatements, however, the Principles also encountered a professional opposition, which lobbied against its adoption, both inside and outside the ALI, on behalf of various outside …

Unstable Coalitions: Corporate Governance As A Multi-Player Game, John C. Coffee Jr.

Faculty Scholarship

This is an article written in honor of Professor Donald Schwartz, a leading figure in academic corporate law for over two decades, but also a man nearly unique in his willingness to move beyond corporate law to the general study of corporate behavior. In this light, this article will not explore the latest wrinkle in the law – the most recent case, latest SEC ruling, or newest takeover defense tactic – but will instead ask if there are new ways in which we should try to talk about corporate law and corporate behavior. These were questions that Don Schwartz repeatedly …

Shareholders Versus Managers: The Strain In The Corporate Web, John C. Coffee Jr.

Faculty Scholarship

"We have entered the era of the two-tier, front-end loaded, bootstrap, bust-up, junk-bond takeover." —Martin Lipton

Until recently, takeovers typically involved larger firms digesting smaller firms, a process that most theorists have assumed was driven by the pursuit of synergistic gains. Lately, however, this dynamic has dramatically reversed itself. To a considerable extent, the large conglomerate is now the target, and such prototypical conglomerate firms as General Foods, Richardson-Vicks, Beatrice, Revlon, SCM, CBS,USX, and Anderson, Clayton and Co. have either been acquired or forced to restructure themselves within the last three years alone. The new bidder in turn tends to …

Regulating The Market For Corporate Control: A Critical Assessment Of The Tender Offer's Role In Corporate Governance, John C. Coffee Jr.

Faculty Scholarship

Better answers often await better questions. In the wake of a recent series of provocative articles dealing with contested tender offers, several questions have been vigorously debated:

(1) Should management of the target company be allowed to resist a hostile tender offer in order to remain an independent company? Which, if any, of the various "shark repellent" measures by which a potential target can make itself unattractive to a bidder are justified?;

(2) If defensive tactics were generally forbidden, should the target company's management still be permitted to encourage competing bids thereby creating an auction?; and

(3) Do hostile takeovers …