Law Commons^™

Outcome Report Of Roundtable On International Investment Regime And Access To Justice, Michelle Chan, Kanika Gupta, Jesse Coleman, Kaitlin Y. Cordes, Lise Johnson

Columbia Center on Sustainable Investment Staff Publications

On October 18, 2017, the UN Working Group on Business and Human Rights and the CCSI co-hosted a one-day roundtable on the impacts of the international investment regime on access to justice for investment-affected individuals and communities.

Held at Columbia University in New York, the roundtable brought together 32 individuals from civil society organizations, communities affected by investments at the heart of investor-state claims, governments, academia, donor organizations, UN mandate holders, and other stakeholder groups. The roundtable provided an opportunity for participants to: (i) explore and assess the specific impacts of international investment agreements and investor-state dispute settlement on access …

Contractarian Theory And Unilateral Bylaw Amendments, Albert H. Choi, Geeyoung Min

Ira M. Millstein Center for Global Markets and Corporate Ownership

Corporate directors have been utilizing a potent mechanism in dealing with shareholder activism and shareholder litigation: the right to unilaterally amend corporate bylaws. Directors have exercised this right, for instance, to impose various requirements on who can nominate a director or call a special shareholder meeting, or to designate an exclusive forum where the shareholders can bring suit. Based on the theory that corporate charters and bylaws constitute a “contract” between the shareholders and the corporation, courts have blessed many of the bylaws that directors have unilaterally adopted. This Article examines the contractarian theory by drawing a parallel between amending …

Shareholder Voice In Corporate Charter Amendments, Geeyoung Min

Ira M. Millstein Center for Global Markets and Corporate Ownership

State corporate laws require shareholder approval for corporate charter amendments, but only the board of directors has the power to propose how to amend charters. The directors’ exclusive power over charter amendment proposals creates a potential for managerial opportunism by refusing to propose amendments that empower shareholders or by pursuing amendments that favor managers. While shareholder approval can theoretically serve as a check against such opportunism, dispersed shareholders’ rational apathy and collective action problems, can also prevent them from being effective monitors. Prior scholarship has thus viewed charter amendments with suspicion, but there has been no systematic, empirical examination to …

Greater Expectations: Strategies For Effective Board Meeting Preparation, Jonathan Kim, Marcel Bucsescu

Ira M. Millstein Center for Global Markets and Corporate Ownership

Directors face an increasingly complex environment in which their businesses operate. That complexity can present opportunities for corporations that adapt, and also places new pressures on boards to respond effectively. One strategy for directors to consider is to adapt their approaches to preparing for board meetings by focusing not just on company specific reporting and decisions, but also by acting as the “eyes and ears” for management on key issues for the company. This article makes practical suggestions for directors to consider as they approach their board meeting preparation with this broader view in mind.

Environmental And Social Sustainability In The Boardroom, Jon Lukomnik

Ira M. Millstein Center for Global Markets and Corporate Ownership

The last 10 years has seen a remarkable shift in the attention and importance of social and environmental issues for public corporations. This has meant an increased focus by boards on these important matters.

Climate change, human rights, corporate political influence, and inequality are just some of the issues that are being raised by shareholders and other stakeholders. As calls for corporate transparency grow, how boards incorporate these issues into their decision making processes, disclose them, and address them from a risk perspective will continue to garner attention.

The Changing Landscape Of The Capital Markets, Barbara Krumsiek

Ira M. Millstein Center for Global Markets and Corporate Ownership

Much has been made of the rise of activist hedge funds over the past five years. But the shifts in the makeup of the investor community run much deeper than that, impacting both capital formation and capital deployment.

From the proliferation of hedge funds and the emergence of SRI and other new investment strategies, to the massive shift of funds to passive investors, the intermediation of the investment chain, and the concentration of ownership in the largest institutional investors, understanding the trend lines in the capital markets is integral to understanding where governance and the performance of public corporations goes …

The State's Role In The Regulation And Provision Of Legal Services In South Africa And The United States: Supporting, Nudging Or Interfering?, Helen Kruuse, Philip Genty

Faculty Scholarship

An independent legal profession is said to be “the bulwark of a free and democratic society.” It is also said that a high measure of independence of mind and action by legal actors is necessary for the maintenance of the rule of law. However, too often, there is the allegation (within the sociological literature in particular) that the legal profession has used the concepts of independence and the rule of law as a shield or cuirass rather than as a sword. The image of lawyers representing unpopular clients fearlessly and advocating on behalf of unpopular causes, so as to uphold …

Can Restitution Save Fragile Spiderless Networks?, Ariel Porat, Robert E. Scott

Faculty Scholarship

This Article examines the dramatic increase in business networks in recent decades and considers whether the law can play a useful role in supporting the efficient functioning of these inter-firm relationships for coordination and cooperation. Repeat play, reputational sanctions, and norms of trust and reciprocity are the common explanations for the flourishing of networks in many industries and places. But the evidence also shows that a certain class of networks often fails to survive or function effectively and beneficial cooperation among these network members is impaired. These fragile networks develop organically without a controlling party or hierarchy at the center …

How Investors Can (And Can't) Create Social Value, Paul Brest, Ronald J. Gilson, Mark A. Wolfson

Faculty Scholarship

Most investors throughout the world have a single goal: to earn the highest risk- adjusted financial returns. They would not accept a lower financial return from an investment that also produced social benefits.

More recently, an increasing number of socially-motivated investors have goals beyond maximizing returns. They also seek to align their investments with their social values (value alignment), and some also seek to cause the companies in which they invest to create more social value as a result of their investment (social value creation). We show in this essay that while it is relatively easy to achieve value alignment, …

Valuation Disputes In Corporate Bankruptcy, Kenneth M. Ayotte, Edward R. Morrison

Faculty Scholarship

Prior scholarship points to disagreements about valuation and judicial valuation error as key drivers of Chapter 11 outcomes. Avoiding valuation disputes and valuation errors is also the underlying driver of most proposed reforms, from Baird’s auctions to Bebchuk’s options. In this paper, we undertake a detailed examination of bankruptcy court opinions involving valuation disputes. Our paper has two goals. The first is to understand how parties and their expert witnesses justify their opposing views to the judge, and how judges decide between them. The second is to provide practical guidance to judges in resolving valuation disputes. We document surprisingly pervasive …

Initial Public Offerings In The Cmu: A U.S. Perspective, Merritt B. Fox

Faculty Scholarship

This chapter begins by considering the especially severe information-asymmetry problem that plagues primary offerings of truly new securities. It then examines market-based solutions for these problems, the shortcomings of exclusive reliance on such solutions, and the rationale for having a government-designed affirmative-disclosure regime, whereby an issuer making an offering is required to answer certain questions. It also addresses the question of whether this regime should be imposed on all issuers making such offerings or only those that volunteer to be subjected to it. The remainder of the chapter considers the rationale for mandating the imposition of liability on issuers, issuer …

From Corporate Law To Corporate Governance, Ronald J. Gilson

Faculty Scholarship

In the 1960s and 1970s, corporate law and finance scholars gave up on their traditional approaches. Corporate law had become “towering skyscrapers of rusted girders, internally welded together and containing nothing but wind.” In finance, the theory of the firm was recognized as an “empty box.” This essay tracks how corporate law was reborn as corporate governance through three examples of how we have usefully complicated the inquiry into corporate behavior. Part I frames the first complication, defining governance broadly as the company’s operating system, a braided framework of legal and non-legal elements. Part II adds a second complication by …

The Macpherson-Henningsen Puzzle, Victor P. Goldberg

Faculty Scholarship

In the landmark case of MacPherson v. Buick, an automobile company was held liable for negligence notwithstanding a lack of privity with the injured driver. Four decades later, in Henningsen v. Bloomfield Motors, the court held unconscionable the standard automobile company warranty which limited its responsibility to repair and replacement, even in a case involving physical injury. This suggests a puzzle: if it were so easy for firms to contract out of liability, did MacPherson accomplish anything?

The Rise Of Foreign Ownership And Corporate Governance, Merritt B. Fox

Faculty Scholarship

This chapter explores the link between corporate governance and the rise of foreign ownership. It presents statistics that illustrate the dramatic rise in foreign ownership over the last few decades and then seeks to explain this rise and its relationship to corporate governance. In order to situate the subject under study within its larger context, this explanation starts with an exploration of the factors independent of corporate-governance considerations that favor a global market for securities and those that impede it. It will be shown that the rise in foreign ownership globally can be explained in significant part by the weakening …

Foreword – The 2017 Tax Cuts: How Polarized Politics Produced Precarious Policy, Michael J. Graetz

Faculty Scholarship

By lowering the corporate tax rate from 35% to 21%, the 2017 tax legislation brought the U.S. statutory rate into closer alignment with the rates applicable in other Organisation for Economic Co-operation and Development (OECD) nations, thereby decreasing the incentive for businesses to locate their deductions in the United States and their income abroad. Its overhaul of the U.S. international income tax rules simultaneously reduced preexisting incentives for U.S. multinationals to reinvest their foreign earnings abroad and put a floor on the benefits of shifting profits to low-tax jurisdictions. The 2017 legislation also added an unprecedented, troublesome lower rate for …

Is Corporate Governance A First Order Cause Of The Current Malaise?, Jeffrey N. Gordon

Faculty Scholarship

The US has evolved a regime of high-powered corporate governance in which managerial performance is disciplined through shareholder value metrics. This paper argues against over-stating the importance of this regime in creating problems of inequality, greater economic insecurity, and slower economic growth. Corporate governance acts principally as the transmission mechanism to the behaviour of the particular firm of changes in the global and domestic competitive environment. The critical problem is a risk-shift from shareholders, who now have access to robust diversification against firm-specific risks, and towards employees, whose concentrated firm-specific investments are hard to protect or diversify. The paper argues …

Economic Individualism And Preference Formation, Andrzej Rapaczynski

Faculty Scholarship

This note examines some issues involved in an attempt to go beyond the assumption, long-made by most economists, that people’s preferences are simply to be treated as “given” and that the principle of consumer sovereignty entails a refusal to consider some (or some people’s) revealed preferences as more authoritative than others. The most important break with that assumption has been the development of behavioral economics, which shows that people may not always know what they really want, and that economists have to develop a more critical approach, distinguishing people’s true preferences from those that are merely apparent. While this approach, …

The Case Against Passive Shareholder Voting, Dorothy S. Lund

Faculty Scholarship

American investors have begun to embrace the reality that academics have been championing for decades — that a broad-based, passive indexing strategy is superior to picking individual stocks or investing in actively managed funds. But there are several reasons to believe that the rise of passive investing will have harmful consequences for firm governance, shareholders, and the economy. First, because passive funds seek only to match the performance of an index — not outperform it — they lack a financial incentive to ensure that each of the companies in their very large portfolios are well-run. Second, passive funds face an …

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 …

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …