Law Commons^™

Climate Change Compliance, Susan S. Kuo, Benjamin Means

Faculty Publications

Unless corporations prioritize climate change mitigation, efforts to control global warming will fail. Yet, the strategies that have been proposed for enlisting corporations are insufficient to the task. In our era of political polarization, a comprehensive “Green New Deal” to transition the U.S. economy away from fossil fuels is a nonstarter. Nor can we expect corporate risk management or social responsibility to fill the gap; there are practical limits to how far corporate managers can depart from strategies designed to maximize profits for investors.

This Article contends that climate change is a compliance issue. Scholars have overlooked compliance as a …

Stress Testing Governance, Rory Van Loo

Faculty Scholarship

In their efforts to guard against the world’s greatest threats, administrative agencies and businesses have in recent years increasingly used stress tests. Stress tests simulate doomsday scenarios to ensure that the organization is prepared to respond. For example, agencies role-played a deadly pandemic spreading from China to the United States the year before COVID-19, acted out responses to a hypothetical hurricane striking New Orleans months before Hurricane Katrina devastated the city, and required banks to model their ability to withstand a recession prior to the economic downturn of 2020. But too often these exercises have failed to significantly improve readiness …

Initial Public Offering And Optimal Corporate Governance, Albert H. Choi

Law & Economics Working Papers

This paper examines the long-standing debate over whether firms have a market-based incentive to adopt optimal governance provisions at their initial public offering (IPO). Various scholars and practitioners have argued that firms that offer stock to the public with suboptimal governance structure will be penalized by the market through a lower IPO price. At the same time, others have documented empirical evidence that many IPO firms have putatively suboptimal governance provisions, such as anti-takeover provisions and dual class structure, and many, especially those with dual-class structure, enjoy a market premium at their IPO. This paper attempts to bridge this gap. …

Corporate Governance Reform And The Sustainability Imperative, Christopher Bruner

Scholarly Works

Recent years have witnessed a significant upsurge of interest in alternatives to shareholder-centric corporate governance, driven by a growing sustainability imperative—widespread recognition that business as usual, despite the short-term returns generated, could undermine social and economic stability and even threaten our long-term survival if we fail to grapple with associated costs. We remain poorly positioned to assess corporate governance reform options, however, because prevailing theoretical lenses effectively cabin the terms of the debate in ways that obscure many of the most consequential possibilities. According to prevailing frameworks, our options essentially amount to board-versus-shareholder power, and shareholder-versus stakeholder purpose. This narrow …

Lifting Labor’S Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance, Leo E. Strine Jr., Aneil Kovvali, Oluwatomi O. Williams

Ira M. Millstein Center for Global Markets and Corporate Ownership

The dramatic decline in corporate gainsharing with American workers over the last two generations has contributed to stagnating wages, soaring inequality, and economic insecurity. There are global causes of greater inequality and depressed pay that go beyond the decline in workers’ share. But many public policymakers and economists believe that the reduced share of corporate prof its that American workers receive has been a major factor in the much larger increase in inequality that has occurred in the United States, compared to its market economy allies in the Organization for Economic Co-operation and Development (OECD). To some, the explanation for …

The Corporate Forum, Christina M. Sautter, Sergio Alberto Gramitto Ricci

Journal Articles

In this response to Professor Jill Fisch’s article "GameStop and the Reemergence of the Retail Investor," we focus on one of the risks associated with the growth of retail investing that Fisch surveys, uncontrolled information sourcing. Drawing on our work on retail investors, we revisit an instrument dear to the U.S. Securities and Exchange Commission, whose potential has not been unleashed so far, the corporate forum. Our response succinctly discusses the main mechanics of the corporate forum, the benefits the corporate forum could provide, and the feasibility hurdles that might undermine the success of corporate forums.

Why Corporate Purpose Will Always Matter, Lyman P.Q. Johnson

Scholarly Articles

Business persons and lawyers (and law professors) perennially struggle over the question whether a business corporation does or should have a purpose other than advancing the interests of shareholders. After briefly setting the stage by describing the dispute over what the positive law of corporate purpose really is and the normative argument over what corporate purpose should be, this short article takes a different turn. It addresses why, in a dynamic, democratic, pluralist society, the foundational issue of corporate purpose remains so important and will not (and should not) go away. However adamantly divergent descriptive and prescriptive positions are held, …

The Landscape Of Startup Corporate Governance In The Founder-Friendly Era, Jennifer S. Fan

Articles

In corporate governance scholarship, there is an important debate about the nature and roles of the members of the board of directors in venture capital-backed private companies. The impact of a newly emerged, founder-centric model has been underappreciated, while the role of the independent director as tiebreaker or swing vote is vastly overstated. The reality is that corporate governance in these companies is a norm-driven, consensus-building process that rarely spills out into open conflict.

This is the first empirical study of startup corporate governance post-Great Recession and during the pandemic. Using survey and interview methodologies, this Article makes four primary …

Enabling Esg Accountability: Focusing On The Corporate Enterprise, Rachel Brewster

Faculty Scholarship

Environmental, social, and governance accountability for companies has become an important topic in popular and academic debate in modern society. The idea that corporations should have ESG goals has been embraced by major investment companies, employees, and many corporations themselves. Yet, less attention has been focused on how corporate enterprise law—which governs how corporations structure their relationships between parent corporations and their subsidiaries—creates or contributes to the ESG concerns that the public has with corporations in the first place. Modern enterprise law allows corporations, particularly those operating across national borders, to use their subsidiaries to avoid responsibility for their public …

The Diversity Risk Paradox, Veronica Root Martinez

Faculty Scholarship

There is a growing body of literature discussing the proper role of diversity, equity, and inclusion efforts by and within public firms. A combination of forces brought renewed energy to this topic over the past few years. The #MeToo movement demonstrated a whole host of inequities faced by women within workplaces. Business Roundtable’s 2019 Statement on the Purpose of a Corporation rejected the view that the purpose of the corporation was solely to be focused on the maximization of shareholder wealth. And, in 2020, the murder of George Floyd ignited a racial reckoning within the United States, which prompted many …

In Re The Walt Disney Co. Derivative Litigation Rewritten, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

In re The Walt Disney Co. Derivative Litigation is notable for upholding the broad latitude courts afford to boards through the business judgment rule. The case addressed a $130 million termination package delivered to former Disney CEO, Michael Ovitz, after fourteen months of underperformance at the company. This rewritten opinion, to be published in “Feminist Judgements: Rewritten Corporate Law,” (Kelli Alces Williams, Anne Choike, & Usha R. Rodrigues, eds.) (Cambridge Univ. Press, forthcoming 2022), follows the style of the Delaware Supreme Court and reaches the same outcome with a different approach. The opinion expounds on the corporate governance practices in …

Racial Rhetoric Or Reality? Cautious Optimism On The Link Between Corporate #Blm Speech And Behavior, Lisa Fairfax

All Faculty Scholarship

The summer of 2022 marks the two-year anniversary of the dramatic rekindling of the #BlackLivesMatter movement because of the murders of George Floyd, Breonna Taylor and other unarmed Black people at the hands of police. The summer of 2020 saw cities in the United States and around the world erupt in protest, with calls to dismantle racist policies and practices both in the criminal system and within the broader society, with a particular emphasis on policies and practices impacting Black people. The summer of 2022 also marks the two-year anniversary of the visible and somewhat surprising avalanche of corporate statements …

Stakeholderism, Corporate Purpose, And Credible Commitment, Lisa Fairfax

All Faculty Scholarship

One of the most significant recent phenomena in corporate governance is the embrace, by some of the most influential actors in the corporate community, of the view that corporations should be focused on furthering the interests of all corporate stakeholders as well as the broader society. This stakeholder vision of corporate purpose is not new. Instead, it has emerged in cycles throughout corporate law history. However, for much of that history—including recent history—the consensus has been that stakeholderism has not achieved dominance or otherwise significantly influenced corporate behavior. That honor is reserved for the corporate purpose theory that focuses on …

The Long-Term Effects Of Short Selling And Negative Activism, Peter Molk, Frank Partnoy

UF Law Faculty Publications

We investigate the long-term effects of short selling and “negative activism,” where activists seek to profit from declines in the share prices of targeted firms. We show that negative activism is associated with significant and declining long-term share returns and operating performance, as well as an increase in securities litigation and regulatory actions against targeted firms. We explore the policy implications of this new evidence, including ways that policy makers and market participants might take advantage of the potential benefits of short selling negative activism. Our message is straightforward: resist impulses to curb short selling, and instead embrace attempts to …

The Wireless Investors Movement, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The inaugural guest academic article for the University of Chicago Business Law Review Blog discusses how Millennial and GenZ investors can set in motion a social movement with disruptive effects on the current corporate governance paradigm. It refers to Millennial and GenZ investors as “wireless investors” and their social movement as the “Wireless Investors Movement.” The Wireless Investors Movement, fueled by wireless investors’ vision of the world and technology savviness, will bring corporations to pursue social and environmental causes. This short contribution analyzes the characteristics of the Wireless Investors Movement and the effects it will have on corporate governance.

Stealth Governance: Shareholder Agreements And Private Ordering, Jill E. Fisch

All Faculty Scholarship

Corporate law has embraced private ordering -- tailoring a firm’s corporate governance to meet its individual needs. Firms are increasingly adopting firm-specific governance through dual-class voting structures, forum selection provisions and tailored limitations on the duty of loyalty. Courts have accepted these provisions as consistent with the contractual theory of the firm, and statutes, in many cases, explicitly endorse their use. Commentators too support private ordering for its capacity to facilitate innovation and enhance efficiency.

Private ordering typically occurs through firm-specific charter and bylaw provisions. VC-funded startups, however, frequently use an alternative tool – shareholder agreements. These agreements, which have …

Judicial Review Of Directors' Duty Of Care: A Comparison Between U.S. & China, Zhaoyi Li

Articles

Articles 147 and 148 of the Company Law of the People’s Republic of China (“Chinese Company Law”) establish that directors owe a duty of care to their companies. However, both of these provisions fail to explain the role of judicial review in enforcing directors’ duty of care. The duty of care is a well-trodden territory in the United States, where directors’ liability is predicated on specific standards. The current American standard, adopted by many states, requires directors to “discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.” However, both …

Power, Primacy, And The Corporate Law Pivot, Grant M. Hayden, Matthew T. Bodie

Faculty Journal Articles and Book Chapters

As a Vice Chancellor, Chancellor, Chief Justice, and now a private citizen, Leo Strine has consistently recognized the shape of power relations within corporate law. With his wry wit and sharp prose, he has cut to the quick on issues such as director independence, shareholder rights, and the separation of ownership from ownership. Underlying these decisions are both the recognition of the underlying power dynamics at play and the pursuit of fairness under the law. As the Chief Justice has gone from lawmaker to commentator, his perspective has shifted on the role of corporate law in shaping society. Like him, …

Monitoring Facebook, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

Few companies still in business have a track record as negative as Facebook. Facebook has paid billions of dollars in government fines and paid hundreds of millions in private settlements. Yet, the financial penalties are actually minimal relative to the harm done. Facebook seems to have been involved one way or another in privacy breaches, organized crime, election manipulation, suicide, and even genocide. Mark Zuckerberg, who still controls Facebook, appears to ignore the consequences of his choices, seemingly prioritizing profits over people. He appears to disregard the law and operate without integrity or honesty, excommunicating insiders who speak out or …

Soft Law, Risk Cultures, And Law Abidingness: The Caremark Connection, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

As Vice Chancellor, Chancellor, Chief Justice, and recidivist law review author, Leo Strine has had much to say about the often-frustrating effort at corporate behavior modification. One point he makes very insistently is that pursuant to their state-granted charters, corporations are authorized to take part only in lawful business, not any profitable business. Respect for life-giving law is thus a necessary corollary of good corporate citizenship. But good citizenship is so hard to instill, which irks him. An angry display of this is Strine’s Delaware Supreme Court dissenting opinion in City of Birmingham Retirement System v. Good, involving Duke …

Shifting Influences On Corporate Governance: Capital Market Completeness And Policy Channeling, Ronald J. Gilson, Curtis J. Milhaupt

Faculty Scholarship

Corporate governance scholarship is typically portrayed as driven by single factor models, for example, shareholder value maximization, director primacy or team production. These governance models are Copernican; one factor is or should be the center of the corporate governance solar system. In this essay, we argue that, as with binary stars, the shape of the governance system is at any time the result of the interaction of two central influences, which we refer to as capital market completeness and policy channeling. In contrast to single factor models, which reflect a stable normative statement of what should drive corporate governance, in …

The Rejected Threat Of Corporate Vote Suppression: The Rise And Fall Of The Anti-Activist Pill, Jeffrey N. Gordon

Faculty Scholarship

As disciplinary takeovers are replaced by activist shareholder campaigns, managements may well want to turn to the “anti-activist pill” as shelter from the storm. The economic shock from the widespread shutdown to combat the Covid-19 pandemic produced dozens of so-called “crisis pills.” The defense of these pills as avoiding “disruption” and “distraction” of managements can be seen as a test run for broader use of poison pills to fend off shareholder activism. The Delaware courts, first Chancery and then the Supreme Court, rejected this managerial defense tactic in a way that clarifies the role of the poison pill in corporate …

Systemic Stewardship, Jeffrey N. Gordon

Faculty Scholarship

This Article frames a normative theory of stewardship engagement by large institutional investors and asset managers that is congruent with their theory of investment management — “Modern Portfolio Theory” — which describes investors as attentive to both systematic risk as well as expected returns. Because investors want to maximize risk-adjusted returns, it will serve their interests for asset managers to support and sometimes advance shareholder initiatives that will reduce systematic risk. “Systematic stewardship” provides an approach to “ESG” matters that serves both investor welfare and social welfare and fits the business model of large, diversified funds, especially index funds. The …

Agents Of Inequality: Common Ownership And The Decline Of The American Worker, Zohar Goshen, Doron Levit

Faculty Scholarship

The last forty years have seen two major economic trends: wages have stalled despite rising productivity, and institutional investors have replaced retail shareholders as the predominant owners of the U.S. equity markets. A few powerful institutional investors — dubbed common owners — now hold large stakes in most U.S. corporations. And in no coincidence, when U.S. workers acquired this new set of bosses, their wages stopped growing while shareholder returns increased. This Article explains how common owners shift wealth from labor to capital, thereby exacerbating income inequality.

Powerful institutional investors pushing public corporations en masse to adopt strong corporate governance …

The Future Of Board Time And Priorities, Janet Foutty, Eric L. Talley, Carey Oven, Erica Mitnick Klein, Maureen Bujno, Katherine Waldock, Molly Calkins, Lyssa Bantleon Little, Caroline Schoenecker

Faculty Scholarship

“Houston, we’ve had a problem.”

Popularized by the 1995 film Apollo 13, this one line signals a dramatic turning point in the story of the 1970 mission to land three people on the surface of the moon.

It recounts the pivotal moment when carefully laid plans for a 33-hour stay on the moon are about to go awry. The very purpose of the mission — two space walks, a series of geological surveys, and the placement of scientific instruments that would send data back to Earth for long after — is in jeopardy.

It is the moment when the playbook …

Toward A Fair And Sustainable Corporate Governance System: Reflections On Leo Strine, Jr.'S Writing On Institutional Investors, Dorothy S. Lund

Faculty Scholarship

It is a privilege to contribute to this Festschrift for my friend, mentor, and co-author, Leo Strine, Jr. It is also a pleasure to revisit his vast body of work and to re-experience the breadth and depth of his scholarship, as well as reflect on his unparalleled influence on the development of corporate law that he brought about while presiding over its most influential courts for twenty-one years.

In thinking about this essay, I recalled a conversation that I had with “CJS” when I was serving as his law clerk. In this conversation, he decried (with James Taylor blasting in …

Asset Managers As Regulators, Dorothy S. Lund

Faculty Scholarship

The conventional view of regulation is that it exists to constrain corporate activity that harms the public. But amid perceptions of government failure, many now call on corporations to tackle social problems themselves. And in this moment of dissatisfaction with government, powerful asset managers have stepped in to serve as regulators of last resort, adopting rules that bind corporate America on issues of great social importance, including climate change and workplace diversity. This Article describes this dynamic — where shareholders have become regulators — which has been made possible by the rise of institutional shareholding (and index investing in particular) …

In Search Of Good Corporate Governance, Dorothy S. Lund

Faculty Scholarship

In this Forum Response, Dorothy Lund considers whether the “corporate governance gap” between large and small public companies is the product of harmful or beneficial forces, and in so doing, rejects the idea that there is a single governance framework that is optimal for all public companies.

The Banker Removal Power, Da Lin, Lev Menand

Faculty Scholarship

The Federal Reserve (“the Fed”) can remove bankers from office if they violate the law, engage in unsafe or unsound practices, or breach their fiduciary duties. The Fed, however, has used this power so rarely that few even realize it exists. Although major U.S. banks have admitted to repeated and flagrant lawbreaking in recent years, the Fed has never removed a senior executive from one of these institutions.

This Article offers the first comprehensive account of the banker removal power. It makes four contributions. First, drawing on a range of primary sources, it recovers the power’s statutory foundations, showing that …

Artificially Intelligent Boards And The Future Of Delaware Corporate Law, Christopher Bruner

Scholarly Works

The prospects for Artificial Intelligence (AI) to impact the development of Delaware corporate law are at once over- and under-stated. As a general matter, claims to the effect that AI systems might ultimately displace human directors not only exaggerate the foreseeable technological potential of these systems, but also tend to ignore doctrinal and institutional impediments intrinsic to Delaware's competitive model – notably, heavy reliance on nuanced and context-specific applications of the fiduciary duty of loyalty by a true court of equity. At the same time, however, there are specific applications of AI systems that might not merely be accommodated by …