Law Commons^™

Death Of A Corporation: How A Seemingly Innocuous Probate Provision Can Fundamentally Undermine The Corporate Form, Kenya Jh Smith

William & Mary Business Law Review

Imagine that you are assisting the surviving shareholders and officers of a corporation in settling affairs with the estate of a deceased shareholder. In a corporate governance dispute that ensues, the estate representative uses a seemingly innocuous probate provision allowing him to “continue any business” of the deceased to petition the probate court for direct control of the corporation. You find that there is little statutory or jurisprudential guidance on coordinating that probate provision with longstanding corporate governance requirements that directors, not shareholders, directly manage corporate affairs. This Article explores the unintended consequences of allowing a misplaced but literal reading …

Why Do Corporations Merge And Why Should Law Care?, Chris Sagers

University of Michigan Journal of Law Reform

Mergers and acquisitions are extraordinarily prevalent in the United States, generating massive expenditures every year. However, a serious empirical puzzle lies at the heart of all that activity. That empirical phenomenon’s most remarkable feature by far is that even though it is well established in an extensive literature and implies far-reaching policy consequences, American law ignores it entirely.

Generations of researchers have failed to find evidence that merger and acquisition activity generates any lasting benefits for the combining firms’ owners or anyone else. No one seriously doubts that efficiencies of scale or technological integration are real or that acquisitions sometimes …

Why Do Corporations Merge And Why Should Law Care?, Chris Sagers

Law Faculty Articles and Essays

Mergers and acquisitions are extraordinarily prevalent in the United States, generating massive expenditures every year. However, a serious empirical puzzle lies at the heart of all that activity. That empirical phenomenon's most remarkable feature by far is that even though it is well established in an extensive literature and implies far-reaching policy consequences, American law ignores it entirely.

Generations of researchers have failed to find evidence that merger and acquisition activity generates any lasting benefits for the combining firms' owners or anyone else. No one seriously doubts that efficiencies of scale or technological integration are real or that acquisitions sometimes …

Is Corporate Law Nonpartisan?, Ofer Eldar, Gabriel V. Rauterberg

Faculty Scholarship

Only rarely does the United States Supreme Court hear a case with fundamental implications for corporate law. In Camey v. Adams, however, the Supreme Court had the opportunity to address whether the State of Delaware's requirement of partisan balance for its judiciary violates the First Amendment. Although the Court disposed of the case on other grounds, Justice Sotomayor acknowledged that the issue "will likely be raised again." The stakes are high because most large businesses are incorporated in Delaware and thus are governed by its corporate law. Former Delaware governors and chief justices lined up to defend the state's "nonpartisan" …

Public Reporting Of Monitorship Outcomes, Veronica Root Martinez

Faculty Scholarship

When a corporation engages in misconduct that is widespread or pervasive, courts, regulators, or prosecutors often insist that the firm obtain assistance from an independent third party — a monitor — to oversee the firm’s remediation effort. The largest firms in the world — from Deutsche Bank, to Volkswagen, to Carnival Cruise Lines — have found themselves having to retain a monitor for corporate misconduct, despite attempts to avoid a monitorship entirely. Traditionally, monitors, or their special master forebearers, were utilized by courts to assist in overseeing compliance with court orders, and their work was both accessible and transparent. As …

Reconciling Corporate Interests With Broader Social Interests - Pursuit Of Corporate Interests Beyond Shareholder Primacy, Yong-Shik Lee

William & Mary Business Law Review

A seminal case in corporate law, Dodge v. Ford Motor Co., set the cardinal principle that corporations must serve the interests of shareholders rather than the interests of employees, customers, or the community. This principle, referred to as “shareholder primacy,” has been considered a tenet of the fiduciary duty owed by corporate directors. Scholars have disagreed on the current legal status of shareholder primacy. This Article examines the controversy in light of the current state legislation and case law. Regardless of its current legal status, shareholder primacy has influenced corporate behavior and encouraged short-term profit-seeking behavior with significant social …

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 …

Brief Of Amica Curiae Deborah A. Demott In Support Of Petitioner, Deborah A. Demott

Faculty Scholarship

No abstract provided.

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, …

Dynamic Corporate Purpose: Decentralizing The Choice Over Director Orientation, Fields Pierce

Vanderbilt Law Review

The debate over corporate purpose has turned into a “gordian knot” where parties with entrenched beliefs about what the corporation should or should not be within society refuse to waver. There are inherent flaws with the governance models proposed by academics, politicians, and practitioners alike, so a novel method for setting and maintaining corporate purpose is required. This Note asks why there must be a one-size-fits-all approach to purpose and proposes a solution: dynamic corporate purpose.

This Note argues that states should not mandate all corporations hold the same corporate purpose but instead should use the logic of the public …

Corporatizing Administrative Law For Economic Constitutionalism In Ghana: An African Legal Study, Rowland Atta-Kesson

Maurer Theses and Dissertations

As the Government of Ghana partners the private sector to promote district industrialization in Ghana under what is locally called “one-district-one factory” (1D1F), this study argues that it is important to foster economic constitutionalism with legal and institutional innovations. One such innovation is this study’s emergent or grounded theory of corporatized administrative law. The study is unique because it contributes to the so-called new administrative law theory with fresh evidence from Ghana on the interface between the public and private sectors under the district industrialization program. The key problem is the challenge that democratic policy discontinuity poses to business protection …

A Revised Monitoring Model Confronts Today's Movement Toward Managerialism, James D. Cox, Randall S. Thomas

Faculty Scholarship

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand, and economic, social, and political changes on the other hand. Aberrations, however, do arise but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments …

The Sec's Shareholder Proposal Rule: Creating A Corporate Public Square, James D. Cox, Randall S. Thomas

Faculty Scholarship

In this Article, we take advantage of this Symposium’s goals to think broadly about the future of Rule 14a-8 of the Securities Exchange Act of 1934, the shareholder proposal rule. We set forth a vision for the rule to address boardroom insularity by likening the shareholder proposal rule as the public square for shareholders. The existence of such a forum would redound to the benefit of investors, officers, and boards of directors as a fount of current and useful information about their investors’ and stakeholders’ concerns.

Whistleblowers: Implications For Corporate Governance, Deborah A. Demott

Faculty Scholarship

Often overlooked in academic accounts of corporate governance and the actors who populate governance structures, whistleblowers are no more visible in formal governance frameworks. Within a corporation, whistleblowers may be lower-rank employees, not directors or officers; they may report perceptions of wrongdoing to others within the corporation or inform governmental or other actors who are externally situated. Nonetheless, it is striking how often retrospective accounts of corporate scandals involve episodes of internal whistleblowing associated with governance and compliance failures. This paper argues that incorporating whistleblowers into formal governance structures could spur more proactive involvement by directors in monitoring compliance with …

The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg

Faculty Scholarship

This Symposium Article examines how the public/private divide works today and maps out some of the potential implications for major issues in securities law. Classic debates in securities law were often predicated on the idea that public companies are a coherent class of firms that differ markedly from private companies. For more than fifty years after the adoption of the federal securities laws, this view was justified. During that period, the vast majority of successful and growing private firms eventually accepted the regulatory obligations of being public in order to access a wider and deeper pool of capital, among other …

Why The Corporation Locks In Financial Capital But The Partnership Does Not, Richard Squire

Vanderbilt Law Review

Each partner in an at-will partnership can obtain a cash payout of his interest at any time. The corporation, by contrast, locks in shareholder capital, denying general payout rights to shareholders unless the charter states otherwise. What explains this difference? This Article argues that partner payout rights reduce the costs of two other characteristics of the partnership: the non-transferability of partner control rights, and the possibility for partnerships to be formed inadvertently. While these characteristics serve valuable functions, they can introduce a bilateral-monopoly problem and a special freezeout hazard unless each partner can force the firm to cash out his …

What Was The "Dartmouth College" Case Really About?, Charles R.T. O'Kelley

Vanderbilt Law Review

This Article is the first modern work of corporation law scholarship fully examining the Dartmouth College case as it was lived and understood at the time. Earlier scholars, the author of this Article included, have relied on the case to make doctrinal and theory-of-the firm arguments about Supreme Court precedents regarding the constitutional rights of corporations. Moreover, these earlier works have primarily focused on, and found talismanic meaning, in two sentences in Marshall’s opinion:

"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties …

Corporate Personhood And Limited Sovereignty, Elizabeth Pollman

All Faculty Scholarship

This Article, written for a symposium celebrating the work of Professor Margaret Blair, examines how corporate rights jurisprudence helped to shape the corporate form in the United States during the nineteenth century. It argues that as the corporate form became popular because of the way it facilitated capital lock-in, perpetual succession, and provided other favorable characteristics related to legal personality that separated the corporation from its participants, the Supreme Court provided crucial reinforcement of these entity features by recognizing corporations as rights-bearing legal persons separate from the government. Although the legal personality of corporations is a distinct concept from their …

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

Cornell Law Review

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 (GE) theory provides that lens. Several lessons follow from reference to this higher-order …

Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar

Faculty Scholarship

A key question at the intersection of state and federal law is whether corporations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Securities Act of 1933 (“1933 Act”). The decision held that the internal affairs doctrine, which is the bedrock of U.S. corporate law, does not permit charter and bylaw provisions …

Complex Compliance Investigations, Veronica Root Martinez

Faculty Scholarship

Whether it is a financial institution like Wells Fargo, an automotive company like General Motors, a transportation company like Uber, or a religious organization like the Catholic Church, failing to properly prevent, detect, investigate, and remediate misconduct within an organization’s ranks can have devastating results. The importance of the compliance function is accepted within corporations, but the reality is that all types of organizations—private or public—must ensure their members com­ply with legal and regulatory mandates, industry standards, and internal norms and expectations. They must police thousands of members’ compli­ance with hundreds of laws. And when compliance failures occur at these …

An Old View Of The Cathedral: Intellectual Property Under The Colorado Uniform Partnership Act, Nathaniel T. Vasquez

University of Colorado Law Review

The Colorado Uniform Partnership Act ("CUPA") contains a subtle shortcoming. CUPA is a default statute that only operates in the absence of a governing agreement between two partners formed at the outset of the partnership. As with most things in this life, partnerships inevitably come to an end. When this happens, a partner is said to have "dissociated" from the partnership. Typically, this is followed by a dissolution of the partnership itself

Rather than terminating at that point, the partnership then goes into what is called the "winding up" period. Among other things, winding up involves liquidating all of the …

Chancery’S Greatest Decision: Historical Insights On Civil Rights And The Future Of Shareholder Activism, Omari Scott Simmons

Washington and Lee Law Review

This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.

Shareholder activism—using an equity stake in a corporation to influence management—has become a popular tool to effectuate social change in the twenty-first century. Increasingly, activists are looking beyond financial performance to demand better corporate performance in such areas as economic inequality, civil rights, human rights, discrimination, and diversity. These efforts take many forms: publicity campaigns, litigation, proxy battles, shareholder resolutions, and negotiations with corporate management. However, a consensus on …

Functional Corporate Knowledge, Mihailis Diamantis

William & Mary Law Review

The line between guilt and innocence often turns on what a defendant knew. Although the law’s approach to knowledge may be relatively straightforward for individuals, its doctrines for corporate defendants are fraught with ambiguity and opportunities for gamesmanship. Corporations can spread information thinly across employees so that it is never “known.” And prosecutors can exploit legal uncertainties to bring knowledge-based charges where corporations were merely negligent in how they handled information. Whereas knowledge as a mens rea has unique practical and normative properties that vary with a corporation’s size and industry, corporate law treats knowledge just like any other mental …

The Compliance Process, Veronica Root

Faculty Scholarship

Even as regulators and prosecutors proclaim the importance of effective compliance programs, failures persist. Organizations fail to ensure that they and their agents comply with legal and regulatory requirements, industry practices, and their own internal policies and norms. From the companies that provide our news, to the financial institutions that serve as our bankers, to the corporations that make our cars, compliance programs fail to prevent misconduct each and every day. The causes of these compliance failures are multifaceted and include general enforcement deficiencies, difficulties associated with overseeing compliance programs within complex organizations, and failures to establish a culture of …

Will Delaware Be Different? An Empirical Study Of Tc Heartland And The Shift To Defendant Choice Of Venue, Ofer Eldar, Neel U. Sukhatme

Faculty Scholarship

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, such as enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical.

The Supreme Court’s recent decision in TC Heartland v. Kraft Foods illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically measure …

Fiduciary Principles In Agency Law, Deborah A. Demott

Faculty Scholarship

No abstract provided.

The Myth Of The Ideal Investor, Elisabeth De Fontenay

Faculty Scholarship

Critiques of specific investor behavior often assume an ideal investor against which all others should be compared. This ideal investor figures prominently in the heated debates over the impact of investor time horizons on firm value. In much of the commentary, the ideal is a longterm investor that actively monitors management, but the specifics are typically left vague. That is no coincidence. The various characteristics that we might wish for in such an investor cannot peacefully coexist in practice.

If the ideal investor remains illusory, which of the real-world investor types should we champion instead? The answer, I argue, is …

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 broadly shared …

Why Do Prosecutors Say Anything? The Case Of Corporate Crime, Samuel W. Buell

Faculty Scholarship

Criminal procedure law does not require prosecutors to speak outside of court. Professional regulations and norms discourage and sometimes prohibit prosecutors from doing so. Litigation often rewards strategic and tactical maintenance of the element of surprise. Institutional incentives encourage bureaucrats, especially those not bound by procedural requirements of administrative law, to decline to commit themselves to future action. In the always exceptional field of corporate crime, however, the Department of Justice and federal line prosecutors have developed practices of signaling and describing their exercise of discretion through detailed press releases, case filings, and policy documents. This contribution to a symposium …