Business Organizations Law Commons^™

Are Passive Index Funds Active Owners? Corporate Governance Consequences Of Passive Investing, Giovanni Strampelli

San Diego Law Review

The exponential rise of mutual funds designed to track stock indices has been one of the drivers behind the re-concentration of ownership of listed companies in the United States. Because of the high concentration of the passive index funds industry, the three leading passive fund managers—BlackRock, Vanguard, and State Street—make up an increasingly important component of the shareholder base of listed companies. In spite of this however, it remains questionable whether they are actually interested in playing an active role in the corporate governance of investee companies. In fact, although passive investors are, by definition, focused on the long term …

Corporate And Business Law, Christopher L. Mclean

University of Richmond Law Review

The past two years have produced a number of pieces of legislation from the Virginia General Assembly that serve to bring the set of Virginia business entity statutes up to date with its peers around the country. Part I highlights changes to the Virginia Stock Corporation Act (“VSCA”) and the Virginia Nonstock Corporation Act (“VNSCA”). Part II highlights changes to the Virginia Securities Act (“VSA”) and other statutes affecting Virginia business entities. Part III reviews two significant cases that the Supreme Court of Virginia decided over the past two years with respect to Virginia corporate law. Those decisions provided guidance …

Private Ordering In The Old Dominion: A Solution To Frivolous Litigation Or The Elimination Of A Fundamental Shareholder Right?, Rebekah Biggs

University of Richmond Law Review

No abstract provided.

The Elephant In The Room: Helping Delaware Courts Develop Law To End Systemic Short-Term Bias In Corporate Decision-Making, Kenneth Mcneil, Keith Johnson

Michigan Business & Entrepreneurial Law Review

Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors dearly as well. …

Corporate Distress, Credit Default Swaps, And Defaults: Information And Traditional, Contingent, And Empty Creditors, Henry T. C. Hu

Brooklyn Journal of Corporate, Financial & Commercial Law

Federal securities law seeks to ensure the quality and quantity of information that corporations make publicly available. Informational asymmetries associated with companies in financial distress, but not in bankruptcy, have received little attention. This Article explores some important asymmetries in this context that are curious in their origin, nature, and impact. The asymmetries are especially curious because of the impact of a world with credit default swaps (CDS) and CDS-driven debt “decoupling.” The Article explores two categories of asymmetries. The first relates to information on the company itself. Here, the Article suggests there is fresh evidence for the belief that …

Equity Crowdfunding Portals Should Join And Enhance The Crowd By Providing Venture Formation Resources, Jeff Thomas

Nova Law Review

No abstract provided.

Do Independent Directors Curb Financial Fraud? The Evidence And Proposals For Further Reform†, S. Burcu Avci, Cindy A. Schipani, Nejat Seyhun

Indiana Law Journal

In this Article, we argue that the U.S. corporate governance rules put too much faith in the independent board members and insufficient emphasis on the shareholders to control and monitor top management. Given the agency problem between the board of directors and the shareholders, outside directors can be captured by management, thereby leading to inadequate checks on management. The evidence presented in this Article shows that outside board members do not exercise sufficient controls on management even when management has gone awry. To solve this agency problem, we propose increasing the power of the principals: make shareholder resolutions binding on …

Proxy Access Voting: Evaluating Proxy Access And The Recent Phenomenon Of Corporations Adopting Shareholder Protective Policies, Danielle Vukovich

San Diego International Law Journal

Shareholders hold a financial stake in a corporation, and therefore are often viewed as owners of the corporation and believed to be in control for all corporate actions. However, their powers are circumscribed. Board of directors committees nominate directors to serve the corporation and these directors have the power to select the corporation’s officers. The committees provide shareholders a slate of proposed directors that are voted on and approved at the annual shareholder meeting. Shareholders may also propose their own slate of directors, but this typically requires a proxy contest, which can be expensive due to the costs both associated …

Essay: Corporate Triplespeak: Responses By Investor-Owned Utilities To The Epa’S Proposed Clean Power Plan, Alan R. Palmiter

Brooklyn Law Review

During the year following the EPA’s proposed Clean Power Plan to regulate CO2 emissions in the power sector, the largest investor-owned electric utilities engaged in a curious triplespeak. Employing the moral language of political conservatives, the utilities focused on whether and how the EPA had transgressed its “traditional” regulatory role, thus altering the “structure” of energy federalism and potentially “degrading” orderly power supplies. In disclosure filings with the Securities and Exchange Commission, the utilities used the moral language of political libertarians, focusing on the “financial risks” that federal government “intervention” poses to efficient power “markets” and to the “freedom” of …

Rules Are Meant To Be Amended: How Regulation Crowdfunding's Final Rules Impact The Lives Of Startups And Small Businesses, Dylan J. Hans

Brooklyn Law Review

The Securities and Exchange Commission effectuated the final crowdfunding rules in 2016, and since then, those rules have become the target of scrutiny from startups and investors. Crowdfunding, a form of public capital raising, is an exciting means by which new companies raise money. But, how long will this regulation be a viable option for startups and small businesses? Will the regulation continue to create opportunities for small market enterprises to raise capital? This Note argues that the Securities and Exchange Commission must make adjustments to the Regulation Crowdfunding exemption to improve investor protection, while also reducing draconian disclosure requirements …

Enforcing The Bargain V. Materiality Requirement: The Future Of Disclosure-Only Settlements Post-Trulia, Hao Jiang

Pace Law Review

In In re Trulia, Inc. Stockholder Litigation, the Delaware Court of Chancery broke away from its tradition of routinely approving disclosure-only settlements and required disclosures to be material in order to cure the conflict of interest between plaintiff’s counsel and the plaintiff class. I argue that fairness of settlement is the only standard in approving class action settlements and fairness will not be achieved by requiring materiality. Shareholders are legally entitled to all material information, as the board’s fiduciary duty dictates. Thus, material disclosures are enforcement of a legal duty that is no consideration for the release of shareholder claims. …

Do Institutional Owners Monitor? Evidence From Voting On Connected Transaction Proposals In Hong Kong-Listed Companies, Félix E. Mezzanotte, Simon Fung

Michigan Business & Entrepreneurial Law Review

The conventional view in Hong Kong has been that institutional owners tend to be passive owners and that they do little to monitor the companies’ management. We investigated whether the presence of institutional owners in Hong Kong-listed companies was associated with greater monitoring of management through dissent voting by hand-collecting information for a sample (n= 96) of connected transaction proposals (“CT proposals”) and of their voting outcomes, as announced in the Stock Exchange of Hong Kong during the period from 2012–14. Our study shows that voting approval rates on CT proposals were lower (i.e. greater dissent voting) when institutional owners …

Theories And Solutions On Wolf Pack Activism, Kimberly Goldman

Michigan Business & Entrepreneurial Law Review

Section I will describe the key players involved in wolf pack activism and their conflicting motives, including both the members of wolf packs and those affected by them. Given that not all shareholders have common interests, this will include an analysis of the motives of various types of shareholders and an analysis of how these diverse motives may affect the wealth sustainability of companies. Section II will explain the phenomenon of wolf packs in corporate governance by describing the circumstances that lead to their formation and the various regulations (or lack thereof) pertaining to them. Section III will describe divergent …

China's Anti-Corruption Crackdown And The Foreign Corrupt Practices Act, Daniel C.K. Chow

Texas A&M Law Review

China’s highly publicized crackdown on corruption may affect the type and number of cases in China that arise under the Foreign Corrupt Practices Act (“FCPA”), but it should not be assumed that the crackdown will necessarily lead to fewer FCPA prosecutions. Although there is some overlap of the goals of China’s corruption crackdown and the goals of the FCPA, China’s crackdown also serves important goals of the ruling Communist Party. The main goal of the current crackdown is to reinforce the Party’s power by targeting enemies and rivals of the current leadership. The crackdown is not aimed at prohibiting bribes …

What Would We Do Without Them: Whistleblowers In The Era Of Sarbanes-Oxley And Dodd-Frank, Sean Griffith, Jane A. Norberg, Ian Engoron, Alice Brightsky, Tracey Mcneil, Jennifer M. Pacella, Judith Weinstock, Jason Zuckerman

Fordham Journal of Corporate & Financial Law

No abstract provided.

Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan

University of Michigan Journal of Law Reform

With the rise of institutional activist investors in recent decades—including a purported 495 activist campaigns against U.S. corporations in 2016 alone—the role that third-party institutional proxy advisors play in corporate governance has greatly increased. The United States Office of Government Accountability estimates that clients of the top five proxy advisory firms account for about $41.5 trillion in equity throughout the world. For several years, discussions have developed regarding conflicts of interest faced by proxy advisors. For example, Institutional Shareholder Services, the top proxy advisory firm in the world, frequently provides advice to institutional investors on how to vote proxies while …

Regulating The “Too Big To Jail” Financial Institutions, Jerry W. Markham

Brooklyn Law Review

This article addresses the “too big to jail” regulatory model in which large banks pay hundreds of billions of dollars to settle multiple and duplicative regulatory charges brought by a horde of state, federal, and even foreign regulators. The banks pay those massive settlements in order to keep their banking charters and to obtain immunity from prosecution for senior executives. In turn, regulators benefit from the headlines these fines generate. Much criticism has been directed at these settlements because the banks are allowed to continue business as usual and no senior executives are jailed. Other critics contend that these settlements …

Opacity, Fragility, & Power: Lessons From The Law Enforcement Response To The Financial Crisis, Gregory M. Gilchrist

Brooklyn Law Review

Review of Mary Kreiner Ramirez and Steven A. Ramirez, THE CARE FOR THE CORPORATE DEATH PENALTY: RESTORING LAW AND ORDER ON WALL STREET (New York 2017) The Case for the Corporate Death Penalty, by Mary Kreiner Ramirez and Steven A. Ramirez, argues that the limited law enforcement response to the 2008 financial crisis represented an unprecedented failure of the rule of law. It further maintains that the weak response by law enforcement was caused by the economic and political power of the largest financial institutions and those who run them. It concludes that the failure to vigorously prosecute the people …

Caremark's Hidden Promise, Ezra Wasserman Mitchell

Loyola of Los Angeles Law Review

In re Caremark, decided in 1996, established for the first time a director’s duty to monitor under Delaware law. A significant amount of jurisprudence and commentary has developed. Almost all of this literature parses the language of the case and those following, and disregards the underlying claims for damages. As a result of this linguistic focus, many have concluded that the duty to monitor largely is toothless and, importantly, deals only with claims of failure to monitor legal risk. A duty to monitor business risk has been disavowed.

Following the money reveals a different story. Classifying the cases according to …

Guardians Of The Galaxy: How Shareholder Lawyers Won Big For Their Clients And Vindicated The Integrity Of Our Economy, Daniel J. Morrissey

Loyola of Los Angeles Law Review

Securities class actions are the most economically significant form of litigation. Highly skilled lawyers expend huge sums and relentless efforts in these matters but because of the costs involved and the potential for enormous liability very few of them ever make it to trial. This Article is the story of one that did, a mammoth fraud where a jury returned a $1.5 billion verdict that, with interest, increased to almost $2.5 billion by the time the case reached the appellate court.

There the Court upheld the shareholders’ theory that their damages could be measured by the excessive amounts they had …