Business Organizations Law Commons^™

The Mess At Morgan: Risk, Incentives And Shareholder Empowerment, Jill E. Fisch

All Faculty Scholarship

The financial crisis of 2008 focused increasing attention on corporate America and, in particular, the risk-taking behavior of large financial institutions. A growing appreciation of the “public” nature of the corporation resulted in a substantial number of high profile enforcement actions. In addition, demands for greater accountability led policymakers to attempt to harness the corporation’s internal decision-making structure, in the name of improved corporate governance, to further the interest of non-shareholder stakeholders. Dodd-Frank’s advisory vote on executive compensation is an example.

This essay argues that the effort to employ shareholders as agents of public values and, thereby, to inculcate corporate …

Rediscovering Corporate Governance In Bankruptcy, David A. Skeel Jr.

All Faculty Scholarship

In this Essay on Lynn LoPucki and Bill Whitford’s corporate reorganization project, written for a symposium honoring Bill Whitford, I begin by very briefly describing its historical antecedents. The project draws on the insights and perspectives of two closely intertwined traditions: the legal realism of 1930s, whose exemplars included William Douglas and other participants in the SEC study; and the law in action movement at the University of Wisconsin. In Section II, I briefly survey the key contributions of the corporate governance project, which punctured the then-conventional wisdom about the treatment of shareholders in bankruptcy, managers’ principal allegiance, and many …

Anti-Primacy: Sharing Power In American Corporations, Robert B. Thompson

Georgetown Law Faculty Publications and Other Works

Prominent theories of corporate governance frequently adopt primacy as an organizing theme. Shareholder primacy is the oldest and most used of this genre. Director primacy has grown dramatically, presenting in at least two distinct versions. A variety of alternatives have followed—primacy for CEOs, employees, creditors. All of these theories can’t be right. This article asserts that none of them are. The alternative developed here is one of shared power among the three actors named in corporations statutes with judges tasked to keep all players in the game. The debunking part of the article demonstrates how the suggested parties lack legal …

Team Production Theory And Private Company Boards, Elizabeth Pollman

All Faculty Scholarship

In their path-breaking article, A Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout provided a new theory of the board of directors in a corporation. Drawing on the economic theory of team production, Blair and Stout argued that the board of directors serves as a mediating hierarchy for the firm as a whole, encouraging firm-specific investments from team members and reducing shirking and opportunistic behavior. While Blair and Stout provided a dramatically different view of the corporation from the conventional principal-agent account, they also delineated limitations to their proposed theory. Most importantly, they suggested that the mediating …

Reclassification Risks For Compensation Paid By S And C Corporations To Shareholder-Employees, Stephen R. Looney

William & Mary Annual Tax Conference

No abstract provided.

Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse M. Fried, Darian Ibrahim

Faculty Publications

Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law and on the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a lingua franca for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 venture-capitalist-backed start-ups, we find evidence consistent with this lingua franca explanation. Indeed, the lingua franca effect appears to be more important than other factors …

Reverse Cross-Listings - The Coming Race To List In Emerging Markets And An Enhanced Understanding Of Classical Bonding, Nicholas C. Howson, Vikramaditya Khanna

Articles

Studies have found that when a U.S. issuer lists abroad on a foreign exchange, its shares exhibit negative abnormal returns. This negative movement may be because the market expects that the foreign listing will facilitate undetectable insider trading on the foreign exchange or other conduct impermissible in the United States.

Back From The Dead: Reviving Transfer Pricing Enforcement, Reuven S. Avi-Yonah

Articles

The OECD has recently come to recognize that the transfer pricing system does not work as intended. In its report on base erosion and profit shifting 2013 WTD 140-17: Other Administrative Documents, the OECD recognizes that BEPS results in revenue losses that affect all states, especially poorer ones; that systematic tax avoidance by the richest and most powerful companies in the world undermines the general legitimacy of taxation; that it gives MNEs significant competitive advantages over purely domestic firms, resulting in inefficient allocations of investment and major distortions to economic activity; and that it skews the decisions of the MNEs …

Corporate Taxation And Corporate Social Responsibility, Reuven S. Avi-Yonah

Articles

This Article will address the question of whether publicly traded U.S. corporations owe a duty to their shareholders to minimize their corporate tax burden through any legal means, or if instead, strategic behaviors like aggressive tax-motivated transactions are inconsistent with corporate social responsibility (“CSR”). I believe the latter holds true, regardless of one’s view of the corporation. Under the “artificial entity” view, such behavior undermines the constitutive relationship between the corporation and the state. Under the “real view,” such behavior runs contrary to the normal obligation of citizens to comply with the law (even absent effective enforcement). And under the …

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against Party State Political Economic Power, Nicholas C. Howson

Articles

From the start of the People’s Republic of China’s (PRC) “corporatization ” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the China Securities Regulatory Commission (CSRC). Indeed, the Chinese corporate law system has been cannibalized by all - encompassing securities regulation directed at corporate governance, at least for companies with listed stock. This Article traces the path of that sustained intervention and makes a case — wholly contrary to the “quack corporate governance” critique much aired in the United States …

The Puzzling Lack Of Cooperatives, Peter Molk

UF Law Faculty Publications

Some of the most recognizable companies, including Land O'Lakes, REI, the Associated Press, Ace Hardware, and State Farm Insurance, are organized as cooperatives--firms owned by their suppliers, workers, or customers. Yet aside from isolated areas of the economy, cooperatives constitute only a small portion of American enterprise, which is otherwise dominated by investor-owned firms. Conventional wisdom assumes that firms either start as cooperatives or convert to cooperatives when cooperatives offer the highest ongoing benefits to owners, and it explains the lack of cooperatives by suggesting that cooperatives usually do not maximize ongoing benefits. This Article looks at entrepreneurs' and brokers' …

A Difficult Conversation: Corporate Directors On Race And Gender, Kimberly D. Krawiec, John M. Conley, Lissa L. Broome

Faculty Scholarship

This symposium essay summarizes our ongoing ethnographic research on corporate board diversity, discussing the central tension in our respondents’ views – their overwhelmingly enthusiastic support of board diversity coupled with an inability to articulate coherent accounts of board diversity benefits that might rationalize that enthusiasm. As their reactions make clear, frank dialogue about race and gender – even a seemingly benign discussion of diversity’s benefits – can be a difficult conversation.

Value Creation By Business Lawyers: Where Are We And Where Are We Going?, Elizabeth Pollman

All Faculty Scholarship

This is a transcript of Professor Elizabeth Pollman’s remarks for the “Value Creation by Business Lawyers in the 21st Century” panel at the 2014 AALS Annual Meeting. The panel commemorated the 30th anniversary of Ronald Gilson’s article, Value Creation by Business Lawyers: Legal Skills and Asset Pricing. Professor Pollman’s remarks examined the influence of the Gilson article and potential areas for future work in light of regulatory and technological changes affecting transactional lawyering as well as the rise of in-house counsel.

Corporate Governance And Social Welfare In The Common Law World, David A. Skeel Jr.

All Faculty Scholarship

The newest addition to the spate of recent theories of comparative corporate governance is Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power, an important new book by Christopher Bruner. Focusing on the U.S., the U.K., Canada and Australia, Bruner argues that the robustness of the country’s social welfare system is the key determinant of the extent to which its corporate governance is shareholder-centered. This explains why corporate governance is so shareholder-oriented in the United Kingdom, which has universal healthcare and generous unemployment benefits, while shareholders’ powers are more attenuated in the United States, with its …

Symbolic Corporate Governance Politics, Marcel Kahan, Edward B. Rock

All Faculty Scholarship

How are we to understand the persistent gap between rhetoric and reality that characterizes so much of corporate governance politics? In this Article, we show that the rhetoric around a variety of high profile corporate governance controversies (including shareholder proposals asking boards to redeem poison pills, proxy access, majority voting in director elections, and shareholder proposals to remove supermajority voting requirements) cannot be justified by the material interests at stake. At the same time, shareholder activists are oddly reluctant to pursue issues that may have a more material impact, such as anti-pill charter provisions or mandatory bylaw amendments. We consider …

When Subchapter S Meets Subchapter C, Martin J. Mcmahon Jr., Daniel L. Simmons

UF Law Faculty Publications

It is often said that “an S corporation is a corporation that is taxed like a partnership.” This statement is incorrect. An S corporation resembles a partnership only in that it generally does not pay income taxes and its income and losses pass through to the shareholders and retain their character as they pass through. Also, like a partnership, basis adjustments to an S corporation shareholder's stock reflect allocations of income, expense, loss, and distributions. However, no other rules of subchapter K governing partnership taxation apply to S corporations. Most of the rules governing the relationship between an S corporation …

Toward A Theory Of Shareholder Leverage, Lisa Fairfax

All Faculty Scholarship

On Friday, April 11, and Saturday, April 12, 2014, the UCLA School of Law Lowell Milken Institute for Business Law and Policy sponsored a conference on competing theories of corporate governance.

Corporate law and economics scholarship initially relied mainly on agency cost and nexus of contracts models. In recent years, however, various scholars have built on those foundations to construct three competing models of corporate governance: director primacy, shareholder primacy, and team production.

The shareholder primacy model treats the board of directors as agents of the shareholders charged with maximizing shareholder wealth. Scholars such as Lucian Bebchuk working with this …

The Development And Evolution Of The U.S. Law Of Corporate Criminal Liability, Sara Sun Beale

Faculty Scholarship

In the United States, corporate criminal liability developed in response to the industrial revolution and the rise in the scope and importance of corporate activities. This article focuses principally on federal law, which bases corporate criminal liability on the respondeat superior doctrine developed in tort law. In the federal system, the formative period for the doctrine of corporate criminal liability was the early Twentieth Century, when Congress dramatically expanded the reach of federal law, responding to the unprecedented concentration of economic power in corporations and combinations of business concerns as well as new hazards to public health and safety. Both …

Hobby Lobby And The Pathology Of Citizens United, Ellen D. Katz

Articles

Four years ago, Citizens United v. Federal Election Commission held that for-profit corporations possess a First Amendment right to make independent campaign expenditures. In so doing, the United States Supreme Court invited speculation that such corporations might possess other First Amendment rights as well. The petitioners in Conestoga Wood Specialties Corp. v. Sebelius are now arguing that for-profit corporations are among the intended beneficiaries of the Free Exercise Clause and, along with the respondents in Sebelius v. Hobby Lobby Stores, that they also qualify as “persons” under the Religious Freedom Restoration Act (RFRA). Neither suggestion follows inexorably from Citizens United, …

Separation Anxiety: A Cautious Endorsement Of The Independent Board Chair, Lisa Fairfax

All Faculty Scholarship

This Article critically examines the competing arguments related to splitting the roles of CEO and board chair. Although the campaign for independent board chairs has received increased attention from shareholders and regulators, there has been very little academic analysis of such campaign. This Article seeks to fill this void not only by examining the campaign, but also by assessing its implications in light of the available empirical evidence and normative claims. Based on this assessment, this Article offers two conclusions. First, while there appear to be costs associated with splitting the roles of CEO and board chair, those costs likely …

A Corporate Right To Privacy, Elizabeth Pollman

All Faculty Scholarship

The debate over the scope of constitutional protections for corporations has exploded with commentary on recent or pending Supreme Court cases, but scholars have left unexplored some of the hardest questions for the future, and the ones that offer the greatest potential for better understanding the nature of corporate rights. This Article analyzes one of those questions — whether corporations have, or should have, a constitutional right to privacy. First, the Article examines the contours of the question in Supreme Court jurisprudence and provides the first scholarly treatment of the growing body of conflicting law in the lower courts on …

Creating A Culture Of Compliance: Why Departmentalization May Not Be The Answer, Michele M. Destefano

Articles

Over the past few decades, as corporate criminal liability rules, sentencing guidelines, and settlement incentives have changed, therehas been increased emphasis on and resources devoted to thecompliance function at large publicly held companies. In this article, Professor DeStefano traces the development of the compliance function at large corporations and questions the recent mandate by certain governmental entities that malfeasant corporations designate a chief compliance officer and separate the compliance gatekeeping function from the legal department so that this chief compliance officer does not report to the general counsel. She categorizes the types of arguments made for and against departmentalization and …

A Conflict Primacy Model Of The Public Board, Usha Rodrigues

Scholarly Works

e board of directors is the theoretical fulcrum of the corporate form: Statutes task the board with managing the corporation. Yet in the twentieth century, CEOs and other executives came to dominate the real-world control of the corporation. In light of this transformation, in the 1970s Melvin E. Eisenberg proposed reconceiving the board as an independent monitor. Eisenberg’s monitoring board is now the dominant regulatory model of the board. Recently two different visions of the board of directors have emerged. Stephen Bainbridge’s “director primacy” model calls directors “Platonic guardians,” and Margaret Blair and Lynn Stout’s “team production model” characterizes them …

Securities Law's Dirty Little Secret, Usha Rodrigues

Scholarly Works

Securities law’s dirty little secret is that rich investors have access to special kinds of investments—hedge funds, private equity, private companies—that everyone else does not. This disparity stems from the fact that, from its inception, federal securities law has jealously guarded the manner in which firms can sell shares to the general public. Perhaps paternalistically, the law assumes that the average investor needs the protection of the full panoply of securities regulation and thus should be limited to buying public securities. In contrast, accredited—i.e., wealthy— investors, who it is presumed can fend for themselves, have the luxury of choosing between …

Striking The Right Balance: Investor And Consumer Protection In The New Financial Marketplace: Introduction, Lisa Fairfax, Arthur E. Wilmarth Jr

All Faculty Scholarship

On March 2, 2012, The George Washington University Law School's Center for Law, Economics & Finance and The George Washington Law Review jointly hosted a symposium entitled "Striking the Right Balance: Investor and Consumer Protection in the New Financial Marketplace."' The symposium focused on two principal topics. First, participants analyzed the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") on investors and consumers in three areas of federal regulation-securities markets, derivatives markets, and consumer financial products. Second, the symposium evaluated the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") on its tenth anniversary and considered whether Sarbanes-Oxley's legacy might …

New Corporate Forms And Green Business, Antony Page

Faculty Publications

You want to start a business: not just an ordinary business, producing ordinary social benefit, but a dual-mission business that will both make a profit and benefit the environment. This green business, you expect, will sometimes face trade-offs between the missions, in the sense that sometimes owners' wealth and profit will have to be sacrificed to pursue environmental benefits. You're optimistic, in that you hope the business will find outside investors and will scale up easily. Moreover, you don't want to lie or even dissemble about your motives or about the business's actions. You want to be both authentic and …

Private Regulation Of Insider Trading In The Shadow Of Lax Public Enforcement: Evidence From Canadian Firms, Laura Nyantung Beny, Anita Anand

Articles

Like firms in the United States, many Canadian firms voluntarily restrict trading by corporate insiders beyond the requirements of insider trading laws (i.e., super-compliance). Thus, we aim to understand the determinants of firms’ private insider trading policies (ITPs), which are quasi-contractual devices. Based on the assumption that firms that face greater costs from insider trading (or greater benefits from restricting insider trading) ought to be more inclined than other firms to adopt more stringent ITPs, we develop several testable hypotheses. We test our hypotheses using data from a sample of firms included in the Toronto Stock Exchange/Standard and Poor’s (TSX/S&P) …

The Corporate Preference For Trade Secret, Andrew A. Schwartz

Publications

Many inventions can be legally protected either by patent or by trade secrecy, and a conventional wisdom exists on how to select between them. This Article adds to that literature by showing that corporations should have an inherent preference for trade secret over patent for reasons relating to their legal form. Among them is the idea that corporations are perpetual entities and therefore perfectly suited to reap the perpetual returns that only a trade secret can offer. The Article also addresses the potential for a conflict between the inherent corporate preference for trade secret and the preferences of corporate managers, …

Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard

Articles

My thesis is that the transition between private- and public-company status could be less bumpy if we unify the public-private dividing line under the Securities Act and Exchange Act. The insight builds on Cohen's thought experiment where Congress first enacted the Exchange Act. My proposed public-private standard would take the company-registration model to its logical conclusion. The customary path to public-company status is through an IPO, typically with simultaneous listing of the shares on an exchange. There is nothing about public offerings, however, that makes them inherently antecedent to public-company status. What if companies became public, with required periodic disclosures …

Mandating Board-Shareholder Engagement?, Lisa Fairfax

All Faculty Scholarship

This Article not only argues that corporations must be encouraged to enhance the level of communication between shareholders and the board, but also maintains that the benefits of increased engagement are significant enough that we should consider developing standards for incentivizing, if not mandating, more robust board-shareholder engagement for corporations that fail to respond to such encouragement. In the last several years, shareholders not only have gained increased authority over corporate elections and governance matters, but also have demonstrated a willingness to use that authority to challenge, and even reject, management policies and practices. Shareholders also have begun to demand …