Business Organizations Law Commons^™

Esg & Caremark: Shareholders Might Lack Adequate Tools To Voice Esg Concerns And To Hold Boards Of Directors Accountable For Esg Oversight, Meryl Roux Jimenez

University of Miami Business Law Review

Environmental, Social, and Government (“ESG”) practices are no longer an area that corporations can ignore. A corporation’s failure to oversee an ESG risk can lead to a reputational scandal for the company, which, ultimately, hurts shareholders. The only primary legal recourse for shareholders to hold a board of directors accountable—for breaching its fiduciary duty to oversee a risk— is to bring a Caremark action in court. While most Caremark actions have proved favorable to shareholders in the past two decades, it is an imperfect and reactive framework for ESG related claims. Corporations are pulled in two opposite directions: maximizing shareholders’ …

The Problem With The “Non-Class” Class: An Urgent Call For Improved Gatekeepers In Merger Objection Litigation, Josh Molder

Fordham Journal of Corporate & Financial Law

Until recently, class actions dominated merger objection litigation. However, plaintiff’s lawyers have constructed a “non-class” class where an individual suit can benefit from the leverage of a certified class without ever meeting the stringent class certification requirements of Federal Rules of Civil Procedure 23. This new development has initiated a shift in merger objection litigation where plaintiffs are increasingly filing individual suits instead of class actions. However, this shift has left shareholders vulnerable to collusive settlements because plaintiff’s attorneys have significant control over these suits and a strong incentive to settle quickly for a substantial fee. Additionally, corporate defendants are …

Corporate Law’S Threat To Human Rights: Why Human Rights Due Diligence Might Not Be Enough, Barnali Choudhury

Articles & Book Chapters

The take-up of mandatory human rights due diligence (HRDD) initiatives by states is continuously gaining momentum. There are now numerous states adopting some form of HRDD laws. While corporations being duly diligent in respecting human rights is a positive step towards addressing problems of business and human rights, these HRDD initiatives on their own may only be a form of window-dressing, that is, enabling states to put a smart spin on their efforts to address business and human rights issues without addressing some of the root causes of that predicament. As a result, HRDD laws are likely to be a …

The Rise Of Corporate Guidelines In The United States, 2005-2021: Theory And Evidence, Asaf Eckstein

Indiana Law Journal

Institutional investors are legally obliged to be faithful stewards of their portfolio companies. Yet, the conventional wisdom among commentators is that institutional investors have failed to perform this obligation because they are not incentivized to make adequate investments in corporate governance. This Article contends that this criticism is based on an incomplete analysis that misses a critical aspect of the operation of institutional investors. The critics focus exclusively on institutional investors’ efforts in actively engaging with the managements of their portfolio companies. They ignore, however, an important passive governance tool that institutional investors routinely use: corporate guidelines. Corporate guidelines are …

The Exit Theory Of Judicial Appraisal, William J. Carney, Keith Sharfman

Faculty Publications

For many years, we and other commentators have observed the problem with allowing judges wide discretion to fashion appraisal awards to dissenting shareholders based on widely divergent, expert valuation evidence submitted by the litigating parties. The results of this discretionary approach to valuation have been to make appraisal litigation less predictable and therefore more costly and likely. While this has been beneficial to professionals who profit from corporate valuation litigation, it has been harmful to shareholders, making deals costlier and less likely to be completed.

In this Article, we propose to end the problem of discretionary judicial valuation by tracing …

Contractual Stakeholderism, Kishanthi Parella

Scholarly Articles

In 2019, the Business Roundtable announced its commitment to all corporate stakeholders—consumers, employees, suppliers, and communities—and not just shareholders. This announcement has reawakened an old debate over corporate social responsibility. Stakeholderism advocates argue that corporate leaders must consider the interests of the various stakeholders impacted by corporate decision-making. Stakeholderism critics challenge this view, expressing concerns that stakeholderism will magnify managerial agency costs, chill regulation, risk inauthenticity, and lead to impractical solutions.

This Article proposes “contractual stakeholderism” to operationalize stakeholderism in accordance with the views of its advocates but in a way that is attentive to the concerns of its critics. …

Corporate Governance And The Feminization Of Capital, Sarah C. Haan

Scholarly Articles

At the start of the twentieth century, women made up a small proportion of shareholders in American publicly traded companies. By 1956, women were the majority of individual shareholders. Although this change in shareholder gender demographics happened gradually, it was evident early in the century: Before the 1929 stock market crash, women shareholders had come to outnumber men at some of America’s largest and most influential corporations, including AT&T, General Electric, and the Pennsylvania Railroad. This Article synthesizes information from a range of historical sources to reveal an overlooked narrative of corporate history—the feminization of capital, or the transformation of …

The Separation Of Voting And Control: The Role Of Contract In Corporate Governance, Gabriel V. Rauterberg

Articles

The default rules of corporate law make shareholders’ control rights a function of their voting power. Whether a director is elected or a merger is approved depends on how shareholders vote. Yet, in private corporations shareholders routinely alter their rights by contract. This phenomenon of shareholder agreements—contracts among the owners of a firm— has received far less attention than it deserves, mainly because detailed data about the actual contents of shareholder agreements has been lacking. Private companies disclose little, and shareholder agreements are thought to play a trivial or nonexistent role in public companies. I show that this is false—fifteen …

Who Makes Esg? Understanding Stakeholders In The Esg Debate, Matthew Diller, Stephanie Betts, Lorenzo Corte, David M. Silk, Scott V. Simpson, Lisa M. Fairfax, Carmen X. W. Lu, David H. Webber, Leo E. Strine, Jr., Sean J. Griffith

Fordham Journal of Corporate & Financial Law

No abstract provided.

Team Production Revisited, William W. Bratton

All Faculty Scholarship

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Table Of Contents

Seattle University Law Review

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Shareholder Meetings And Freedom Rides: The Story Of Peck V. Greyhound, Harwell Wells

Seattle University Law Review

In 1947, civil rights pioneers James Peck and Bayard Rustin, members of the radical religious group, the Fellowship of Reconciliation, and its offshoot, the Congress of Racial Equality (CORE), prepared to embark on the Journey of Reconciliation, an interracial protest against segregated busing in the American South. But first, they did something else radical: they bought shares in a corporation. A year later, after their travels in the South had led to terror, death threats, beatings, and in Rustin’s case, a term on a chain gang, they brought their civil rights activism to a new site of protest—the shareholder meeting …

Second Panel Discussion - Symposium: Who Makes Esg? Understanding Stakeholders In The Esg Debate, David H. Webber, Carmen Lu, Lisa Fairfox

Faculty Scholarship

This symposium was hosted virtually by Fordham University School of Law on October 23, 2020. The transcript has been edited for clarity and to provide sources, references, and explanatory materials for certain statements made by the speakers.

The second panel discussion was on the topic of "Stakeholders as the driving force of ESG." Panelists for the second panel were Carmen Lu, Lisa Fairfax, and David Webber.

The Independent Board As Shield, Gregory H. Shill

Washington and Lee Law Review

The fiduciary duty of loyalty bars CEOs and other executives from managing companies for personal gain. In the modern public corporation, this restriction is reinforced by a pair of institutions: the independent board of directors and the business judgment rule. In isolation, each structure arguably promotes manager fidelity to shareholder interests—but together, they enable manager prioritization. This marks a particularly striking turn for the independent board. Its origin story and raison d’être lie in protecting shareholders from opportunism by managers, but it functions as a shield for managers instead.

Numerous defects in the design and practice of the independent board …

A New Urban Front For Shareholder Primacy, Anne Choike

Michigan Business & Entrepreneurial Law Review

The hundredth anniversary of Dodge v. Ford marks an occasion to reflect upon what, if anything, has changed about shareholder primacy in a century. Seizing this opportunity, in this Article I analyze new local laws and ordinances that promote stakeholder governance and engagement, which seek to protect the interests of non-shareholder constituencies such as workers, the environment, and the communities in which corporations operate, among others. In doing so, I argue that such local laws meaningfully differ from traditional stakeholder protections, most significantly in the way that they weaken managerial accountability to shareholders. The emergence of these city laws challenges …

The New Gatekeepers: Private Firms As Public Enforcers, Rory Van Loo

Faculty Scholarship

The world’s largest businesses must routinely police other businesses. By public mandate, Facebook monitors app developers’ privacy safeguards, Citibank audits call centers for deceptive sales practices, and Exxon reviews offshore oil platforms’ environmental standards. Scholars have devoted significant attention to how policy makers deploy other private sector enforcers, such as certification bodies, accountants, lawyers, and other periphery “gatekeepers.” However, the literature has yet to explore the emerging regulatory conscription of large firms at the center of the economy. This Article examines the rise of the enforcer-firm through case studies of the industries that are home to the most valuable companies, …

Externalities And The Common Owner, Madison Condon

Washington Law Review

Due to the embrace of modern portfolio theory, most of the stock market is controlled by institutional investors holding broadly diversified economy-mirroring portfolios. Recent scholarship has revealed the anti-competitive incentives that arise when a firm’s largest shareholders own similarly sized stakes in the firm’s industry competitors. This Article expands the consideration of the effects of common ownership from the industry level to the market portfolio level and argues that diversified investors should rationally be motivated to internalize intra-portfolio negative externalities. This portfolio perspective can explain the increasing climate change related activism of institutional investors, who have applied coordinated shareholder power …

Shareholder Collaboration, Jill E. Fisch, Simone M. Sepe

All Faculty Scholarship

Two models of the firm dominate corporate law. Under the management-power model, decision-making power rests primarily with corporate insiders (officers and directors). The competing shareholder-power model defends increased shareholder power to limit managerial authority. Both models view insiders and shareholders as engaged in a competitive struggle for corporate power in which corporate law functions to promote operational efficiency while limiting managerial agency costs. As scholars and judges continue to debate the appropriate balance of power between shareholders and insiders, corporate practice has moved on. Increasingly, the insider–shareholder dynamic is collaborative, not competitive.

This Article traces the development of insider–shareholder collaboration, …

Dual Class Stock In Comparative Context, Christopher Bruner

Scholarly Works

Review of the article by Marc T. Moore, Designing Dual Class Sunsets: The Case for a Transfer-Centered Approach, University College London Faculty of Laws Working Paper No. 9/2019, available at SSRN.

Golden Parachutes And The Limits Of Shareholder Voting, Albert H. Choi, Andrew C.W. Lund, Robert Schonlau

Articles

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, Congress attempted to constrain change-in-control payments (also known as “golden parachutes”) by giving shareholders the right to approve or disapprove such payments on an advisory basis. This Essay is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes. Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation. First, proxy advisors seem …

The Other Janus And The Future Of Labor’S Capital, David H. Webber

Faculty Scholarship

Two forms of labor’s capital—union funds and public pension funds—have profoundly reshaped the corporate world. They have successfully advocated for shareholder empowerment initiatives like proxy access, declassified boards, majority voting, say on pay, private fund registration, and the CEO-to-worker pay ratio. They have also served as lead plaintiffs in forty percent of federal securities fraud and Delaware deal class actions. Today, much-discussed reforms like revised shareholder proposal rules and mandatory arbitration threaten two of the main channels by which these shareholders have exercised power. But labor’s capital faces its greatest, even existential, threats from outside corporate law. This Essay addresses …

Should Shareholders Be Rewarded For Loyalty? European Experiments On The Wedge Between Tenured Voting And Takeover Law, Chiara Mosca

Michigan Business & Entrepreneurial Law Review

Corporate law reveals its democratic background when it comes to the general meetings of shareholders, finding, on both sides of the Atlantic, its most tangible expression in the “one share, one vote” principle. While, in the political landscape, the “one person, one vote” standard is absolute dogma and weighting votes according to people’s preferences and interests has never proved feasible, in the corporate scenario the one share, one vote principle is constantly challenged by the incentives of companies and their shareholders to shape corporate rights according to specific needs. In this respect, some legislators (specifically in France and Italy) have …

The Modern Corporation And Private Property Revisited: Gardiner Means And The Administered Price, William W. Bratton

Seattle University Law Review

This essay casts additional light on The Modern Corporation’s corporatist precincts, shifting attention to the book’s junior coauthor, Gardiner C. Means. Means is accurately remembered as the generator of Book I’s statistical showings—the description of deepening corporate concentration and widening separation of ownership and control. He is otherwise more notable for his absence than his presence in today’s discussions of The Modern Corporation. This essay fills this gap, describing the junior coauthor’s central concern—a theory of administered prices set out in a Ph.D. dissertation Means submitted to the Harvard economics department after the book’s publication.

Unraveling China's Capital Market Growth: A Political Economy Account, Tamar Groswald Ozery

SJD Dissertations

With modern, successful firms that operate globally and a capital market that is the second largest in the world, corporate governance in China has long passed the point of an “adjust or perish” prognostic. Yet its firm governance and capital market functions maintain strong idiosyncrasies that go against many fundamentals in economics and legal thought. These idiosyncrasies are products of the underlying configurations of China’s political economy and the shifts within it. Political economy in China has a determinant role on the ways corporate ownership is organized, firms operate, and the capital market functions. It is responsible for many of …

Mootness Fees, Matthew D. Cain, Jill E. Fisch, Steven Davidoff Solomon, Randall Thomas

All Faculty Scholarship

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs’ attorneys to these developments. Specifically, we document a troubling trend—the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs’ counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were …

Mootness Fees, Randall S. Thomas, Matthew D. Cain, Jill E. Fisch, Steven D. Solomon

Vanderbilt Law School Faculty Publications

In response to a sharp increase in litigation challenging mergers, the Delaware Chancery Court issued the 2016 Trulia decision, which substantively reduced the attractiveness of Delaware as a forum for these suits. In this Article, we empirically assess the response of plaintiffs'attorneys to these developments. Specifically, we document a troubling trend-the flight of merger litigation to federal court where these cases are overwhelmingly resolved through voluntary dismissals that provide no benefit to the plaintiff class but generate a payment to plaintiffs'counsel in the form of a mootness fee. In 2018, for example, 77% of deals with litigation were challenged in …

2018 Leet Symposium: Fiduciary Duty Corporate Goals, And Shareholder Activism—Introduction, Charles R. Korsmo

Faculty Publications

On November 1, 2018, the Case Western Reserve University Law Review held the 2018 Leet Symposium, bringing together a group of nationally respected corporate law scholars to explore the current state of play between traditional shareholder wealth maximization and modern shareholder environmental and social activism. The Symposium also included a panel on the difficult role of in-house corporate counsel in a world where serving as a zealous advocate for the corporation may conflict with in-house counsel’s compliance function. This issue contains Articles that were presented on the occasion, together with the prepared remarks of the keynote speaker, SEC Commissioner Hester …

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. …

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 …

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. …