Business Organizations Law Commons^™

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. …

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 …

Agency Theory As Prophecy: How Boards, Analysts, And Fund Managers Perform Their Roles, Jiwook Jung, Frank Dobbin

Seattle University Law Review

In 1976, Michael Jensen and William Meckling published a paper reintroducing agency theory that explained how the modern corporation is structured to serve dispersed shareholders. They purported to describe the world as it exists but, in fact, they described a utopia, and their piece was read as a blueprint for that utopia. We take a page from the sociology of knowledge to argue that, in the modern world, economic theories function as prescriptions for behavior as much as they function as descriptions. Economists and management theorists often act as prophets rather than scientists, describing the world not as it is, …

Lack Of Marketability And Minority Discounts In Valuing Close Corporation Stock: Elusiveness And Judicial Synchrony In Pursuit Of Equitable Consensus, Stephen J. Leacock

Faculty Scholarship

No abstract provided.

On The Rise Of Shareholder Primacy, Signs Of Its Fall, And The Return Of Managerialism (In The Closet), Lynn Stout

Lynn A. Stout

In their 1932 opus "The Modern Corporation and Public Property," Adolf Berle and Gardiner Means famously documented the evolution of a new economic entity—the public corporation. What made the public corporation “public,” of course, was that it had thousands or even hundreds of thousands of shareholders, none of whom owned more than a small fraction of outstanding shares. As a result, the public firm’s shareholders had little individual incentive to pay close attention to what was going on inside the firm, or even to vote. Dispersed shareholders were rationally apathetic. If they voted at all, they usually voted to approve …

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Anne Tucker

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Steven Davidoff Solomon

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

On The Rise Of Shareholder Primacy, Signs Of Its Fall, And The Return Of Managerialism (In The Closet), Lynn A. Stout

Seattle University Law Review

In their 1932 opus "The Modern Corporation and Public Property," Adolf Berle and Gardiner Means famously documented the evolution of a new economic entity—the public corporation. What made the public corporation “public,” of course, was that it had thousands or even hundreds of thousands of shareholders, none of whom owned more than a small fraction of outstanding shares. As a result, the public firm’s shareholders had little individual incentive to pay close attention to what was going on inside the firm, or even to vote. Dispersed shareholders were rationally apathetic. If they voted at all, they usually voted to approve …

The Future Of Shareholder Democracy In The Shadow Of The Financial Crisis, Alan Dignam

Seattle University Law Review

This Article argues that the U.K. regulatory response to the financial crisis, in the form of “stewardship” and shareholder engagement, is an error built on a misunderstanding of the key active role shareholders played in the enormous corporate governance failure represented by the banking crisis. Shareholders’ passivity, rather than activity, has characterized the reform perception of the shareholder role in corporate governance. This characterization led to the conclusion that if only they were more active they would be more responsible “stewards” of the corporation. If, as this Article argues, shareholder activity was part of the problem in the banks, then …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Seattle University Law Review

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

Shareholders And Social Welfare, William W. Bratton, Michael L. Wachter

Seattle University Law Review

This Article addresses the questions of whether and how shareholders matter for social welfare, finding that different and contrasting answers have prevailed during different periods of recent history. Observers in the mid-twentieth century believed that the socioeconomic characteristics of real-world shareholders were highly pertinent to social welfare inquiries. But those observers went on to conclude that there followed no justification for catering to shareholder interest, for shareholders occupied elite social strata. The answer changed during the twentieth century’s closing decades, when observers came to accord the shareholder interest a key structural role in the enhancement of economic efficiency even as …

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Seattle University Law Review

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

The Uncorporation And The Unraveling Of 'Nexus Of Contracts' Theory, Grant M. Hayden, Matthew T. Bodie

Michigan Law Review

A corporation is not a contract. It is a state-created entity. It has legal personhood with the right to form contracts, suffer liability for torts, and (as the Supreme Court recently decided) make campaign contributions. However, many corporate law scholars have remained wedded to the conception-metaphor, model, paradigm, what have you-of the corporation as a contract or "nexus" of contracts. The nexus of contracts theory is meant to point up the voluntary, market-oriented nature of the firm and to dismiss the notion that the corporation owes anything to the state. It is also used as a justification for preserving the …

Private Equity Transaction In India, Ved Prakash

VED PRAKASH

Private equity investors has realised that India is an ideal destination for private equity investments. Indian company and investor has benefited due to increased foreign equity participation and valuation of investment in recent past. This article covers some of the terms used in private equity transaction and the rights of the shareholders.

Internal Governance Standards, Suramya Balachandran

LLM Theses and Essays

Corporate control has a variety of connotations; it can mean the group of individuals who are regarded as “the control” of a corporation, the office of a corporation, or a fiduciary relationship between the office holder and the corporation. Corporate control transactions are changes in a corporation’s structure motivated by the desire for growth of the corporation, such as setting up new divisions, acquiring or being acquired by another corporation, selling or buying stock, and entering or leaving markets. Control transactions have been a successful business practice since the 1980s. The first part of this thesis analyzes the benefits of …

Corporations - Amendment Of Charter - Right To Redemption Of Preferred Stock., Michigan Law Review

Michigan Law Review

Plaintiff owned 100 shares of preferred stock of defendant corporation, the certificates for which, and the articles of incorporation, provided for redemption on a· given date. Subsequent to plaintiff's becoming a stockholder but prior to the redemption date of his stock, a statute was passed allowing the majority of voting shareholders of a corporation to amend its articles "without limitation." Pursuant thereto the date for redemption of plaintiff's stock was postponed twenty-five years. Under the amended articles defendant refused plaintiff's tender of the stock and demand of payment on the original redemption date. In an action against the corporation, held …