Economics Commons^™

Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr.

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In his excellent article, For Whom is the Corporation Managed in 2020?: The Debate Over Corporate Purpose, Professor Edward Rock articulates his understanding of the debate over corporate purpose. This reply supports Professor Rock’s depiction of the current state of corporate law in the United States. It also accepts Professor Rock’s contention that finance and law and economics professors tend to equate the value of corporations to society solely with the value of their equity. But, I employ a less academic lens on the current debate about corporate purpose, and am more optimistic about proposals to change our corporate governance …

Toward Fair And Sustainable Capitalism: A Comprehensive Proposal To Help American Workers, Restore Fair Gainsharing Between Employees And Shareholders, And Increase American Competitiveness By Reorienting Our Corporate Governance System Toward Sustainable Long-Term Growth And Encouraging Investments In America’S Future, Leo E. Strine Jr.

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To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make …

Governance By Contract: The Implications For Corporate Bylaws, Jill E. Fisch

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Boards and shareholders are increasing using charter and bylaw provisions to customize their corporate governance. Recent examples include forum selection bylaws, majority voting bylaws and advance notice bylaws. Relying on the contractual conception of the corporation, Delaware courts have accorded substantial deference to board-adopted bylaw provisions, even those that limit shareholder rights.

This Article challenges the rationale for deference under the contractual approach. With respect to corporate bylaws, the Article demonstrates that shareholder power to adopt and amend the bylaws is, under Delaware law, more limited than the board’s power to do so. As a result, shareholders cannot effectively constrain …

Before International Tax Reform, We Need To Understand Why Firms Invert, Michael S. Knoll

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A wave of corporate inversions by U.S. firms over the past two decades has generated substantial debate in academic, business, and policy circles.

The core of the debate hinges on a couple of key economic questions: Do U.S. tax laws disadvantage U.S.-domiciled companies relative to their foreign competitors? And, if so, do inversions improve the competitiveness of U.S. multinational firms both abroad and at home?

There is unfortunately little, if any, empirical work directly determining whether U.S.-based MNCs are currently tax-disadvantaged compared to their foreign rivals, or measuring the amount by which (if any) U.S.-based MNCs improve their competitive position …

Appraising Merger Efficiencies, Herbert J. Hovenkamp

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Mergers of business firms violate the antitrust laws when they threaten to lessen competition, which generally refers to a price increase resulting from a reduction in output. However, a merger that threatens competition may also enable the post-merger firm to reduce its costs or improve its product. Attitudes toward mergers are heavily driven by assumptions about efficiency gains. If mergers of competitors never produced efficiency gains but simply reduced the number of competitors, a strong presumption against them would be warranted. We tolerate most mergers because of a background, highly generalized belief that most or at least many produce cost …

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

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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 …

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

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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 …

A Preface To Neoclassical Legal Thought, Herbert J. Hovenkamp

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Most legal historians speak of the period following classical legal thought as “progressive legal thought.” That term creates an unwarranted bias in characterization, however, creating the impression that conservatives clung to an obsolete “classical” ideology, when in fact they were in many ways just as revisionist as the progressives legal thinkers whom they critiqued. The Progressives and New Deal thinkers whom we identify with progressive legal thought were nearly all neoclassical, or marginalist, in their economics, but it is hardly true that all marginalists were progressives. For example, the lawyers and policy makers in the corporate finance battles of the …

The Overstated Promise Of Corporate Governance, Jill E. Fisch

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Review of Jonathan Macey, Corporate Governance: Promises Kept, Promises Broken (Princeton, 2008)

A Comprehensive Theory Of Deal Structure: Understanding How Transactional Structure Creates Value, Michael S. Knoll, Daniel M. G. Raff

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No abstract provided.

Unentrapped, William W. Bratton

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No abstract provided.

Agency Costs, Charitable Trusts, And Corporate Control: Evidence From Hershey's Kiss-Off, Jonathan Klick, Robert H. Sitkoff

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In July 2002 the trustees of the Milton Hershey School Trust announced a plan to diversify the Trust’s investment portfolio by selling the Trust’s controlling interest in the Hershey Company. The Company’s stock jumped from $62.50 to $78.30 on news of the proposed sale. But the Pennsylvania Attorney General, who was then running for governor, opposed the sale on the ground that it would harm the local community. Shortly after the Attorney General obtained a preliminary injunction, the trustees abandoned the sale and the Company’s stock dropped to $65.00. Using standard event study methodology, we find that the sale announcement …

On Beyond Calpers: Survey Evidence On The Developing Role Of Public Pension Funds In Corporate Governance, Stephen Choi, Jill E. Fisch

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No abstract provided.

Shareholder Primacy's Corporatist Origins: Adolf Berle And The Modern Corporation, William W. Bratton, Michael L. Wachter

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No abstract provided.

Private Equity's Three Lessons For Agency Theory, William W. Bratton

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No abstract provided.

Fiduciary Duties And The Analyst Scandals, Jill E. Fisch

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No abstract provided.

Criminalization Of Corporate Law: The Impact On Shareholders And Other Constituents, Jill E. Fisch

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No abstract provided.

Does Analyst Independence Sell Investors Short?, Jill E. Fisch

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Regulators responded to the analyst scandals of the late 1990s by imposing extensive new rules on the research industry. These rules include a requirement forcing financial firms to separate investment banking operations from research. Regulators argued, with questionable empirical support, that the reforms were necessary to eliminate analyst conflicts of interest and ensure the integrity of sell-side research.

By eliminating investment banking revenues as a source for funding research, the reforms have had substantial effects. Research coverage of small issuers has been dramatically reduced—the vast majority of small capitalization firms now have no coverage at all. The market for research …

Labor Unions: A Corporatist Institution In A Competitive World, Michael L. Wachter

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Union membership, as a percentage of the private sector workforce, has been in decline for 50 years. I argue that the cause of this unrelenting decline is a single, fundamental factor – the change in the United States economy from a corporatist-regulated economy to one based on free competition. Most labor commentators have explained the decline by a confluence of unrelated economic and legal forces. Labor economists typically stress economic explanations, which vary from compositional shifts in the job structure to increased competition both domestically and internationally. On the other hand, labor law commentators naturally focus on labor law explanations, …

Hedge Funds And Governance Targets, William W. Bratton

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Corporate governance interventions by hedge fund shareholders are triggering debates between advocates of management empowerment and advocates of aggressive monitoring by actors in the capital markets. This Article intervenes with an empirical question: What, based on the record so far, have the hedge funds actually done to their targets? Information has been collected on 130 domestic firms identified in the business press since 2002 as targets of activist hedge funds, including the funds’ demands, their tactics, and the results of their interventions for the targets’ governance and finance. The survey results show that the hedge funds have an enviable record …

Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton

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The Financial Accounting Standards Board (the “FASB”) presents a puzzle: How has this private standard setter managed simultaneously (1) to remain independent, (2) to achieve institutional stability and legitimacy, and (3) to operate in a politicized context in the teeth of op-position from its own constituents? This Article looks to governance design to account for this institutional success. The FASB’s founders made a strategic choice to create a regulatory agency that sought independence rather than political responsiveness. The FASB also set out a coherent theory of accounting, the “Conceptual Framework,” to contain and direct its decisions. The Conceptual Framework contributed …

The Equilibrium Content Of Corporate Federalism, William W. Bratton, Joseph A. Mccahery

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No abstract provided.

Institutional Competition To Regulate Corporations: A Comment On Macey, Jill E. Fisch

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No abstract provided.

The New Dividend Puzzle, William W. Bratton

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The New Federal Regulation Of Corporate Governance, Jill E. Fisch

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Gaming Delaware, William W. Bratton

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The Role Of Government In Corporate Governance, Cary Coglianese, Elizabeth K. Keating, Michael L. Michael, Thomas J. Healey

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Numerous corporate scandals in the past several years have fueled widespread debate over proposals for government action. The central challenge for government is how to restore corporate integrity and market confidence without overreacting and stifling the dynamism that underlies a strong economy. To examine this challenge, the Center for Business and Government's Regulatory Policy Program organized a conference in May 2004 on The Role of Government in Corporate Governance. The conference brought together government officials, business leaders, and academic researchers to discuss three fundamental public policy issues raised by recent corporate abuses. First, who should regulate corporate management - government …

Is There A Role For Lawyers In Preventing Future Enrons?, Jill E. Fisch, Kenneth M. Rosen

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Following the collapse of the Enron Corporation, the ethical obligations of corporate attorneys have received increased scrutiny. The Sarbanes-Oxley Act of 2002, enacted in response to calls for corporate reform, specifically requires the Securities and Exchange Commission to address the lawyer’s role by requiring covered attorneys to “report up” evidence of corporate wrongdoing to key corporate officers, and, in some circumstances, to the board of directors. Failure to “report up” subjects a lawyer to liability under federal law.

This Article argues that the reporting up requirement reflects a second-best approach to corporate governance reform. Rather than focusing on the actors …

The Qualified Legal Compliance Committee: Using The Attorney Conduct Rules To Restructure The Board Of Directors, Jill E. Fisch, Caroline M. Gentile

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The Securities and Exchange Commission introduced a new corporate governance structure, the qualified legal compliance committee, as part of the professional standards of conduct for attorneys mandated by the Sarbanes-Oxley Act of 2002. QLCCs are consistent with the Commission’s general approach to improving corporate governance through specialized committees of independent directors. This Article suggests, however, that assessing the benefits and costs of creating QLCCs may be more complex than is initially apparent. Importantly, QLCCs are unlikely to be effective in the absence of incentives for active director monitoring. This Article concludes by considering three ways of increasing these incentives.

How To Fix Wall Street: A Voucher Financing Proposal For Securities Intermediaries, Stephen Choi, Jill E. Fisch

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No abstract provided.