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Full-Text Articles in Law
Shareholder Proposals In The New Millennium: Shareholder Support, Board Response, And Market Reactions, Randall S. Thomas, James Cotter
Shareholder Proposals In The New Millennium: Shareholder Support, Board Response, And Market Reactions, Randall S. Thomas, James Cotter
Vanderbilt Law School Faculty Publications
Although the owners of publicly traded companies have had the right to offer shareholder proposals using Rule 14a-8 for several decades, the effectiveness of the rule has been frequently questioned because few of these proposals received substantial support from other shareholders and even fewer have been implemented by boards. Using new data from the 2002–2004 proxy seasons, we analyze shareholder voting patterns on these proposals, board reactions to them, and market responses. We find some big changes from earlier periods: many more proposals are receiving majority shareholder support during our sample period relative to earlier studies, and this support has …
Hedge Funds In Corporate Governance And Corporate Control, Marcel Kahan, Edward B. Rock
Hedge Funds In Corporate Governance And Corporate Control, Marcel Kahan, Edward B. Rock
All Faculty Scholarship
Hedge funds have become critical players in both corporate governance and corporate control. In this article, we document and examine the nature of hedge fund activism, how and why it differs from activism by traditional institutional investors, and its implications for corporate governance and regulatory reform. We argue that hedge fund activism differs from activism by traditional institutions in several ways: it is directed at significant changes in individual companies (rather than small, systemic changes), it entails higher costs, and it is strategic and ex ante (rather than intermittent and ex post). The reasons for these differences may lie in …
The Mythical Benefits Of Shareholder Control, Lynn A. Stout
The Mythical Benefits Of Shareholder Control, Lynn A. Stout
Cornell Law Faculty Publications
In "The Myth of the Shareholder Franchise," Professor Lucian Bebchuk elegantly argues that the notion that shareholders in public corporations have the power to remove directors is a myth. Although a director facing a proxy contest might find this to be a bit of an overstatement, the core idea is sound. In a public company with widely dispersed share ownership, it is difficult and expensive for shareholders to overcome obstacles to collective action and wage a proxy battle to oust an incumbent board. Nor is success likely when directors can use corporate funds to solicit proxies to stay in place. …
The Expressive Function Of Directors’ Duties To Creditors, Jonathan C. Lipson
The Expressive Function Of Directors’ Duties To Creditors, Jonathan C. Lipson
All Faculty Scholarship
This Article offers an explanation of the “doctrine” of directors’ duties to creditors. Courts frequently say—but rarely hold—that corporate directors owe duties to or for the benefit of corporate creditors when the corporation is in distress. These cases are puzzling for at least two reasons. First, they link fiduciary duty to priority in right of payment, effectively treating creditors as if they were shareholders, at least for certain purposes. But this ignores the fact that priority is a complex and volatile concept. Moreover, contract and other rights at law usually protect creditors, even (especially) when a firm is distressed. It …
Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost
Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost
Law Faculty Scholarly Articles
The inherent conflict between creditors and shareholders has long occupied courts and commentators interested in corporate governance. Creditors holding fixed claims to the corporation's assets generally prefer corporate decision making that minimizes the risk of firm failure. Shareholders, in contrast, have a greater appetite for risk, because, as residual owners, they reap the rewards of firm success while sharing the risk of loss with creditors.
Traditionally, this conflict is mediated by a governance structure that imposes a fiduciary duty on the corporation's managers-its officers and directors-to maximize the value of the shareholders' interests in the firm. In this traditional view, …
The Mythical Benefits Of Shareholder Control, Lynn A. Stout
The Mythical Benefits Of Shareholder Control, Lynn A. Stout
Cornell Law Faculty Publications
In a forthcoming Virginia Law Review article, Professor Lucian Bebchuk argues that the notion that shareholders in public corporations have the power to remove directors is a myth. This is perhaps an overstatement, but Bebchuk is correct to suggest that in a public company with widely dispersed share ownership, it is difficult and expensive for shareholders to overcome obstacles to collective action and wage a proxy battle to oust an incumbent board. Nor is success likely when directors can use corporate funds to solicit proxies to stay in place. The end result, as Adolf Berle and Gardiner Means famously observed …
Corporate Law And Governance, Marco Becht, Patrick Bolton, Ailsa Röell
Corporate Law And Governance, Marco Becht, Patrick Bolton, Ailsa Röell
Center for Contract and Economic Organization
This chapter surveys the theoretical and empirical research on the main mechanisms of corporate law and governance, discusses the main legal and regulatory institutions in different countries, and examines the comparative governance literature. Corporate governance is concerned with the reconciliation of conflicts of interest between various corporate claimholders and the resolution of collective action problems among dispersed investors. A fundamental dilemma of corporate governance emerges from this overview: large shareholder intervention needs to be regulated to guarantee better small investor protection; but this may increase managerial discretion and scope for abuse. Alternative methods of limiting abuse have yet to be …
Law And Capitalism: What Corporate Crises Reveal About Legal Systems And Economic Development Around The World, Curtis J. Milhaupt, Katharina Pistor
Law And Capitalism: What Corporate Crises Reveal About Legal Systems And Economic Development Around The World, Curtis J. Milhaupt, Katharina Pistor
Faculty Scholarship
This book explores the relationship between legal systems and economic development by examining, through a methodology we call the institutional autopsy, a series of high profile corporate governance crises around the world over the past six years. We begin by exposing hidden assumptions in the prevailing view on the relationship between law and markets, and provide a new analytical framework for understanding this question. Our framework moves away from the canonical distinction between common law and civil law regimes. It emphasizes the constant, iterative, rolling relationship between law and markets, and suggests that how a given country's legal system rolls …
Does "Say On Pay" Work? Lessons On Making Ceo Compensation Accountable, Stephen Davis
Does "Say On Pay" Work? Lessons On Making Ceo Compensation Accountable, Stephen Davis
Ira M. Millstein Center for Global Markets and Corporate Ownership
Based on a review of UK experience, advisory shareowner votes on executive compensation policies (“say on pay”) appear practical for adaptation in North America and other markets. They represent a lever that could strengthen both boards and shareholders in the quest to better align top corporate pay with performance. But they are hardly a panacea on their own. They are likely to spur dialogue between boards and shareholders. However, market parties in the UK—which pioneered the advisory vote concept — remain concerned that boards and investors are each falling short of success in tethering pay to performance. US players may …
Reforming The Taxation Of Deferred Compensation, Gregg D. Polsky, Ethan Yale
Reforming The Taxation Of Deferred Compensation, Gregg D. Polsky, Ethan Yale
Scholarly Works
Executive pay is currently a topic of significant interest for policymakers, academics, and the popular press. Just weeks ago, in reaction to widespread press reports and academic criticism of extravagant executive perquisites, the SEC proposed new regulations designed to change fundamentally the manner in which executive compensation is reported to share-holders. Despite all of this attention, one significant aspect of executive deferred compensation has gone virtually unnoticed - the federal tax rules governing this form of compensation are fundamentally flawed and must be extensively over-hauled. These rules are flawed because they often create a significant incentive for companies and their …
Toward Common Sense And Common Ground? Reflections On The Shared Interests Of Managers And Labor In A More Rational System Of Corporate Governance, Leo E. Strine Jr.
Toward Common Sense And Common Ground? Reflections On The Shared Interests Of Managers And Labor In A More Rational System Of Corporate Governance, Leo E. Strine Jr.
All Faculty Scholarship
In this essay, Vice Chancellor Strine reflects on the common interests of those who manage and those who labor for American corporations. The first part of the essay examines aspects of the current corporate governance and economic environment that are putting management and labor under pressure. The concluding section of the essay identifies possible corporate governance initiatives that might — by better focusing stockholder activism in particular and corporate governance more generally on long-term, rather than short-term, corporate performance — generate a more rational system of accountability, that focuses on the durable creation by corporations of wealth through fundamentally sound, …
The Rise Of Independent Directors In The United States, 1950-2005: Of Shareholder Value And Stock Market Prices, Jeffrey N. Gordon
The Rise Of Independent Directors In The United States, 1950-2005: Of Shareholder Value And Stock Market Prices, Jeffrey N. Gordon
Faculty Scholarship
Between 1950 and 2005, the composition of large public company boards dramatically shifted towards independent directors, from approximately 20% independents to 75% independents. The standards for independence also became increasingly rigorous over the period. The available empirical evidence provides no convincing explanation for this change. This Article explains the trend in terms of two interrelated developments in U.S. political economy: first, the shift to shareholder value as the primary corporate objective; second, the greater informativeness of stock market prices. The overriding effect is to commit the firm to a shareholder wealth maximizing strategy as best measured by stock price performance. …
A Perspective On Federal Corporation Law, Mark J. Loewenstein
A Perspective On Federal Corporation Law, Mark J. Loewenstein
Publications
No abstract provided.
Taking Shareholder Rights Seriously, Julian Velasco
Taking Shareholder Rights Seriously, Julian Velasco
Journal Articles
The great corporate scandals of the recent past and the resulting push for legal reform have revived the role of the shareholder in the corporation as a subject of great debate. Those who favor an expanded role for shareholders in corporate governance tend to focus on developing new legal rights for shareholders, and their critics respond with reasons why such rights are unnecessary and inappropriate. While these issues certainly are worthy of consideration, issues concerning existing shareholder rights are more fundamental. If existing rights are adequate or could be improved, then new rights may not be necessary; but if existing …
The Role Of Financial Journalists In Corporate Governance, Michael J. Borden
The Role Of Financial Journalists In Corporate Governance, Michael J. Borden
Law Faculty Articles and Essays
This Article pursues the important theme of disclosure, but focuses on a feature that has remained almost entirely overlooked by corporate and securities law scholars: the role of financial journalists in corporate governance. This omission is perhaps due to the fact that journalists do not fit easily into a legal discussion because they are largely unregulated. They are, in a sense, not legal actors, and, therefore do not comfortably become the subject of a legal prescription. Nevertheless, journalists contribute in many ways to the legal system at large and the system of corporate governance in particular.This Article uses case studies …
Self-Handicapping And Managers’ Duty Of Care, David A. Hoffman
Self-Handicapping And Managers’ Duty Of Care, David A. Hoffman
All Faculty Scholarship
This symposium essay focuses on the relationship between managers' duty of care and self-handicapping, or constructing obstacles to performance with the goal of influencing subsequent explanations about outcomes. Conventional explanations for failures of caretaking by managers have focused on motives (greed) and incentives (agency costs). This account of manager behavior has led some modern jurists, concerned about recent corporate scandals, to advocate for stronger deterrent measures to realign manager and shareholder incentives. * Self-handicapping theory, by contrast, teaches that bad manager behavior may occur even when incentives are well-aligned. Highly successful individuals in particular come to fear the pressure of …
Legitimacy And Corporate Governance, Cary Coglianese
Legitimacy And Corporate Governance, Cary Coglianese
All Faculty Scholarship
Parallels between corporate governance and state governance appear to be growing. This essay focuses on the suggestion that corporate governance is becoming structured much more like public government in certain ways. This shift may well be helpful for enhancing credibility and confidence in capital markets, but it also raises important questions. Will reforms enacted in the post-Enron era limit managers' discretion to innovate, take risks, and respond quickly to changing economic circumstances? How far should society go in imposing on corporations the kinds of procedures found commonly in democratic governments?
The Social Construction Of Sarbanes-Oxley, Donald C. Langevoort
The Social Construction Of Sarbanes-Oxley, Donald C. Langevoort
Georgetown Law Faculty Publications and Other Works
The closer one looks at SOX and its origins in the financial scandals of the early 2000s, the blurrier the picture, which lets commentators see what they want to see and draw inferences accordingly. That is why social construction is so crucial. My aim in this paper is to illuminate the social nature of SOX's diffusion into practice. I will leave to the reader the judgment about whether this has been or will be good or bad, and for whom. If I seem to challenge SOX's critics more than its supporters, it is because the critics have been more venomous …
Fuzzy Logic And Corporate Governance Theories, Z. Jill Barclift
Fuzzy Logic And Corporate Governance Theories, Z. Jill Barclift
Faculty Scholarship
Fuzzy logic is a theory that categorizes concepts or things belonging to more than one group. A methodology that explains how things function in multiple groups (not fully in one group or another) offers advantages when one definition or membership in a group accounts for belonging to multiple groups. A principal/agent model of corporate governance has some characterizations of fuzzy logic theory. The purpose of this article it to evaluate other models of corporate governance that account for the multi-agent role of senior officers of public companies and assess the accountability to the corporation. Corporate governance theorists continue to debate …
New Hope For Corporate Governance In China?, James V. Feinerman
New Hope For Corporate Governance In China?, James V. Feinerman
Georgetown Law Faculty Publications and Other Works
China's recent revisions to its Company Law and Securities Law have brought new attention to issues of corporate governance in Chinese companies and financial markets. Among the chief criticisms of the earlier laws - in both their provisions and application - were the lack of protection for minority shareholders, the paucity of independent directors, the absence of transparency and inadequate financial disclosure. The acknowledged need for greater congruence between Chinese law and practice and that of countries with more developed capital markets led to the proposal of amendments to China's legislation during the first half of this decade. This article …