Law Commons^™

Lead Plaintiff Incentives In Aggregate Litigation, Charles R. Korsmo, Minor Myers

Faculty Publications

The lead plaintiff role holds out considerable promise in promoting the deterrence and compensation goals of aggregate litigation. The prevailing approach to compensating lead plaintiffs, however, provides no real incentive for a lead plaintiff to bring claims on behalf of a broader group. The policy challenge is to induce sophisticated parties to press claims not in their individual capacity but instead in a representative capacity, conferring a positive externality on all class members by identifying attractive claims, financing ongoing litigation, and managing the work of attorneys. We outline what an active and engaged lead plaintiff could add to the civil …

Delaware’S Retreat From Judicial Scrutiny Of Mergers, Charles R. Korsmo

Faculty Publications

This Article evaluates recent dramatic developments in Delaware law surrounding merger litigation and concludes that they have gone too far in limiting the ability to challenge managerial wrongdoing in the takeover context. The past three years have seen a sea change in merger litigation, brought on by the twin earthquakes of the Delaware Supreme Court’s decision in Corwin v. KKR and the Delaware Court of Chancery’s decision in In re Trulia. Both of these decisions were inspired by a perceived crisis in merger litigation. By 2015, the percentage of economically significant deals challenged by at least one lawsuit had been …

Selling Stock And Selling Legal Claims: Alienability As A Constraint On Managerial Opportunism, Charles R. Korsmo

Faculty Publications

Scholars have long recognized the importance of market forces as a tool for disciplining the management of public corporations and reducing agency costs. If managers loot or otherwise mismanage the firm, the firm’s stock price will suffer, raising its cost of capital and leaving managers exposed to the threat of a hostile takeover. In recent decades, changing patterns of stock ownership have threatened the viability of this market check on mismanagement. Institutional investors, and particularly index funds, own an increasing portion of publicly traded firms, and face substantial liquidity and other barriers to simply selling their positions. To the extent …

Corporate Governance Without Shareholders: A Cautionary Lesson From Non-Profit Organizations, George W. Dent

Faculty Publications

A debate about corporate governance has long raged over the allocation of power between shareholders and directors. Proponents of “shareholder primacy” believe that the corporate board should be chosen by and accountable to the stockholders rather than dominated by the CEO, as they believe is common now. Advocates of “director primacy” want to limit shareholder power because they believe that shareholders have conflicting objectives, are uninformed, and pressure the directors to sacrifice the long-term health of the company to short-term share price.

The governance of non-profit organizations (“NPOs”) offers an example that illuminates the corporate governance debate. Directors of NPOs …

For Optional Federal Incorporation, George W. Dent

Faculty Publications

The American economy suffers from the domination of corporations by chief executive officers who exercise control for their own benefit, at considerable cost to shareholders and to efficiency. The costs of this defect are rising as capital flees the United States for a growing number of countries that treat investors better. America’s corporate governance problem began and persists because corporations are franchised by the states, and it is in the economic interest of the states (especially Delaware) to cater to CEOS because they control the choice of state of incorporation. To break this destructive arrangement I propose optional federal incorporation …

Stakeholder Governance: A Bad Idea Getting Worse, George W. Dent

Faculty Publications

Calls for a stakeholder voice in corporate governance never end, as evidenced by the Symposium Corporations and Their Communities to which this paper is a contribution. The demise of labor unions and explosion of executive compensation while the income of most Americans has stagnated over the last several years has precipitated cries for remedial action, some of which include stakeholder governance. Although complaints about deepening inequality are just, other remedies should be pursued. The traditional objections to stakeholder governance remain valid: the interests of stakeholder groups clash not only with those of the shareholders but also with each other, and …

Corporate Governance: Still Broke, No Fix In Sight, George W. Dent

Faculty Publications

Dissatisfaction with the governance of public companies is as old as the public company itself, but public concern about corporate governance is spasmodic. Prior reforms did not cure the ills of corporate governance, and there is little reason to think that the recent spate of reforms will be any more effective. The fundamental problem of corporate governance remains what it has always been: the separation of ownership and control. No reform can succeed unless it overcomes this contradiction. Corporate executives determined to preserve their privileges and a number of scholars deny this claim; in effect, these Panglosses consider the status …

The Revolution In Corporate Governance, The Monitoring Board, And The Director's Duty Of Care, George W. Dent

Faculty Publications

The theory of corporate governance underwent a revolution in the 1970's. Theorists finally abandoned the myth that a public corporation' is managed by its board of directors, and constructed a new model under which the corporation is managed by its executive officers, and the board, dominated by outside directors, monitors management's performance. This new "monitoring model" has gained wide acceptance among commentators, and several of its elements have been adopted by many public corporations. Even those commentators who do not enthusiastically embrace the entire monitoring model tend to agree that monitoring management is a significant board function.

But expositions of …