Law Commons^™

Are Publicly Traded Corporations Disappearing?, Margaret M. Blair

Cornell Law Review

Corporate law scholars and economists have expressed concern recently about the fact that the number of publicly traded corporations in the United States has declined significantly since a peak in the late 1990s. In this Essay, in honor of the late Professor Lynn Stout, who devoted much of her career to the study of large publicly traded corporations, I show that despite a decline in the number of such corporations in the last two decades, they collectively account for about the same share of total economic activity as they have for the last six decades. While there has been turnover …

Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone M. Sepe

Cornell Law Review

In recent times, there has been an unprecedented shift in power from managers to shareholders, a shift that realizes the long-held theoretical aspiration of market control of the corporation. This Article subjects the market control paradigm to comprehensive economic examination and finds it wanting.

The market control paradigm relies on a narrow economic model that focuses on one problem only: management agency costs. With the rise of shareholder power, we need a wider lens that also takes in market prices, investor incentives, and information asymmetries. General equilibrium (GE) theory provides that lens. Several lessons follow from reference to this higher-order …

Cryptocommunity Currencies, J. S. Nelson

Cornell Law Review

What are cryptocurrencies: securities, commodities, or something else? Maybe they are a new form of established currency-a non-sovereign fiat currency. Like other self-governing bodies, the communities that issue cryptocurrencies should be judged on how well they support their currencies. This analysis is not meaningfully different from how we have evaluated traditional sovereign issuers of currency. Indeed, as traditional-sovereign-issued currency becomes entirely digital, functional distinctions between traditionally sovereign-backed flat currency and widely accepted non-sovereign fat currency start to disappear. The primary way then to distinguish the value of such currencies from each other becomes the quality of their institutional backing. Through …

Introduction, Saule T. Omarova, Diogo Magalhaes

Cornell Law Review

No abstract provided.

Artificial Agents In Corporate Boardrooms, Sergio Alberto Gramitto Ricci

Cornell Law Review

Thousands of years ago, Roman businessmen often ran joint businesses through commonly owned, highly intelligent slaves. Roman slaves did not have full legal capacity and were considered property of their co-owners. Now business corporations are looking to delegate decision-making to uber-intelligent machines through the use of artificial intelligence in boardrooms. Artificial intelligence in boardrooms could assist, integrate, or even replace human directors. However, the concept of using artificial intelligence in boardrooms is largely unexplored and raises several issues. This Article sheds light on legal and policy challenges concerning artificial agents in boardrooms. The arguments revolve around two fundamental questions: (1) …

Remutualization, Erik F. Gerding

Cornell Law Review

This Article explores how returning to common law or traditional approaches to financial institution governance can inform and improve a range of financial reforms. In particular, this Article seeks to revive the use of organizational form as a tool of financial regulation. Very old varietals, including partnerships and mutual companies, decanted in new bottles can promote financial stability, lower incentives for excessive risk-taking by financial intermediaries, provide mechanisms to police their market conduct, and better align their incentives with the interests of their customers and consumers.

Toward A Horizontal Fiduciary Duty In Corporate Law, Asaf Eckstein, Gideon Parchomovsky

Cornell Law Review

Fiduciary duty is arguably the single most important aspect of our corporate law system. It consists of two distinct subduties-a duty of care and a duty of loyalty-and it applies to all directors and corporate officers. Yet, under extant law, the duty only applies vertically, in the relationship between directors and corporate officers and the firm. At present, there exists no horizontal fiduciary duty: directors and corporate officers owe no fiduciary duty to each other. Consequently, if one of them falls her peers, they cannot seek direct legal recourse against her even when they stand to suffer significant reputational and …

Impersonal Personhood: Crafting A Coherent Theory Of The Corporate Entity, Bryan P. Magee

Cornell Law Review

Corporate legal personhood is a baffling and elusive concept. Are corporations persons and, if so, what does this mean? Ascribing the moniker of "person" to a corporation can conjure up the idea that a corporate entity is entitled to all the natural and legal rights that natural "personhood" entails. This, however, ignores that there are different kinds of "legal person" and that the scope of their respective rights differs based on the purpose of the personhood they are given. This Note posits that the law grants corporations entity-hood primarily to centralize contractual rights and obligations. This purpose, this Note contends, …

Activist Directors And Agency Costs: What Happens When An Activist Director Goes On The Board, John C. Coffee Jr., Robert J. Jackson Jr., Joshua R. Mitts, Robert E. Bishop

Cornell Law Review

We develop and apply a new and more rigorous methodology by which to measure and understand both informed trading and the agency costs of hedge fund activism. We use quantitative data to show a systematic relationship between the appointment of a hedge fund-nominated director to a corporate board and an increase in informed trading in that corporation's stock (with the relationship being most pronounced when the fund's slate of directors includes a hedge fund employee). This finding is important from two different perspectives. First, from a governance perspective, activist hedge funds represent a new and potent force in corporate governance. …

Will Delaware Be Different? An Empirical Study Of Tc Heartland And The Shift To Defendant Choice Of Venue, Ofer Eldar, Neel U. Sukhatme

Cornell Law Review

Why do some venues evolve into litigation havens while others do not? Venues might compete for litigation for various reasons, like enhancing their judges’ prestige and increasing revenues for the local bar. This competition is framed by the party that chooses the venue. Whether plaintiffs or defendants primarily choose venue is crucial because, we argue, the two scenarios are not symmetrical.

The Supreme Court’s recent decision in TC Heartland LLC v. Kraft Foods LLC illustrates this dynamic. There, the Court effectively shifted venue choice in many patent infringement cases from plaintiffs to corporate defendants. We use TC Heartland to empirically …

Benefit Corporations: A Proposal For Assessing Liability In Benefit Enforcement Proceedings, Jaime Lee

Cornell Law Review

There has been a growing trend of more socially conscious consumption as a new generation of consumers and business leaders rises to the forefront. This trend has elicited a response from existing corporations and entrepreneurs starting new businesses such that socially-minded goals are taken into account in addition to profit-maximizing goals. Because the traditional corporation models restricted the ability of businesses to serve both socially-conscious and profit-maximizing goals simultaneously, new "fourth sector" corporations that combine aspects of the traditional for-profit, non-profit, and government sectors have been increasing in number. The most notable of these "fourth sector" corporations are benefit corporations, …

Paying For Risk: Bankers, Compensation, And Competition, Simone M. Sepe, Charles K. Whitehead

Cornell Law Review

Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to super­vise risk-taking employees. The responses focus on exe­cutive pay, believing that exe­cu­tives will bring non-execu­tives into line—using incen­­­­tives to manage risk-taking—once their own pay is regu­lated. What they over­look is the effect on non-executive pay of the com­pe­­ti­­tion for talent. Even if exe­­cu­tive pay is regu­lated, and exe­cu­tives act in the bank’s best interests, they will still be trapped into providing incentives that encourage risk-taking by non-executives due to the negative exter­nality that arises …