Law Commons^™

Toward A New Theory Of The Shareholder Role: A Sacred Space In Corporate Transactions, Robert B. Thompson, D. Gordon Smith

Faculty Scholarship

Corporate law expresses a profound ambiguity toward the role of shareholders. Courts announce that shareholders are critical to the theory that legitimates the exercise of power - by directors and officers over vast aggregations of property that they do not own. At the same time shareholders have a very difficult time actually making any corporate decisions. In this Article, we strive to define a new role for shareholders by drawing on economic theories of the firm and the structure of corporate law. More particularly we examine the role of shareholders in hostile corporate takeovers, the area where the interests of …

Executive Compensation In America: Optimal Contracting Or Extraction Of Rents?, Lucian A. Bebchuk, Jesse M. Fried, David I. Walker

Faculty Scholarship

This paper develops an account of the role and significance of rent extraction in executive compensation. Under the optimal contracting view of executive compensation, which has dominated academic research on the subject, pay arrangements are set by a board of directors that aims to maximize shareholder value by designing an optimal principal-agent contract. Under the alternative rent extraction view that we examine, the board does not operate at arm's length; rather, executives have power to influence their own compensation, and they use their power to extract rents. As a result, executives are paid more than is optimal for shareholders and, …

Minority Discounts And Control Premiums In Appraisal Proceedings, Richard A. Booth Marbury Research Professor Of Law

Faculty Scholarship

In a merger, a stockholder often has a statutory right of dissent and appraisal under which the stockholder may demand to be paid fair value exclusive of any gain or loss that may arise from the merger itself. Most courts and commentators agree that a dissenting stockholder should ordinarily receive a pro rata share of the fair value of the corporation without any discount simply because minority shares lack control. In several recent cases, the courts have indicated that a minority stockholder is thus entitled to a share of the control value of the corporation even though the merger does …

Quasi-Rationality In Action: A Study Of Psychological Factors In Merger Decision Making, James A. Fanto

Faculty Scholarship

No abstract provided.

Anatomy Of Valuing Stock In Closely Held Corporations: Pursuing The Phantom Of Objectivity Into The New Millennium, Stephen J. Leacock

Faculty Scholarship

No abstract provided.

Employee Benefits Law: Foreword, Maria O'Brien

Faculty Scholarship

Over the past twenty or so years, the range of employee benefits offered by employers - both large and small - has expanded dramatically. The old (and relatively short) list of "fringes" typically included health insurance, a pension plan, paid holidays and group life insurance. There was, of course, some variation in this list, especially across industries. But, by and large, employers did not concern themselves in a formal way with "modern" benefits such as elder care, child care, legal assistance, flex time, and parental leaves. As a recent study by the Society for Human Resource Management' suggests, employers have …

The Overlooked Corporate Finance Problems Of A Microsoft Breakup, David I. Walker

Faculty Scholarship

The paper identifies problems with the ordered breakup of Microsoft that seem to have been completely overlooked by the government, the judge, and the commentators. The breakup order prohibits Bill Gates and other large Microsoft shareholders from owning shares in both of the companies that would result from the separation. Given this prohibition, we show, dividing the securities in the resultant companies among the shareholders is not as straightforward as the government has suggested. Any method of distributing the securities that would comply with this mandate would either (i) impose a significant financial penalty on Microsoft's large shareholders that is …

Unocal Fifteen Year Later (And What We Can Do About It), Ronald J. Gilson

Faculty Scholarship

The coincidence of the new millennium and the fifteenth anniversary of the Delaware Supreme Court's announcement of a new approach to takeover law provides an occasion to evaluate a remarkable experiment in corporate law – the Delaware Supreme Court's development of an intermediate standard of review for appraising defensive tactics. This assessment reveals that Unocal has developed into an unexplained and likely inexplicable preference that control contests be resolved through elections rather than through market transactions. In doing so, the remarkable struggle between the chancery court and the supreme court for Unocal's soul is canvassed. The author also maintains that …

Transatlantic Perspectives On Partnership Law: Risk And Instability, Deborah A. Demott

Faculty Scholarship

No abstract provided.

The Acquiescent Gatekeeper: Reputational Intermediaries, Auditor Independence And The Governance Of Accounting, John C. Coffee Jr.

Faculty Scholarship

The role of "gatekeepers" as reputational intermediaries who can be more easily deterred than the principals they serve has been developed in theory, but less often examined in practice. Initially, this article seeks to define the conditions under which gatekeeper liability is likely to work – and, correspondingly, the conditions under which it is more likely to fail. Then, after reviewing the recent empirical literature on earnings management, it concludes that the independent auditor does not today satisfy the conditions under which gatekeeper liability should produce high law compliance. A variety of explanations – poor observability, implicit collusion, and high …

A Defense Of Shareholder Favoritism, Stephen J. Choi, Eric L. Talley

Faculty Scholarship

This paper considers the efficiency implications of managerial "favoritism" towards block shareholders of public corporations. While favoritism can take any number of forms (including the payment of green-mail, diversion of opportunities, selective information disclosure, and the like), each may have the effect (if not the intent) of securing a block shareholder's loyalty in order to entrench management. Accordingly, the practice of making side payments is commonly perceived to be contrary to other shareholders' interests and, more generally, inefficient. In contrast to this received wisdom, we argue that when viewed ex ante, permissible acts of patronage toward block shareholders may play …

Sales And Elections As Methods For Transferring Corporate Control, Ronald J. Gilson, Alan Schwartz

Faculty Scholarship

Delaware case law has rendered the tender offer obsolete as a method for purchasing a company whose directors oppose the acquisition. A potential acquirer facing target opposition today must run an insurgent director slate, in the expectation that its directors are more likely to sell. The Delaware courts have not justified their preference for elections over markets as the preferred vehicle for implementing changes in control. Informal scholarly analyses ask transaction cost questions, such as whether proxy contests are more costly than takeovers. This article attempts to break new ground by asking whether there are systematic differences in the performance …

Do Norms Matter?: A Cross-Country Evaluation, John C. Coffee Jr.

Faculty Scholarship

This Article starts with the recognition that the average private benefits of control vary significantly across countries. But why? The simplest explanation ascribes this variation to differences in law between jurisdictions: for example, the law of jurisdiction X could privilege controlling shareholders by allowing them to extract benefits from their corporation in the form of above-market salaries or non-pro-rata payments in connection with self-dealing transactions. But, this explanation cannot fit all cases. To illustrate, if the substantive law is essentially similar between two jurisdictions while the private benefits of control appear to be significantly different, then some other explanation must …

Company Registration And The Private Placement Exemption, Merritt B. Fox

Faculty Scholarship

Over the last twenty years, there has been a steady shift in securities disclosure regulation away from its traditional transactional basis toward a system of company registration. Under the transaction based approach, each new public offering of a security has to be registered under the Securities Act of 1933 (the "1933 Act"), a requirement that reflects the SEC's traditional concern that the most important time to have high-quality disclosure is at the moment of a securities offering. Under the company registration approach, an established, publicly traded issuer would register just once, provide information thereafter on a periodic basis, and then …

Voting (Insincerely) In Corporate Law, Zohar Goshen

Faculty Scholarship

Voting lies at the center of collective decision-making in corporate law. While scholars have identified various problems with the voting mechanism, insincere voting — in the forms of strategic voting and conflict of interests voting — is perhaps the most fundamental. This article shows that insincere voting distorts the voting mechanism at its core, undermining its ability to determine transaction efficiency. As further demonstrated, strategic and conflict of interests problems frequently coincide with one another: voting strategically often means being in conflict, and many fact patterns present aspects of both problems. Finally, this article claims that although the two problems …

Frictions As A Constraint On Tax Planning, David M. Schizer

Faculty Scholarship

The government often uses narrow tax reforms to target specific planning strategies. Sometimes the targeted transaction is stopped. But in other cases, taxpayers press on, tweaking the deal just enough to sidestep the reform. The difference often lies in transaction costs, financial accounting, and other 'frictions, " which are constraints on tax planning external to the tax law.

This Article contributes a methodology for determining whether frictions will block end runs, and illustrates the effect of frictions by comparing the constructive sale rule of section 1259 with the constructive ownership rule of section 1260. These reforms use the same statutory …

Tax Constraints On Indexed Options, David M. Schizer

Faculty Scholarship

Indexed stock option grants reward executives for outperforming a benchmark, such as the market as a whole or competitors in the same industry. These options offer superior incentives by limiting the influence of factors beyond an executive's control, such as general market and industry conditions. Yet indexed options are almost never used. Professor Saul Levmore seeks to explain this puzzle with norms. This comment on his article argues that tax plays a larger role in this puzzle than he acknowledges, although tax is not a complete explanation. Accounting and Professor Levmore's norms-based account are then briefly considered.

Decision-Makers Without Duties: Defining The Duties Of Parent Corporations Acting As Sole Corporate Members In Nonprofit Health Care System, Dana Brakman Reiser

Faculty Scholarship

No abstract provided.

Braking The Merger Momentum: Reforming Corporate Law Governing Mega-Mergers, James A. Fanto

Faculty Scholarship

No abstract provided.