Law Commons^™

The Disaster At Bhopal: Lessons For Corporate Law?, Kent Greenfield

Kent Greenfield

Prepared for a conference at New England Law School marking the upcoming twenty-fifth anniversary of the disaster at Bhopal, this essay asks whether we have anything still to learn from what occurred in the early morning hours in Bhopal on December 3, 1984, and in the hours, days, and weeks that followed. Is there reason to believe, for example, that corporations have a tendency to create the context in which such disasters are more likely? More recent corporate behavior poses the same question, whether it pertains to environmental destruction, injuries to consumers, collusion with illegal governmental activities, or financial malfeasance. …

The Impact Of "Going Private" On Corporate Stakeholders, Kent Greenfield

Kent Greenfield

As capital markets in the United States increasingly "go private," it is unclear how the privatization of corporate finance will affect non-shareholder stakeholders of firms, most centrally employees, communities, and the environment. Some scholars and public policy experts believe that concern for such stakeholders should not hold any relevance in the discussion of corporate law in general, and thus may be presumed to believe the same about a conversation about privatization. In such a view, these concerns lie outside the realm of corporate governance law; they therefore should be of no great moment in the debate over whether public policy …

New Principles For Corporate Law, Kent Greenfield

Kent Greenfield

The fundamental assumptions of corporate law have changed little in decades. Accepted as truth are the notions that corporations are voluntary, private, contractual entities, that they have broad powers to make money in whatever ways and in whatever locations they see fit. The primary obligation of management is to shareholders, and shareholders alone. Corporations have broad powers but only a limited role: they exist to make money. Those who maintain these principles – a group that includes most of the legal scholars who teach and write in the area – have derived the narrow role of corporations in one of …

Democracy And The Dominance Of Delaware In Corporate Law, Kent Greenfield

Kent Greenfield

Among the grandest debates within corporate law is whether the dominance of Delaware is the result of a “race to the bottom” -- toward a legal regime that benefits managers at the expense of the shareholders -- or a “race to the top” -- toward an efficient, shareholder-centric governance framework. This paper argues that this debate is largely beside the point. Even if Delaware’s dominance is the result of a competition resulting in law that efficiently serves the interests of shareholders, it is nevertheless illegitimate. This is because the internal affairs doctrine, on which Delaware’s preeminence depends, in effect allows …

An Experimental Test Of Fairness Under Agency And Profit Constraints (With Notes On Implications For Corporate Governance), Kent Greenfield, Peter Kostant

Kent Greenfield

Building on the scholarship using ultimatum game experiments to explore the presence of fairness norms in bargaining exchanges, the authors test whether such norms are affected by agency relationships alone or agency relationships linked with a duty to maximize returns to the principal. The findings are dramatic. The study, the first of its kind, indicates a significant decrease in a concern for fairness (defined as a willingness to share a pot of money) when a participant in a bargaining transaction acts as an agent for another and owes a duty to maximize the return to the principal. We find no …

The Corporate Governance Of Iconic Executives, Tom C.W. Lin

UF Law Faculty Publications

This Essay explores the special corporate governance challenges posed by iconic executives. Iconic executives are complex, bittersweet figures in corporate governance narratives. They are alluring, larger-than-life corporate figures who often govern freely. Iconic executives frequently rule like monarchs over their firms, offering lofty promises to shareholders, directors, and managers under their reign. But like many stories of powerful and influential figures, the narratives of iconic executives also contain adversity and danger. Part of the acquiescence and enchantment with such figures is rooted in the virtuous promises embodied by their presence, promises of unity, accountability, and effectiveness in corporate governance. Unfortunately, …

The Economic Theory Of Derivative Actions, Diego G. Pardow

Diego G. Pardow

This paper offers a model to formalize the economic theory of derivative actions developed during the last 30 years. From this perspective, the derivative action presents two interrelated problems. The first is how to solve the collective action problem that prevents that minority shareholders file a suit. The second is how to control the risk of collusive settlements between the defendant manager and the plaintiff’s attorney. This model identifies the fundamental tradeoffs that are implicit in these problems, as well as an optimum that could be used as normative benchmark. In brief, it argues that if the goal of derivative …

Are Institutional Investors Part Of The Problem Or Part Of The Solution?: Key Descriptive And Prescriptive Questions About Shareholders, Ben W. Heineman Jr., Stephen Davis

Ira M. Millstein Center for Global Markets and Corporate Ownership

Over the last twenty years, institutional investors have owned an increasing share of public equity markets — more than 70 percent of the largest 1,000 companies in the United States in 2009, for example. Over the past two years, in response to failures of some boards of directors and business leaders, shareholders, including institutional investors, have been given increased powers to participate in — or have disclosures about — discrete spheres of governance in publicly held corporations. Moreover, during this same period, and in multiple jurisdictions, there have been increasing calls from both the public and private sectors for institutional …

The Coevolution Of Transnational Corporations And Institutions, Sarianna M. Lundan

Indiana Journal of Global Legal Studies

While economic theories of the firm have traditionally focused on the ownership of assets, the increasing use of contractual partnerships is beginning to challenge our conception of the firm by emphasizing its coordinating role. In structuring their contracts, as well as in managing the relationships governed by the contracts, firms try to mitigate uncertainties that could destroy the value-adding potential of such transactions. These uncertainties may be specific to the transaction partner, but they might also arise from the institutional context of the contracting parties, particularly in the case of transactions that cross borders. The coevolutionary process whereby firms both …

Private Actors And Public Governance Beyond The State: The Multinational Corporation, The Financial Stability Board, And The Global Governance Order, Larry Cata Backer

Indiana Journal of Global Legal Studies

Transnational corporations are at the center of extraordinary and complex governance systems that are developing outside the state and international public organizations and beyond the conventionally legitimating framework of the forms of domestic or international hard law. Though these systems are sometimes recognized as autonomous and authoritative among its members, they are neither isolated from each other nor from the states with which they come into contact. Together these systems may begin to suggest a new template for networked governance beyond the state, but one in which public and private actors are integrated stakeholders. This provides the source of the …

The Changing Face Of Transnational Business Governance: Private Corporate Law Liability And Accountability Of Transnational Groups In A Post-Financial Crisis World, Peter Muchlinski

Indiana Journal of Global Legal Studies

This article seeks to critically assess the recently dominant financialized model of corporate law and governance and its contribution to the creation of the "asocial corporation" geared only to the enhancement of shareholder value. This article places corporate law in a wider context of national and international legal developments that, together, create a framework for the financialization of transnational corporate activity. This article shows that a new approach to transnational corporate governance is emerging from a number of sources. These predate the crisis but have been given impetus by it. In particular, three important phenomena are examined: the rise of …

Transnational Corporations, Global Competition Policy, And The Shortcomings Of Private International Law, Gralf-Peter Calliess, Jens Mertens

Indiana Journal of Global Legal Studies

In this article we criticize the so-called more economic approach to European competition law for disregarding the importance of a functional system of private law. Based on the availability of market governance as an alternative mode for organizing transactions, it is presumed that vertical integration, which is the central organizational structure of transnational corporations, is economically efficient. Since the enforcement of cross-border contracts by state-organized systems of private law, however, is insufficient, "make-or-buy" decisions in international commerce are prejudiced against arms' length transactions in markets. Consequently, international transactions are integrated vertically into firms' structures to a higher degree than comparable …

Midwest Corporate Law Scholars Conference Presentation: Mitigating The Harmful Effects Of Proxy Access (Sec Rule 14a-11), Bernard S. Sharfman

Bernard S Sharfman

Presentation given at the Midwest Corporate Law Scholars Conference (June 15, 2011)

Why Not A Ceo Term Limit?, Charles K. Whitehead

Cornell Law Faculty Publications

In this Essay, I ask: Why not require a mandatory CEO term limit? My purpose is not to propose a term limit, but rather to ask why CEO term limits are out-of-bounds – not addressed within the corporate governance scholarship – when they have long been advocated for directors and, more recently, public company auditors.

The traditional answer has been that CEOs are agents of the corporation, subject to control by the board, which holds primary responsibility for the firm’s business and affairs. Senior officers are largely shielded from outside interference, permitting them to execute consistent, long-term business strategies under …

Who Should Talk? What Counts As Employee Voice And Who Stands To Gain, Aditi Bagchi

All Faculty Scholarship

This symposium piece responds to an article by Kenneth G. Dau-Schmidt titled "Promoting Employee Voice in the American Economy: A Call for Comprehensive Reform." Professor Schmidt argues in favor of increasing employee voice in corporate governance. In this reply, Professor Bagchi distinguishes between "hard voice," "soft voice" and information rights as three variants of employee voice. She casts doubt on the material benefits from Professor Dau-Schmidt's proposals, which focus on hard and soft voice, to either employees or corporate stakeholders more broadly. The present focus of corporate governance on the relationship between shareholders and managers, to the exclusion of employees, …

Overseeing Controlling Shareholders: Do Independent Directors Constrain Tunneling In Taiwan?, Yu-Hsin Lin

San Diego International Law Journal

This Article intends to explore the extent to which independent directors constrain tunneling by controlling shareholders in Taiwan. Taiwan serves as an appropriate jurisdiction for research since the private benefits agency problem is prevalent among Taiwanese public companies. A further twist in Taiwan?s case is that independent directors were newly introduced to Taiwan?s corporate boards, which follow dual-board system where the traditional monitoring function is served by statutory supervisors, instead of board committees, which adds to the complexity in analyzing the effectiveness of independent directors in constraining tunneling activities. Part II reviews relevant literature and lays the foundation for this …

Economics, Politics, And The International Principles For Sound Compensation Practices: An Analysis Of Executive Pay At European Banks, Guido Ferrarini, Maria C. Ungureanu

Vanderbilt Law Review

In this Article, we submit that the compensation structures at banks before the financial crisis were not necessarily flawed and that recent reforms in this area largely reflect already existing best practices. In Part I we review recent empirical studies on corporate governance and executive pay at banks and suggest that there is no strong support for regulating bankers' compensation structures. We also argue that detailed regulation of incentives would subtract essential decisionmaking powers from boards of directors and make compensation structures too rigid.

In Part II we note that political support for regulating bankers' pay has been strong and …

Board Diversity Revisited: New Rationale, Same Old Story, Lisa Fairfax

All Faculty Scholarship

Recently, board diversity advocates have relied on market- or economic-based rationales to convince corporate America to increase the number of women and people of color in the boardroom, in lieu of moral or social justifications. This shift away from moral or social justifications has been deliberate, and it stems from a belief that corporate America would better respond to justifications that centered on the corporate bottom line. However, recent empirical data reveals that despite the increased reliance on, and apparent acceptance of, market- or economic-based rationales for board diversity, there has been little change in actual board diversity. This Article …

Chairmanship: The Effective Chair-Ceo Relationship: Insight From The Boardroom, Elise Walton

Ira M. Millstein Center for Global Markets and Corporate Ownership

This paper examines the role of the corporate Chair in the context of one of the most important relationships the Chair has – his or her relationship with the company’sCEO. To approach the topic, the Chairmen’s Forum sponsored a research effort to interview experienced Chairs,CEOs and stakeholders. After the Forum agreed on the project, a research plan was designed and approved by the sponsors. Key interview questions and interview candidates were reviewed and approved. The main areas of the interview included: background experience with the two roles; successful situations and what worked; challenges and what didn’t work; how a relationship …

Good Faith In Revlon-Land, Christopher M. Bruner

Scholarly Works

The Delaware Supreme Court has set a very high hurdle for plaintiffs challenging directors' good faith in the sale of a company. In Lyondell Chemical Company v. Ryan, the court held that unconflicted directors could be found to have breached the good faith component of their duty of loyalty in the transactional context only if they "knowingly and completely failed to undertake," and "utterly failed to attempt" to discharge their duties.

In this essay I argue that the Lyondell standard effectively imports into the transactional context the exacting standard previously applied in the oversight context — a move clearly aimed …

Deconstructing Corporate Governance: Absolute Director Primacy, René Reich-Graefe

Faculty Scholarship

Microtheoretical models of the corporation which focus on corporate governance attempt to answer two deceptively simple, but fundamentally elusive questions: ‘Who are in control of the corporation?’ and ‘Whose interests ultimately control those in control of the corporation?’ Both questions remain partially unanswered within the models developed to date by corporate theoreticians. This Article proposes a radically new model: 'absolute director primacy.’ Existing microtheoretical models conceive that we only need to—and, indeed, can—determine the controlling interests guiding corporate decisionmaking in order to prove the existence of control over the decisionmaking latitude of corporate boards. The absolute director primacy …

Deconstructing Corporate Governance: Director Primacy Without Principle?, René Reich-Graefe

Faculty Scholarship

If profit-maximizing is not enforced by corporate law, why does it nonetheless happen as a matter of almost overwhelming routine in today’s corporate reality? If indeed, director primacy is absolute and our theoretical models are all reliant on protolegal variables to explain general investor confidence ex-ante-investment despite the lack of director accountability ex-post-investment, then how can director primacy be understood and explained as a principled and, thus, just cor-porate governance structure in the first place? Or is director primacy not only absolute, but also without principle?

This Article provides a roadmap for purposes of answering this inquiry. Part II …

On The Evolution Of The United Nations’ 'Protect-Respect-Remedy' Project: The State, The Corporation And Human Rights In A Global Governance Context, Larry Cata Backer

Journal Articles

The advent of contemporary economic globalization has substantially altered the regulatory environment in which economic enterprises operate. Once assumed to be creatures of the states that recognized and regulated their existence, economic enterprises today are increasingly capable of arranging their activities beyond the regulatory scope of any state or groups of states. That gap between operational and regulatory capacity has produced a sustained reaction at the national and international levels. States have sought to extend their power over corporations beyond their borders. International organizations have sought to develop supra national legal governance frameworks. This paper examines one of the more …

Beyond The Inevitable And Inadequate Regulation Of Bankers, Lyman P. Q. Johnson

Scholarly Articles

None available.

Russia's Lack Of American-Style Agency Priciples: A Primary Cause Of Corporate Governance Problems Today, C. Keith Marshall Jr.

South Carolina Journal of International Law and Business

No abstract provided.

Governance In The Public Corporation Of The Future: The Battle For Control Of Corporate Governance, Z. Jill Barclift

Faculty Scholarship

Eight years after passage of the Sarbanes-Oxley Act, Congress has again passed sweeping legislation in response to a corporate crisis. In addition to changes in the regulatory environment for Wall Street financial firms and banks, the Dodd-Frank Act (D-F Act) also proposes reforms to corporate governance.

In this article, the author examines the latest governance mandates under the D-F Act. In particular, this article focuses on the disclosure requirements on the CEO and chairman positions, and argues that disclosures of whether the CEO is also the chairman benefit shareholders' governance rights under state law. The new provisions under D-F Act …

Discourse Norms As Default Rules: Structuring Corporate Speech To Multiple Stakeholders, David Yosifon

Faculty Publications

This Article analyzes corporate speech problems through the framework of corporate law. The focus here is on the "discourse norms" that regulate corporate speech to various corporate stakehold-ers, including shareholders, workers, and consumers. I argue that these "discourse norms" should be understood as default terms in the "nexus-of-contracts" that comprises the corporation. Having reviewed the failure of corporate law as it bears on the interests of non-shareholding stakeholders such as workers and consumers, I urge the adoption of prescriptive discourse norms as an approach to reforming corporate governance in a socially useful manner.

Beyond The Board Of Directors, Kelli A. Alces

Scholarly Publications

No abstract provided.

We Are The (National) Champions: Understanding The Mechanisms Of State Capitalism In China, Li-Wen Lin, Curtis J. Milhaupt

All Faculty Publications

While China appears to present a new variety of capitalism, frequently labeled "state capitalism," the features of this system - particularly the organizational structure surrounding China’s most important state-owned enterprises (the national champions) - remains a black box. Corporate governance scholarship on China has focused on listed firms, but listed SOEs in China are nested in vertically integrated corporate groups, and the groups are strategically linked to other business groups, as well as to the Communist Party and to governmental organs. While the parent company of the listed firms has a governmental controlling shareholder in the form of an agency …

Dangerous Categories: Narratives Of Corporate Board Diversity, Lissa Lamkin Broome, John M. Conley, Kimberly D. Krawiec

Faculty Scholarship

In this article, we report the results of a series of interviews with corporate directors about racial, ethnic, and gender diversity on corporate boards. On the one hand, our respondents were clear and nearly uniform in their statements that board diversity was an important goal worth pursuing. Yet when asked to provide examples or anecdotes illustrating why board diversity matters, many subjects acknowledged difficulty in illustrating theory with reference to practice.

This expressed reluctance to come to specific terms with general claims about the value of director diversity inspired our title phrase: dangerous categories. That is, while "diversity" evokes universal …