Law Commons^™

Spactivism, Sharon Hannes, Adi Libson, Gideon Parchomovsky

All Faculty Scholarship

In this Essay, we propose a modified version of the SPAC designed to allow the public to participate in the world of corporate activism. Unlike existing SPACs, our version is designed for investments in public companies in order to change their course of action, not in private companies in order to make them go public, and overcomes many of the problems that pertain conventional SPACs. At present, direct investment in activism is reserved to affluent individuals and other professional investors of activist hedge funds. The public at large is barred from directly entering the activist arena. The current model comes …

Corporate Crime And Punishment: An Empirical Study, Dorothy S. Lund, Natasha Sarin

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For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement overdeters beneficial corporate activity or in the alternative, lets corporate criminals off too easily. This debate has recently expanded in its polarization: On the one hand, academics, judges, and politicians have excoriated enforcement agencies for failing to send guilty bankers to jail in the wake of the 2008 financial crisis; on the other, the U.S. Department of Justice has since relaxed policies that encouraged individual prosecutions and reduced the size of fines and number of prosecutions. A crucial and yet understudied …

Antitrust And Platform Monopoly, Herbert J. Hovenkamp

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Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. As a result, competition can be made to work in most of them. Further, antitrust enforcement, with its accommodation of firm variety, is generally superior to any form of statutory regulation that generalizes over large numbers.

Assuming that an antitrust violation is found, what should be the remedy? Breaking up large firms subject to extensive …

The Supreme Court And The Pro-Business Paradox, Elizabeth Pollman

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One of the most notable trends of the Roberts Court is expanding corporate rights and narrowing liability or access to justice against corporate defendants. This Comment examines recent Supreme Court cases to highlight this “pro-business” pattern as well as its contradictory relationship with counter trends in corporate law and governance. From Citizens United to Americans for Prosperity, the Roberts Court’s jurisprudence could ironically lead to a situation in which it has protected corporate political spending based on a view of the corporation as an “association of citizens,” but allows constitutional scrutiny to block actual participants from getting information about …

Optimizing The World’S Leading Corporate Law: A 20-Year Retrospective And Look Ahead, Lawrence Hamermesh, Jack B. Jacobs, Leo E. Strine Jr.

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In a 2001 article (Function Over Form: A Reassessment of Standards of Review in Delaware Corporation Law) two of us, with important input from the other, argued that in addressing issues like hostile takeovers, assertive institutional investors, leveraged buyouts, and contested ballot questions, the Delaware courts had done exemplary work but on occasion crafted standards of review that unduly encouraged litigation and did not appropriately credit intra-corporate procedures designed to ensure fairness. Function Over Form suggested ways to make those standards more predictable, encourage procedures that better protected stockholders, and discourage meritless litigation, by restoring business judgment rule …

The “Value” Of A Public Benefit Corporation, Jill E. Fisch, Steven Davidoff Solomon

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We examine the “value” a PBC form provides for publicly-traded corporations. We analyze the structure of the PBC form and find that other than requiring a designated social purpose it does not differ significantly in siting control and direction with shareholders. We also examine the purpose statements in the charters of the most economically significant PBCs. We find that, independent of structural limitations on accountability, these purpose statements are, in most cases, too vague and aspirational to be legally significant, or even to serve as a reliable checks on PBC behavior. We theorize, and provide evidence, that without a legal …

Just Say Yes? The Fiduciary Duty Implications Of Directorial Acquiescence, Lisa Fairfax

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The rise in shareholder activism is one of the most significant recent phenomena in corporate governance. Shareholders have successfully managed to enhance their power within the corporation, and much of that success has resulted from corporate managers and directors voluntarily acceding to shareholder demands. Directors’ voluntary acquiescence to shareholder demands is quite simply remarkable. Remarkable because most of the changes reflect policies and practices that directors have vehemently opposed for decades, and because when opposing such changes directors stridently insisted that the changes were not in the corporation’s best interest. In light of that insistence, and numerous statements from directors …

Lifting Labor’S Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance, Leo E. Strine Jr., Aneil Kovvali, Oluwatomi O. Williams

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In view of the decline in gain sharing by corporations with American workers over the last forty years, advocates for American workers have expressed growing interest in allowing workers to elect representatives to corporate boards. Board level representation rights have gained appeal because they are a highly visible part of codetermination regimes that operate in several successful European economies, including Germany’s, in which workers have fared better.

But board-level representation is just one part of the comprehensive codetermination regulatory strategy as it is practiced abroad. Without a coherent supporting framework that includes representation from the ground up, as is provided …

Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton

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This Article reconsiders the dominant account of corporate law’s duty of loyalty, which asserts that the courts have steadily relaxed standards of fiduciary scrutiny applied to self-dealing by corporate managers across more than a century of history—to the great detriment of the shareholder interest. The account originated in Harold Marsh, Jr.’s foundational article, Are Directors Trustees? Conflicts of Interest and Corporate Morality, published in The Business Lawyer in 1966. Marsh’s showing of historical lassitude has been successfully challenged in a recent book by Professor David Kershaw. This Article takes Professor Kershaw’s critique a step further, asking whether the evolutionary …

Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon

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Although securities regulation is distinct from corporate governance, the two fields have considerable substantive overlap. By increasing the transparency and efficiency of the capital markets, securities regulation can also enhance the capacity of those markets to discipline governance decisions. The importance of market discipline is heightened by the increasingly vocal debate over what constitutes “good” corporate governance.

Securities product innovation offers new tools to address this debate. The rise of index-based investing provides a market-based mechanism for selecting among governance options and evaluating their effects. Through the creation of bespoke governance index funds, asset managers can create indexes that correspond …

Team Production Revisited, William W. Bratton

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This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Bankruptcy For Banks: A Tribute (And Little Plea) To Jay Westbrook, David A. Skeel Jr.

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In this brief essay, to be included in a book celebrating the work of Jay Westbrook, I begin by surveying Jay’s wide-ranging contributions to bankruptcy scholarship. Jay’s functional analysis has had a profound effect on scholars’ understanding of key issues in domestic bankruptcy law, and Jay has been the leading scholarly figure on cross-border insolvency. After surveying Jay’s influence, I turn to the topic at hand: a proposed reform that would facilitate the use of bankruptcy to resolve the financial distress of large financial institutions. Jay has been a strong critic of this legislation, arguing that financial institutions need to …

Corporate Personhood And Limited Sovereignty, Elizabeth Pollman

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This Article, written for a symposium celebrating the work of Professor Margaret Blair, examines how corporate rights jurisprudence helped to shape the corporate form in the United States during the nineteenth century. It argues that as the corporate form became popular because of the way it facilitated capital lock-in, perpetual succession, and provided other favorable characteristics related to legal personality that separated the corporation from its participants, the Supreme Court provided crucial reinforcement of these entity features by recognizing corporations as rights-bearing legal persons separate from the government. Although the legal personality of corporations is a distinct concept from their …

Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky

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In 2019, for the first time in the history of U.S. capital markets, passive funds surpassed active funds in terms of total assets under management. The continuous growth of passive funds at the expense of active funds is a genuine cause for concern. Active funds monitor the management and partake of decision-making in their portfolio companies. Furthermore, they improve price efficiency and managerial performance by engaging in informed trading. The buy/sell decisions of active funds provide other market participants reliable information about the quality of firms. The cost of active investing is significant and it is exclusively borne by active …

Compliance Management Systems: Do They Make A Difference?, Cary Coglianese, Jennifer Nash

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Regulatory compliance is vital for promoting the public values served by regulation. Yet many businesses remain out of compliance with some of the regulations that apply to them—presenting not only possible dangers to the public but also exposing themselves to potentially significant liability risk. Compliance management systems (CMSs) may help reduce the likelihood of noncompliance. In recent years, managers have begun using CMSs in an effort to address compliance issues in a variety of domains: environment, workplace health and safety, finance, health care, and aviation, among others. CMSs establish systematic, checklist-like processes by which managers seek to improve their organizations’ …

Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr.

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In his excellent article, For Whom is the Corporation Managed in 2020?: The Debate Over Corporate Purpose, Professor Edward Rock articulates his understanding of the debate over corporate purpose. This reply supports Professor Rock’s depiction of the current state of corporate law in the United States. It also accepts Professor Rock’s contention that finance and law and economics professors tend to equate the value of corporations to society solely with the value of their equity. But, I employ a less academic lens on the current debate about corporate purpose, and am more optimistic about proposals to change our corporate governance …

The Corporation As Trinity, David A. Skeel Jr.

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In “Corporate Capitalism and ‘The City of God,’” Adolf Berle references Augustine’s theological classic The City of God in service of his contention that corporate managers have a social responsibility. In this Article, I turn to another work by Augustine, The Trinity, for insights into another feature the corporation, corporate personhood. The Trinity explicates the Christian belief that God is both three and one. I argue that corporations have analogously Trinitarian qualities. Much as theologically orthodox Christians understand God to be both one and three, I argue that corporations are best seen as both a single entity and through …

Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon

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Corporate purpose is the hot topic in corporate governance. Critics are calling for corporations to shift their purpose away from shareholder value as a means of addressing climate change, equity and inclusion, and other social values. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, what role it serves.

We start by exploring and rejecting historical, doctrinal, and theoretical bases for corporate purpose. We challenge the premise that purpose can serve a useful function either as a legal constraint on managerial discretion or as a …

The History And Revival Of The Corporate Purpose Clause, Elizabeth Pollman

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The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate purpose …

Corporate Social Responsibility, Esg, And Compliance, Elizabeth Pollman

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In 2019, the CEO and chairperson of BlackRock, the world’s largest asset manager, called for corporate leaders to embrace corporate purpose and create value for stakeholders, and 181 CEOs of the Business Roundtable committed to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders. The idea that corporations should engage in socially responsible business practices (“CSR”) or initiatives relating to environmental, social, and governance matters (“ESG”) is gaining prominence, but remains highly contested. Deeper examination reveals that these terms—CSR and ESG—each lack a singular meaning. From aligning shareholder and stakeholder interests for shared value and …

The Corporate Governance Machine, Dorothy S. Lund, Elizabeth Pollman

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The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: in the United States, corporate governance has become a “system” composed of an array of institutional players, with a powerful shareholderist orientation. Our original account of this “corporate governance machine” generates insights about the past, present, and future of corporate governance. As for the past, we show how the concept of corporate governance developed alongside the shareholder primacy movement. This relationship is reflected in the common refrain of …

Corporate Law For Good People, Yuval Feldman, Adi Libson, Gideon Parchomovsky

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This article offers a novel analysis of the field of corporate governance by viewing it through the lens of behavioral ethics. It calls for both shifting the focus of corporate governance to a new set of loci of potential corporate wrongdoing and adding new tools to the corporate governance arsenal. The behavioral ethics scholarship emphasizes the large share of wrongdoing generated by "good people" whose intention is to act ethically. Their wrongdoing stems from "bounded ethicality" -- various cognitive and motivational processes that lead to biased decisions that seem legitimate. In the legal domain, corporate law provides the most fertile …

Codetermination In Theory And Practice, Grant M. Hayden, Matthew T. Bodie

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A system of shared corporate governance between shareholders and workers, codetermination has been mostly ignored within the U.S. corporate governance literature. When it has made an appearance, it has largely served as a foil for shareholder primacy and an example of corporate deviance. However, over the last twenty years—and especially in the last five—empirical research on codetermination has shown surprising results as to the system’s efficiency, resilience, and benefits to stakeholders. This Article reviews the extant American legal scholarship on codetermination and provides a fresh look at the current state of codetermination theory and practice. Rather than experiencing the failures …

From Mandates To Governance: Restructuring The Employment Relationship, Brett Mcdonnell, Matthew T. Bodie

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Employers are saddled with a dizzying array of responsibilities to their employees. Meant to advance a wide array of workplace policies, these demands have saddled employment with the burden of numerous social ends. However, that system has increasingly come under strain, as companies seek to shed employment relationships and workers lose important protections when terminated. In this Article, we propose that employers and employees should be given greater flexibility with a move from mandates to governance. Many of the employment protections required from employers stem from employees’ lack of organizational power. The imbalance is best addressed by providing workers with …

From Mandates To Governance: Restructuring The Employment Relationship, Brett H. Mcdonnell, Matthew T. Bodie

All Faculty Scholarship

Employers are saddled with a dizzying array of responsibilities to their employees. Meant to advance a wide array of workplace policies, these demands have saddled employment with the burden of numerous social ends. However, that system has increasingly come under strain, as companies seek to shed employment relationships and workers lose important protections when terminated. In this Article, we propose that employers and employees should be given greater flexibility with a move from mandates to governance. Many of the employment protections required from employers stem from employees’ lack of organizational power. The imbalance is best addressed by providing workers with …

Caremark And Esg, Perfect Together: A Practical Approach To Implementing An Integrated, Efficient, And Effective Caremark And Eesg Strategy, Leo E. Strine Jr., Kirby M. Smith, Reilly S. Steel

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With increased calls from investors, legislators, and academics for corporations to consider employee, environmental, social, and governance factors (“EESG”) when making decisions, boards and managers are struggling to situate EESG within their existing reporting and organizational structures. Building on an emerging literature connecting EESG with corporate compliance, this Essay argues that EESG is best understood as an extension of the board’s duty to implement and monitor a compliance program under Caremark. If a company decides to do more than the legal minimum, it will simultaneously satisfy legitimate demands for strong EESG programs and promote compliance with the law. Building …