Law Commons^™

The Rise Of Private Equity Continuation Funds, Kobi Kastiel, Yaron Nili

Faculty Scholarship

This Article provides the first comprehensive examination of an emerging practice within the private equity sector: continuation funds. Continuation funds break from the traditional private equity model by allowing sponsors to hold on to assets beyond the typical fund term and, instead of selling the assets to third parties, sell them to their own newly established fund. Lauded by the private equity industry as providing “optionality” to investors by allowing them to cash out or roll over, continuation funds have grown to represent a major segment of investment activity in the United States. Despite their surging popularity among private equity …

A Revised Monitoring Model Confronts Today's Movement Toward Managerialism, James D. Cox, Randall S. Thomas

Faculty Scholarship

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand, and economic, social, and political changes on the other hand. Aberrations, however, do arise but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments …

The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg

Faculty Scholarship

This Symposium Article examines how the public/private divide works today and maps out some of the potential implications for major issues in securities law. Classic debates in securities law were often predicated on the idea that public companies are a coherent class of firms that differ markedly from private companies. For more than fifty years after the adoption of the federal securities laws, this view was justified. During that period, the vast majority of successful and growing private firms eventually accepted the regulatory obligations of being public in order to access a wider and deeper pool of capital, among other …

The Giant Shadow Of Corporate Gadflies, Kobi Kastiel, Yaron Nili

Faculty Scholarship

Modern-day shareholders influence corporate America more than ever before. From demanding greater accountability of executives to lobbying for a variety of social and environmental policies, shareholders today have the power to alter how American companies are run. Amazingly, a small group of individual shareholders wields unprecedented power to set corporate agendas and stands at the epicenter of our contemporary corporate governance ecosystem. In fact, the power of these individuals, known as “corporate gadflies,” continues to rise.

Corporate gadflies present a puzzling reality. Although public corporations in the United States are increasingly owned by large institutional investors, much of their corporate …

Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar

Faculty Scholarship

A key question at the intersection of state and federal law is whether corporations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Securities Act of 1933 (“1933 Act”). The decision held that the internal affairs doctrine, which is the bedrock of U.S. corporate law, does not permit charter and bylaw provisions …

The Myth Of The Ideal Investor, Elisabeth De Fontenay

Faculty Scholarship

Critiques of specific investor behavior often assume an ideal investor against which all others should be compared. This ideal investor figures prominently in the heated debates over the impact of investor time horizons on firm value. In much of the commentary, the ideal is a longterm investor that actively monitors management, but the specifics are typically left vague. That is no coincidence. The various characteristics that we might wish for in such an investor cannot peacefully coexist in practice.

If the ideal investor remains illusory, which of the real-world investor types should we champion instead? The answer, I argue, is …

Regulatory Competition And The Market For Corporate Law, Ofer Eldar, Lorenzo Magnolfi

Faculty Scholarship

This article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a novel database of incorporation decisions from 1995- 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms.Our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. Our findings support the hypothesis that …

Brief Of Professors At Law And Business Schools As Amicus Curiae In Support Of Respondents, James D. Cox, J. Robert Brown Jr., Lyman Johnson, Lawrence W. Treece, Joan Macleod Heminway

Faculty Scholarship

This Amicus Brief was filed with the U.S. Supreme Court on behalf of nearly 50 law and business faculty in the United States and Canada who have a common interest in ensuring a proper interpretation of the statutory securities regulation framework put in place by the U.S. Congress. Specifically, all amici agree that Item 303 of the Securities and Exchange Commission's Regulation S-K creates a duty to disclose for purposes of Rule 10b-5(b) under the Securities Exchange Act of 1934.
The Court’s affirmation of a duty to disclose would have little effect on existing practice. Under the current state of …

The Mess At Morgan: Risk, Incentives And Shareholder Empowerment, Jill E. Fisch

All Faculty Scholarship

The financial crisis of 2008 focused increasing attention on corporate America and, in particular, the risk-taking behavior of large financial institutions. A growing appreciation of the “public” nature of the corporation resulted in a substantial number of high profile enforcement actions. In addition, demands for greater accountability led policymakers to attempt to harness the corporation’s internal decision-making structure, in the name of improved corporate governance, to further the interest of non-shareholder stakeholders. Dodd-Frank’s advisory vote on executive compensation is an example.

This essay argues that the effort to employ shareholders as agents of public values and, thereby, to inculcate corporate …

Corporate Law And The Limits Of Private Ordering, James D. Cox

Faculty Scholarship

Solomon-like, the Delaware legislature in 2015 split the baby by amending the Delaware General Corporation Law to authorize forum-selection bylaws and to prohibit charter or bylaw provisions that would shift to the plaintiff defense costs incurred in connection with shareholder suits that were not successfully concluded. The legislature acted after the Boilermakers Local 154 Retirement Fund. v. Chevron Corp ATP Tour, Inc. v. Deutscher Tennis Bund, broadly empowered the board vis-à-vis the shareholders through the board’s power to amend the bylaws. Repeatedly the analysis used by each court referenced the contractual relationship the shareholders had through the articles of …

Brief Of Corporate Law Professors As Amici Curie In Support Of Respondents, John C. Coates, Lucian A. Bebchuk, Bernard S. Black, John C. Coffee, James D. Cox, Ronald J. Gilson, Jeffrey N. Gordon, Lawrence Hamermesh, Henry B. Hansmann, Robert J. Jackson Jr., Marcel Kahan, Vikramaditya S. Khanna, Michael Klausner, Reinier H. Kraakman, Donald C. Langevoort, Brian Jm Quinn, Edward B. Rock, Mark J. Roe, Helen S. Scott

Faculty Scholarship

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt …

Addressing Agency Costs Through Private Litigation In The U.S: Tensions, Disappointments, And Substitutes, James D. Cox, Randall S. Thomas

Faculty Scholarship

Many scholars argue that over the past seventy years, shareholder representative litigation has acted as an important policing mechanism of managerial abuses at U.S. public companies. Different types of representative litigation have had their moment in the sun – derivative suits early on, followed by federal securities class actions, and most recently merger litigation – often producing benefits for shareholders, but posing difficult challenges as well. In particular, the benefits are qualified by another concern, the litigation agency costs that surround shareholder suits. This form of agency costs arises since the suits are invariably representative with no requirement that the …

A Theory Of Preferred Stock, William W. Bratton, Michael L. Wachter

All Faculty Scholarship

No abstract provided.

Intraportfolio Litigation, Amanda Rose, Richard Squire

Vanderbilt Law School Faculty Publications

The modern trend is for investors to diversify. Shareholders who own one S&P 500 firm tend to own many of the others as well. This trend casts doubt on the traditional compensation and deterrence rationales for legal rules that hold corporations liable for the acts of their agents. Today, when A Corp sues B Corp (for breach of contract, theft of trade secrets, or any other legal wrong), many of the same shareholders own both the plaintiff and the defendant. For these shareholders, damages just shift money from one pocket to another, minus of course lawyer fees. We offer here …

Potentially Perverse Effects Of Corporate Civil Liability, Samuel W. Buell

Faculty Scholarship

Inadequate civil regulatory liability can be an incentive for public enforcers to pursue criminal cases against firms. This incentive is undesirable in a scheme with overlapping forms of liability that is meant to treat most cases of wrongdoing civilly and to reserve the criminal remedy for the few most serious institutional delicts. This effect appears to exist in the current scheme of liability for securities law violations, and may be present in other regulatory structures as well. In this chapter for a volume on "Prosecutors in the Boardroom," the author argues that enhancements of the SEC's enforcement processes likely would …

Shareholder Litigation: The Accidental Elegance Of Aronson V. Lewis, David A. Skeel Jr.

All Faculty Scholarship

Unlike many key corporate law decisions, the 1984 Delaware Supreme Court decision in Aronson v. Lewis was not heralded by stories in the Wall Street Journal and New York Times, nor in any other newspaper of note. Even now, few people other than corporate law experts are likely to recognize the name. Yet Aronson plays a pivotal role in many corporate law decisions that do get a lot more attention. Aronson established the parameters for filing derivative litigation against the directors of a corporation (or a third party, but derivative suits against third parties are now rare). A shareholder …

Proprietary Norms In Corporate Law: An Essay On Reading Gambotto In The United States, Deborah A. Demott

Faculty Scholarship

No abstract provided.

Of Lollipops And Law -- A Proposal For A National Policy Concerning Tender Offer Defenses, Ted J. Fiflis

Publications

Early last year, Mesa Petroleum Company made a tender offer for shares of Unocal Corporation in an effort to take over Unocal. Unocal responded by using the "lollipop" defense, which is a discriminatory issuer self-tender offer. Unocal's use of this defense resulted in huge economic losses to many of Unocal's small shareholders who were not knowledgeable about the ramifications of their participation or non-participation in the tender offer. The Delaware Supreme Court upheld Unocal's use of this defense as an appropriate exercise of business judgment. A federal district court in California refused to strike down the lollipop under federal law …

Tender Offer Litigation And State Law, Mark J. Loewenstein

Publications

The recent spate of hostile takeover battles has focused attention and criticism on the federal securities laws. Most claims of defeated offerors and disappointed shareholders have been based on sections 14(e) and 10(b) of the Securities Exchange Act of 1934. The United States Supreme Court, however, has limited such federal remedies and suggested that plaintiffs bring state-law actions for interference with a prospective economic advantage. Professor Loewenstein discusses this tort, which has not been used widely in this context, and reviews the tort's traditional elements, its formulation in the Restatement (Second) of Torts, and its recent treatment by state courts. …