Law Commons^™

The Rise Of Corporate Guidelines In The United States, 2005-2021: Theory And Evidence, Asaf Eckstein

Indiana Law Journal

Institutional investors are legally obliged to be faithful stewards of their portfolio companies. Yet, the conventional wisdom among commentators is that institutional investors have failed to perform this obligation because they are not incentivized to make adequate investments in corporate governance. This Article contends that this criticism is based on an incomplete analysis that misses a critical aspect of the operation of institutional investors. The critics focus exclusively on institutional investors’ efforts in actively engaging with the managements of their portfolio companies. They ignore, however, an important passive governance tool that institutional investors routinely use: corporate guidelines. Corporate guidelines are …

Taming Unicorns, Matthew Wansley

Indiana Law Journal

Until recently, most startups that grew to become valuable businesses chose to become public companies. In the last decade, the number of unicorns—private, venture-backed startups valued over one billion dollars—has increased more than tenfold. Some of these unicorns committed misconduct that they successfully concealed for years. The difficulty of trading private company securities facilitates the concealment of misconduct. The opportunity to profit from trading a company’s securities gives short sellers, analysts, and financial journalists incentives to uncover and reveal information about misconduct the company commits. Securities regulation and standard contract provisions restrict the trading of private company securities, which undermines …

Mandating Board Diversity, Sung Eun (Summer) Kim

Indiana Law Journal

California’s Assembly Bill 979 (AB-979) requires companies that are based in California to have a specified minimum number of directors from underrepresented communities. A “director from an underrepresented community” is defined as an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who selfidentifies as gay, lesbian, bisexual, or transgender. AB-979 received much attention for being the first law to mandate greater diversity on corporate boards in terms of race and sexual orientation. Senate Bill 826 (SB-826), which was introduced two years prior, was the first U.S. legislative effort …

Illusory Privacy, Thomas Haley

Indiana Law Journal

For decades, regulators, consumer advocates, and privacy theorists have grappled with one of privacy’s most important questions: how to protect private information that consumers unwittingly give away with the click of an “I accept” button. Reform efforts remain mired in a morass of text, focusing on the increasing volume and complexity of firms’ terms of service and privacy policies. This Article moves beyond such existing approaches. By analyzing terms of service and privacy policies from hundreds of top websites—which this Article calls “platform terms”—this Article demonstrates that the prevailing “notice and consent” paradigm of privacy regulation cannot provide meaningful protection. …

Acquisitions Entrepreneurship: One Solution To The Looming Business Succession Crisis, David Nows

Indiana Law Journal

In the coming years, there will be a growing supply of small businesses held by aging owners that need to execute a succession plan, transitioning the business to a new owner that can carry the business forward in future years. Unfortunately, very few of these Baby Boomer-led businesses have a plan for who will take over for the primary business owner when the time comes, creating an emerging leadership crisis. However, there is an underutilized acquisition strategy that allows for a motivated and skilled entrepreneur to team with a small group of investors to search for (and ultimately to purchase) …

The Case For Preemptive Oligopoly Regulation, Jeffrey D. Manns

Indiana Law Journal

One of the few things former President Donald Trump and leading Democrats appear to agree on is the need to subject Big Technology (“Big Tech”) firms to antitrust scrutiny. But unsurprisingly they disagree about how to address the problem. Senator Elizabeth Warren and many other leading Democrats have called for breaking up large technology firms, such as Google, Amazon, and Facebook, in a revival of the trust-busting progressive era of the early twentieth century. In contrast, the Trump administration triggered more traditional antitrust monopoly review of potential anticompetitive activities of a number of leading technology firms, which is more likely …

Tort Immunity In The Pandemic, Betsy J. Grey, Samantha Orwoll

Indiana Law Journal

The Covid-19 pandemic set off a public health emergency that quickly brought doctors and other health care providers to the front line, while shuttering businesses throughout the United States. In response to the emergency, the federal and state governments rapidly created broad protections from tort liability for health care providers. To encourage businesses to reopen, some states have also provided liability protection for businesses from personal injury suits brought by patrons and employees. Congress is considering similar protections for businesses as it contemplates further aid packages. Some industries, like nursing homes and universities, are lobbying for specific immunity. This Essay …

Blockchain Stock Ledgers, Kevin V. Tu

Indiana Law Journal

American corporate law contains a seemingly innocuous mandate. Corporations must maintain appropriate books and records, including a stock ledger with the corporation's shareholders and stock ownership. The importance of accurate stock ownership records is obvious. Corporations must know who owns each of its outstanding shares at any point in time. Among other things, this allows corporations to determine who receives dividends and who is entitled to vote. In theory, keeping accurate records of stock ownership should be a simple matter. But despite diligent efforts, serious share discrepancies plague corporations, and reconciliation is often functionally impossible. Doing so may require the …

Influencing Juries In Litigation "Hot Spots", Megan M. La Belle

Indiana Law Journal

This Article considers how corporations are using image advertising in litigation "hot spots" as a means of influencing litigation outcomes. It describes how Samsung and other companies advertised in the Eastern District of Texas--a patent litigation "hot spot"--to curry favor with the people who live there, including by sponsoring an ice rink located directly outside the courthouse. To be sure, image advertisements are constitutionally protected speech and might even warrant the highest level of protection under the First Amendment when they are not purely commercial in nature. Still, the Article argues, courts should be able to prohibit such advertisements altogether, …

A Corporate Duty To Rescue: Biopharmaceutical Companies And Access To Medications, Rebecca E. Wolitz

Indiana Law Journal

Controversies regarding the pricing of biopharmaceutical products are pervasive. Patients must choose between treatment and rent, prescriptions go unfilled, and health systems are forced to restrict access to life-saving medications— all because of cost. Though there is often consensus that these issues are problematic, there is disagreement as to what are appropriate solutions and who has responsibility to bring about those solutions. Most efforts to address biopharmaceutical pricing concerns focus on governmental regulation. This Article has a different focus. It provides a legal and normative analysis of a form of corporate self-regulation that could help address access and pricing concerns—a …

Procompetitive Justifications In Antitrust Law, John M. Newman

Indiana Law Journal

The Rule of Reason, which has come to dominate modern antitrust law, allows defendants the opportunity to justify their conduct by demonstrating procompetitive effects. Seizing the opportunity, defendants have begun offering increasingly numerous and creative explanations for their behavior.

But which of these myriad justifications are valid? To leading jurists and scholars, this has remained an “open question,” even an “absolute mystery.” Examination of the relevant case law reveals multiple competing approaches and seemingly irreconcilable opinions. The ongoing lack of clarity in this area is inexcusable: procompetitive-justification analysis is vital to a properly functioning antitrust enterprise.

This Article provides answers …

Do Independent Directors Curb Financial Fraud? The Evidence And Proposals For Further Reform†, S. Burcu Avci, Cindy A. Schipani, Nejat Seyhun

Indiana Law Journal

In this Article, we argue that the U.S. corporate governance rules put too much faith in the independent board members and insufficient emphasis on the shareholders to control and monitor top management. Given the agency problem between the board of directors and the shareholders, outside directors can be captured by management, thereby leading to inadequate checks on management. The evidence presented in this Article shows that outside board members do not exercise sufficient controls on management even when management has gone awry. To solve this agency problem, we propose increasing the power of the principals: make shareholder resolutions binding on …

Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner

Indiana Law Journal

Corporate directors committed to a failed business strategy or unduly influenced by the company’s debtholders need a dissenting voice—they need shareholder nominees on the board. This Article examines the biases, conflicts, and external factors that impact board decisions, particularly when a company faces financial distress. It challenges the conventional wisdom that debt disciplines management, and it sug-gests that, in certain circumstances, the company would benefit from having the shareholders’ perspective more actively represented on the board. To that end, the Article proposes a bylaw that would give shareholders the ability to nominate direc-tors upon the occurrence of predefined events. Such …

Executive Compensation In Controlled Companies, Kobi Kastiel

Indiana Law Journal

Conventional wisdom among corporate law theorists holds that the presence of a controlling shareholder should alleviate the problem of managerial opportunism because such a controller has both the power and incentives to curb excessive executive pay. This Article challenges that common understanding by proposing a different view based on an agency problem paradigm. Controlling shareholders, this Article suggests, may in fact overpay managers in order to maximize controllers’ consumption of private benefits, due to their close social and business ties with professional managers or for other reasons, such as being captured by professional managers. This tendency to overpay managers is …

Good-Cause Statutes Revisited: An Empirical Assessment, Adi Ayal, Uri Benoliel

Indiana Law Journal

One of the most vital debates in franchise law focuses on whether state or federal law should adopt “good-cause statutes” (GCSs), which require franchisors to show good cause before terminating contractual relations with a franchisee. The traditional law-and-economics analysis suggests that GCSs are inefficient. This inefficiency argument is based upon one central hypothesis: GCSs increase franchisee free riding since they limit the franchisor’s ability to terminate the franchise contract easily. The free-riding hypothesis has been significantly influential in the development of franchise law, as is evident in state and federal statutory regimes. To date, the majority of states and the …

Do Corporations Have Religious Beliefs?, Jason Iuliano

Indiana Law Journal

Despite two hundred years of jurisprudence on the topic of corporate personhood, the Supreme Court has failed to endorse a philosophically defensible theory of the corporation. In this Article, I attempt to fill that void. Drawing upon the extensive philosophical literature on personhood and group agency, I argue that corporations qualify as persons in their own right. This leads me to answer the titular question with an emphatic yes. Contrary to how it first seems, that conclusion does not warrant granting expansive constitutional rights to corporations. It actually suggests the opposite. Using the Affordable Care Act’s contraception mandate as a …

Ceo Stock Ownership Policies: Rhetoric And Reality, Nitzan Shilon

Indiana Law Journal

This Article is the first academic endeavor to analyze the efficacy and transparency of stock ownership policies (SOPs) in U.S. public firms. SOPs generally require managers to hold some of their firms’ stock for the long term. Following the 2008 financial crisis, firms universally adopted these policies and cited them more than any other policy as a key element in their mitigation of risk. However, my analysis of the recent SOPs of S&P 500 CEOs disputes what firms claim about these policies. First, I find that SOPs are extremely ineffectual in making CEOs hold on to their firm’s stock; this …

Delaware’S Balancing Act, John Armour, Bernard S. Black, Brian R. Cheffins

Indiana Law Journal

Delaware’s courts and well-developed case law are widely seen as integral elements of Delaware’s success in attracting incorporations. However, as we show using empirical evidence involving reported judicial decisions and filed cases concerning large mergers and acquisitions, leveraged buyouts, and options backdating, Delaware’s popularity as a venue for corporate litigation is under threat. Today, a majority of shareholder suits involving Delaware companies are being brought and decided elsewhere. We examine in this Article the implications of this “out-of-Delaware” trend, emphasizing a difficult balancing act that Delaware faces. If Delaware accommodates litigation too readily, companies, fearful of lawsuits, may incorporate elsewhere. …

Confident Uncertainty, Excessive Compensation & The Obama Plan, Michael B. Dorff

Indiana Law Journal

Public outrage at the enormous bonuses TARP recipients paid to senior executives recently prompted the Obama administration to impose sweeping new curbs on executive compensation. Shortly thereafter, Senator Dodd added restrictions on executive bonuses to the stimulus bill President Obama subsequently signed. These are understandable political reactions, but will they achieve the twin goals of reducing executive compensation in recipients of federal assistance while spurring better corporate performance? To examine this question, I analyze excessive compensation as the product of "confident uncertainty, "the tendency of even the most sophisticated actors to place unwarranted confidence in their ability to predict the …

Enabling Investments In Environmental Sustainability, Heather Hughes

Indiana Law Journal

No abstract provided.

The Decisions Of The Corporate Special Litigation Committees: An Empirical Investigation, Minor Myers

Indiana Law Journal

Using an original data set gathered from filings with the U.S. Securities and Exchange Commission, this Article tests the prevailing view in corporate law that special litigation committees invariably decide to dismiss shareholder derivative litigation. It demonstrates that (1) special litigation committees decide to pursue or settle claims much more frequently than heretofore recognized; (2) special litigation committees do not otherwise let defendants off the hook when pursuing or settling claims, in view of the financial recovery to the company in either scenario; (3) most shareholder claims subject to the authority of special litigation committees end up settled, not dismissed,- …

Mergers, Taxes, And Historical Materialism, Ajay K. Mehrotra

Indiana Law Journal

In the last few years, corporate mergers and acquisitions witnessed explosive growth. Although more recent market conditions have halted the latest merger movement, scholars and commentators have used the earlier rise in merger activity to reevaluate the preferential tax treatment granted to those mergers and acquisitions that fall under the U.S. tax law's definition of a corporate "reorganization. " Under the current Internal Revenue Code, neither shareholders nor corporations recognize gain or loss on the exchange of stock or securities in transactions that qualify as a "corporate reorganization." The significance of this tax rule raises a central question: why does …

Insuring Corporate Crime, Miriam Hechler Baer

Indiana Law Journal

Corporate criminal liability has become an important and much-talked about topic. This Article argues that entity-based liability-particularly the manner in which it is currently applied by the federal government---creates social costs in excess of its benefits. To help companies better deter employee crime, the Article suggests the abolition of entity-wide criminal liability, and in its place, the adoption of an insurance system, whereby carriers would examine corporate compliance programs, estimate the risk that a corporation's employees would commit crimes, and then charge companies for insuring those risks. The insurance would cover civil penalties associated with the entity's employee-related criminal conduct. …

Rethinking Criminal Corporate Liability, Andrew Weissmann, David Newman

Indiana Law Journal

Under current federal law, a corporation, no matter how large or small, is criminally liable if a member of the organization commits a crime within the scope of employment and at least in part with the intent to benefit the company. This Article challenges that doctrine and contends that where it seeks to charge a corporation criminally, the government should bear the burden of establishing as an additional criminal element that the corporation failed to have reasonable policies and procedures to prevent the employee 's conduct. Narrowing the scope of criminal corporate liability is supported by the reasoning of a …

Delaware Strikes Back: Newcastle Partners And The Fight For State Corporate Autonomy, Michael W. Ott

Indiana Law Journal

No abstract provided.

Whose Public? Parochialism And Paternalism In State Charity Law Enforcement, Evelyn Brody

Indiana Law Journal

No abstract provided.

The Transnational Corporation In History: Lessons For Today?, Janet Mclean

Indiana Law Journal

This is the revised text of the George P. Smith, II Lecture delivered at Indiana University School of Law- Bloomington on April 4, 2003.

Corporate Governance After Enron And Global Crossing: Comparative Lessons For Cross-National Improvement, Edward S. Adams

Indiana Law Journal

No abstract provided.

A Call For More Lenient Director Liability Standards For Small, Charitable Nonprofit Corporations, David W. Barrett

Indiana Law Journal

No abstract provided.

It's Nothing Personal: The Public Costs Of Limited Liability Law Partnerships, N. Scott Murphy

Indiana Law Journal

No abstract provided.