Law Commons^™

How To Prevent Hard Cases From Making Bad Law: Bear Stearns, Delaware And The Strategic Use Of Comity, Marcel Kahan, Edward B. Rock

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The Bear Stearns/JP Morgan Chase merger placed Delaware between a rock and a hard place. On the one hand, the deal’s unprecedented deal protection measures – especially the 39.5% share exchange agreement – were probably invalid under current Delaware doctrine because they rendered the Bear Stearns shareholders’ approval rights entirely illusory. On the other hand, if a Delaware court were to enjoin a deal pushed by the Federal Reserve and the Treasury and arguably necessary to prevent a collapse of the international financial system, it would invite just the sort of federal intervention that would undermine Delaware’s role as the …

Unentrapped, William W. Bratton

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No abstract provided.

Neoclassicism And The Separation Of Ownership And Control, Herbert J. Hovenkamp

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"Separation of ownership and control" is a phrase whose history will forever be associated with Adolf A. Berle and Gardiner C. Means' The Modern Corporation and Private Property (1932), as well as with Institutionalist economics, Legal Realism, and the New Deal. Within that milieu the large publicly held business corporation became identified with excessive managerial power at the expense of stockholders, social irresponsibility, and internal inefficiency. Neoclassical economists both then and ever since have generally been critical, both of the historical facts that Berle and Means purported to describe and of the conclusions that they drew. In fact, however, within …

Agency Costs, Charitable Trusts, And Corporate Control: Evidence From Hershey's Kiss-Off, Jonathan Klick, Robert H. Sitkoff

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In July 2002 the trustees of the Milton Hershey School Trust announced a plan to diversify the Trust’s investment portfolio by selling the Trust’s controlling interest in the Hershey Company. The Company’s stock jumped from $62.50 to $78.30 on news of the proposed sale. But the Pennsylvania Attorney General, who was then running for governor, opposed the sale on the ground that it would harm the local community. Shortly after the Attorney General obtained a preliminary injunction, the trustees abandoned the sale and the Company’s stock dropped to $65.00. Using standard event study methodology, we find that the sale announcement …

Shareholder Democracy On Trial: International Perspective On The Effectiveness Of Increased Shareholder Power, Lisa Fairfax

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Shareholder democracy - efforts to increase shareholder power within the corporation - appears to have come of age, both within the United States and abroad. In the past few years, U.S. shareholders have worked to strengthen their voice within the corporation by seeking to remove perceived impediments to their voting authority. These impediments include classified boards, the plurality standard for board elections, and the inability to nominate directors on the corporation's ballot. Shareholders' efforts have also extended to seeking a voice on the compensation of corporate officers and directors. Advocates of shareholder democracy believe that such efforts are critical to …

On Beyond Calpers: Survey Evidence On The Developing Role Of Public Pension Funds In Corporate Governance, Stephen Choi, Jill E. Fisch

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No abstract provided.

Shareholder Primacy's Corporatist Origins: Adolf Berle And The Modern Corporation, William W. Bratton, Michael L. Wachter

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No abstract provided.

The Managerial Turn In Environmental Policy, Cary Coglianese

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No abstract provided.

Private Equity's Three Lessons For Agency Theory, William W. Bratton

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No abstract provided.

Making The Corporation Safe For Shareholder Democracy, Lisa Fairfax

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This article considers the effect that increased shareholder activism may have on non-shareholder corporate stakeholders such as employees and consumers. One of the most outspoken proponents of increased shareholder power has argued that such increased power could have negative repercussions for other corporate stakeholders because it would force directors to focus on profits without regard to other interests. This article critically examines that argument. The article acknowledges that increased shareholder power may benefit some stakeholders more than others, and may have some negative consequences. However, this article demonstrates that shareholders not only have interests that align with other stakeholders, but …

The Missing Monitor In Corporate Governance: The Directors' And Officers' Liability Insurer, Tom Baker, Sean J. Griffith

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This article reports the results of empirical research on the monitoring role of directors’ and officers’ liability insurance (D&O insurance) companies in American corporate governance. Economic theory provides three reasons to expect D&O insurers to serve as corporate governance monitors: first, monitoring provides insurers with a way to manage moral hazard; second, monitoring provides benefits to shareholders who might not otherwise need the risk distribution that D&O insurance provides; and third, the “bonding” provided by risk distribution gives insurers a comparative advantage in monitoring. Nevertheless, we find that D&O insurers neither monitor corporate governance during the life of the insurance …

Hedge Funds And Governance Targets, William W. Bratton

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Corporate governance interventions by hedge fund shareholders are triggering debates between advocates of management empowerment and advocates of aggressive monitoring by actors in the capital markets. This Article intervenes with an empirical question: What, based on the record so far, have the hedge funds actually done to their targets? Information has been collected on 130 domestic firms identified in the business press since 2002 as targets of activist hedge funds, including the funds’ demands, their tactics, and the results of their interventions for the targets’ governance and finance. The survey results show that the hedge funds have an enviable record …

Labor Unions: A Corporatist Institution In A Competitive World, Michael L. Wachter

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Union membership, as a percentage of the private sector workforce, has been in decline for 50 years. I argue that the cause of this unrelenting decline is a single, fundamental factor – the change in the United States economy from a corporatist-regulated economy to one based on free competition. Most labor commentators have explained the decline by a confluence of unrelated economic and legal forces. Labor economists typically stress economic explanations, which vary from compositional shifts in the job structure to increased competition both domestically and internationally. On the other hand, labor law commentators naturally focus on labor law explanations, …

Fiduciary Duties And The Analyst Scandals, Jill E. Fisch

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No abstract provided.

Criminalization Of Corporate Law: The Impact On Shareholders And Other Constituents, Jill E. Fisch

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No abstract provided.

Does Analyst Independence Sell Investors Short?, Jill E. Fisch

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Regulators responded to the analyst scandals of the late 1990s by imposing extensive new rules on the research industry. These rules include a requirement forcing financial firms to separate investment banking operations from research. Regulators argued, with questionable empirical support, that the reforms were necessary to eliminate analyst conflicts of interest and ensure the integrity of sell-side research.

By eliminating investment banking revenues as a source for funding research, the reforms have had substantial effects. Research coverage of small issuers has been dramatically reduced—the vast majority of small capitalization firms now have no coverage at all. The market for research …

Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton

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The Financial Accounting Standards Board (the “FASB”) presents a puzzle: How has this private standard setter managed simultaneously (1) to remain independent, (2) to achieve institutional stability and legitimacy, and (3) to operate in a politicized context in the teeth of op-position from its own constituents? This Article looks to governance design to account for this institutional success. The FASB’s founders made a strategic choice to create a regulatory agency that sought independence rather than political responsiveness. The FASB also set out a coherent theory of accounting, the “Conceptual Framework,” to contain and direct its decisions. The Conceptual Framework contributed …

Measuring Efficiency In Corporate Law: The Role Of Shareholder Primacy, Jill E. Fisch

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The shareholder primacy norm defines the objective of the corporation as maximization of shareholder wealth. Law and economics scholars have incorporated the shareholder primacy norm into their empirical analyses of regulatory efficiency. An increasingly influential body of scholarship uses empirical methodology to evaluate legal rules that allocate power within the corporation. By embracing the shareholder primacy norm, empirical scholars offer normative assessments about regulatory choices based on the effect of legal rules on measures of shareholder value such as stock price, net profits, and Tobin’s Q.

This Article challenges the foundations of using the shareholder primacy norm to judge corporate …

The "Bad Man" Goes To Washington: The Effect Of Political Influence On Corporate Duty, Jill E. Fisch

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No abstract provided.

The Equilibrium Content Of Corporate Federalism, William W. Bratton, Joseph A. Mccahery

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No abstract provided.

Supersize Pay, Incentive Compatibility, And The Volatile Shareholder Interest, William W. Bratton

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No abstract provided.

How Do Corporations Play Politics? The Fedex Story, Jill E. Fisch

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Corporate political activity has been the subject of federal regulation since 1907, and the restrictions on corporate campaign contributions and other political expenditures continue to increase. Most recently, Congress banned soft money donations in the Bipartisan Campaign Reform Act of 2002 ("BCRA"), a ban upheld by the Supreme Court in McConnell v. FEC. Significantly, although the omnibus BCRA clearly was not directed exclusively at corporations, the Supreme Court began its lengthy opinion in McConnell by referencing and endorsing the efforts of Elihu Root, more than a century ago, to prohibit corporate political contributions. Repeatedly, within the broad context of campaign …

Institutional Competition To Regulate Corporations: A Comment On Macey, Jill E. Fisch

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No abstract provided.

The Academic Tournament Over Executive Compensation, William W. Bratton

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No abstract provided.

Welfare, Dialectic, And Mediation In Corporate Law, William W. Bratton

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No abstract provided.

The New Dividend Puzzle, William W. Bratton

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No abstract provided.

The Role Of Government In Corporate Governance, Cary Coglianese, Elizabeth K. Keating, Michael L. Michael, Thomas J. Healey

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Numerous corporate scandals in the past several years have fueled widespread debate over proposals for government action. The central challenge for government is how to restore corporate integrity and market confidence without overreacting and stifling the dynamism that underlies a strong economy. To examine this challenge, the Center for Business and Government's Regulatory Policy Program organized a conference in May 2004 on The Role of Government in Corporate Governance. The conference brought together government officials, business leaders, and academic researchers to discuss three fundamental public policy issues raised by recent corporate abuses. First, who should regulate corporate management - government …

The New Federal Regulation Of Corporate Governance, Jill E. Fisch

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No abstract provided.

Gaming Delaware, William W. Bratton

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No abstract provided.

Shareholder Value And Auditor Independence, William W. Bratton

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This Article questions the practice of framing problems concerning auditors’ professional responsibility inside a principal-agent paradigm. If professional independence is to be achieved, auditors cannot be enmeshed in agency relationships with the shareholders of their audit clients. As agents, the auditors by definition become subject to the principal’s control and cannot act independently. For the same reason, auditors’ duties should be neither articulated in the framework of corporate law fiduciary duty, nor conceived relationally at all. These assertions follow from an inquiry into the operative notion of the shareholder-beneficiary. The Article unpacks the notion of the shareholder and tells a …