Law Commons^™

Reforming The Unbargained Contract: Avoiding Bondholder Claims For Surprise Par Calls, Robert S. Blanc, Randy D. Gordon

Faculty Scholarship

Until the last couple of decades, interest rates remained relatively stable, thus providing little incentive for corporate borrowers to seek novel ways of redeeming purportedly non-callable bonds at par. But with the advent of junk bonds and periods of great interest rate volatility, issuers have been provided with powerful incentives to explore the relatively uncharted waters of par calls. This Article examines the authority for and legality of such par calls and ultimately proposes a redefinition of the issuer-bondholder relationship. This redefinition accounts for the realities of the marketplace and should lead a return to more settled expectations in both …

A Proposal To Eliminate Director Standards From The Model Business Corporations Act, D. Gordon Smith

Faculty Scholarship

The Committee on Corporate Laws of the Business Section of the American Bar Association recently adopted amendments to the section of the Model Business Corporation Act (MBCA) enunciating standards of director performance. In place of the current section 8.30, which has been adopted by 42 states, the Committee has adopted two sections - one defining a standard of conduct and one defining a standard of liability for corporate directors. This paper argues that these new standards do not achieve the goals of bifurcation. Moreover, if adopted and used, the new standards will engender confusion and possibly inequitable results. This paper …

Cross-Border Bank Branching Under The Nafta: Public Choice And The Law Of Corporate Groups, Eric J. Gouvin

Faculty Scholarship

This Article examines a question left unresolved after the negotiation of the North American Free Trade Agreement (NAFTA): whether the banks of the member countries should be permitted to engage in the business of banking in the other member countries simply by branching across national borders. Under present law, the United States permits branching subject to extensive restrictions, while Canada and Mexico permit access to their banking markets only by acquisition or establishment of institutions chartered in their countries. While the NAFTA does not provide for unfettered branching across national borders, article 1403(3) of the NAFTA left the issue of …

A Government For Our Time? Business Improvement Districts And Urban Governance, Richard Briffault

Faculty Scholarship

The emergence and rapid spread of business improvement districts ("BIDs") is one of the most important recent developments in American cities. BIDs have been controversial, with both supporters and proponents viewing the districts as part of a trend toward the privatization of the public sector. By examining the legal and political structures that determine BID formation, functions, finances and governance, this Article determines that BIDs are not private entities but are, instead, a distinctive hybrid of public and private elements. Moreover, although the particular fusion of public and private institutions, values and concerns embodied in the BID is unique, Professor …

The Future As History: The Prospects For Global Convergence In Corporate Governance And Its Implications, John C. Coffee Jr.

Faculty Scholarship

What forces explain corporate structure and shareholder behavior? For decades this question has gone unasked, as both corporate law scholars and practitioners tacitly accepted the answer given in 1932 by Adolf Berle and Gardiner Means that the separation of ownership and control stemming from ownership fragmentation explained and assured shareholder passivity. Over this decade, however, corporate law scholars have recognized that this standard answer begs an essential prior question: if ownership fragmentation explains shareholder passivity, what explains ownership fragmentation? Although the Berle and Means model assumed that large-scale enterprises could raise sufficient capital to conduct their operations only by attracting …

Lessons From Fiascos In Russian Corporate Governance, Merritt B. Fox, Michael Heller

Faculty Scholarship

Bad corporate governance is often invoked to explain poor enterprise performance, but the catch phrase is never precisely defined. Neither its consequences for the real economy, nor its causes in particular countries has been adequately explained. This paper uses Russian enterprise examples to address these open questions in corporate governance theory. We define corporate governance by looking to the economic functions of the firm rather than to any particular set of national corporate laws. Firms exhibit good corporate governance when their managers maximize residuals and, in the case of investor-owned firms, make pro rata distributions to shareholders.

Using this definition, …

An Economic Analysis Of The Guaranty Contract, Avery W. Katz

Faculty Scholarship

Guaranty arrangements, in which one person stands as surety for a second person's obligation to a third, are ubiquitous in commercial transactions and in commercial law. In recent years, however, scholarly attention to the topic has been scant; and no one has systematically analyzed this body of law and practice from an economic policy perspective. Accordingly, this Article attempts to outline the basic economic logic underlying the guaranty relationship, and applies the results to a variety of specific issues in government policy and private planning. It poses and answers three main questions: First, why would a creditor prefer to make …

Why Start-Ups?, Joseph Bankman, Ronald J. Gilson

Faculty Scholarship

The prototypical start-up involves an employee leaving her job with an idea and selling a portion of that idea to a venture capitalist. In many respects, however, the idea should be worth more to the former employer. The former employer can be expected to have better information concerning the employee-entrepreneur and the technology, have opportunities to capture economies of scale and scope not available to a venture capital-backed start-up, and will receive more favorable tax treatment than the start-up should the innovation fail. In connection with an auction of the idea, the former employer should have both a more accurate …

Privatization And Corporate Governance: The Lessons From Securities Market Failure, John C. Coffee Jr.

Faculty Scholarship

Should privatization be "fast" or "slow"? Should policymakers adopt a "Damn the torpedoes, full speed ahead" approach that accepts the inevitability of some overreaching by controlling shareholders, but justifies this cost as necessary to realize and expedite the efficiency gains incident to privatization? Or should privatization proceed more cautiously because of the risks of market failure and political corruption that may result when control seekers are tempted to bribe and seduce the judicial and regulatory systems to achieve the private benefit of control? These tempting private benefits arise, of course, precisely to the extent that privatization preceded the creation of …

The Constitution And The Cathedral: Prohibiting, Purchasing, And Possibly Condemning Tobacco Advertising, Thomas W. Merrill

Faculty Scholarship

This Article has both theoretical and practical objectives, which are closely interrelated. The theoretical objective is to develop a framework for understanding the "transaction structure" of constitutional rights. By this, I refer to the different rules that determine when the government may purchase, condemn, or otherwise extinguish constitutional rights. The practical objective is to consider different options that may be available to the government, as part of a broader effort to reduce the incidence of smoking, to curtail tobacco advertising that would otherwise be protected under the First Amendment. It is my hope that the theoretical framework will illuminate the …

Pathways To Corporate Convergence? Two Steps On The Road To Shareholder Capitalism In Germany, Jeffrey N. Gordon

Faculty Scholarship

One of the most interesting current debates in corporate law is whether worldwide corporate governance will ultimately converge on a single model in light of the increasing globalization of capital markets, and if so, whether it will be an Anglo-American model whose features are shaped by the shareholder primacy norm. Convergence skeptics have focused on the embeddedness of governance systems in national political structures that tend to protect both entrenched insider interests and non-shareholder constituencies against the incursions of Anglo-American governance agendas. Convergence optimists have focused on the evolutionary pressures of competitive international capital markets and on the tendency of …

Trends In The Regulation Of Investment Companies And Investment Advisers, Tamar Frankel

Faculty Scholarship

Statutes, rules and enforcement actions are tea leaves we can read to predict future trends of mutual fund regulation. While statutes and rules are specific, the trends they signify are far more speculative. This Essay engages in such speculation to envision the long-term implications of the recent new N- 1A disclosure form, I the plain English Rule,² and the profile. ³ More generally, the Essay speculates on future trends in Securities and Exchange Commission ("Commission") enforcement, and predicts a continued and stronger use of informal enforcement by the Commission.

The Legal Infrastructure Of High Technology Industrial Districts: Silicon Valley, Route 128, And Covenants Not To Compete, Ronald J. Gilson

Faculty Scholarship

In recent years, scholars and policymakers have rediscovered the concept of industrial districts – spatial concentrations of firms in the same industry or related industries. In this Article, Professor Gilson examines te relationship between high-technology industrial districts and legal infrastructure by comparing the legal regimes of California's Silicon Valley and Massachusetts's Route 128. He contends that legal rides governing employee mobility influence the dynamics of high technology industrial districts by either encouraging rapid employee movement between employers and to startups, as in Silicon Valley, or discouraging such movement, as in Route 128. Because California does not enforce post-employment covenants not …

Proceedings Of The 1999 Annual Meeting, Association Of American Law Schools Section On Employment Discrimination Law: Is There A Disconnect Between Eeo Law And The Workplace?, Maria O'Brien, Douglas D. Scherer, James Sharf, Richard Seymour, Paulette Caldwell

Faculty Scholarship

(The following is an edited transcript of the proceedings of the section on Employment Discrimination Law at the AALS Annual Meeting, New Orleans, Louisiana, January 9, 1999.)

DOUGLAS D. SCHERER*: Good morning. The program description asks the question, "Is there a disconnect between existing EEO jurisprudence and the realities of the workplace and workforce of the Twenty-First Century?" Societal disapproval of employment discrimination is reflected in federal EEO laws that have been enacted during the last thirty-six years and in court interpretations of these laws. The goals of these laws are fairly clear. It is less clear how well these …

Does Venture Capital Require An Active Stock Market?, Ronald J. Gilson, Bernard S. Black

Faculty Scholarship

The United States has both an active venture capital industry and well-developed stock markets. Japan and Germany have neither. We argue here that this is no accident – that venture capital can flourish especially – and perhaps only – if the venture capitalist can exit from a successful portfolio company through an initial public offering (IPO), which requires an active stock market. Understanding the link between the stock market and the venture capital market requires understanding the contractual arrangements between entrepreneurs and venture capital providers especially the importance of exit by venture capitalists and the opportunity, present only if IPO …

Taking The "I" Out Of "Team": Intra-Firm Monitoring And The Content Of Fiduciary Duties, Eric L. Talley

Faculty Scholarship

Depending on whom one asks, the last decades' proliferation of statutory business structures is a cause for either celebration or concern. Some laud this recent trend, arguing that a highly permutated menu of tax treatments, liability limitations, and governance hierarchies facilitates the alignment of legal status with organizational need. Others view statutory variety more skeptically, warning that it may simply portend greater cost externalization, strategic behavior, and distributional inequity. But one set of legal doctrines has persisted throughout: the concept of fiduciary duty. Indeed, fiduciary obligations remain fundamental to the legal governance structure of virtually every statutory business entity.

That …

Required Disclosure And Corporate Governance, Merritt B. Fox

Faculty Scholarship

One of the most distinctive features of U.S. business law is the stringent requirements of ongoing disclosure imposed on issuers of publicly traded securities. This scheme usually has been justified as necessary to protect investors from making poor trading decisions as a result of being uninformed. Little scholarly attention, however, has been paid to the corporate governance effects of such required disclosure. In analyzing these effects, this article concludes that required disclosure can improve corporate governance in important ways. Indeed, improving corporate governance, not investor protection, provides the most persuasive justification for imposing on issuers the obligation to provide ongoing …