Law Commons^™

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

Vanderbilt Law School Faculty Publications

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 …

Extending Democracy To Corporate Governance And Beyond, Edward Rubin

Vanderbilt Law School Faculty Publications

This article proposes a different rationale for corporate democracy, one that extends more broadly to all forms of employment. It is based on an equivalence, not an analogy. The equivalence is that subordination feels essentially the same to an individual whether a public or a private entity is carrying it out. As recognized in the public arena, it undermines people’s dignity and autonomy, and at least threatens—and often produces—actual oppression. Based on this equivalence, this article proposes a different argument for corporate democracy. Proponents of democracy in the public sphere believe that the citizens of a nation should control its …

Will Tenure Voting Give Corporate Managers Lifetime Tenure?, Paul H. Edelman, Randall S. Thomas, Wei Jiang

Vanderbilt Law School Faculty Publications

Dual-class voting systems have been widely employed in recent initial public offerings by large tech companies, but have been roundly condemned by institutional investors and the S&P 500. As an alternative, commentators have proposed adoption of tenure voting systems, where investor voting rights increase with the length of time that they hold shares. In furtherance of this proposal, some Silicon Valley investors have requested that the SEC permit the creation of a new stock exchange where all of the companies will be required to use tenure voting systems.

Is tenure voting a better choice than dual-class stock for both corporate …

Too-Big-To-Fail Shareholders, Yesha Yadav

Vanderbilt Law School Faculty Publications

To build resilience within the financial system, post-Crisis regulation relies heavily on banks to fund themselves more fully by issuing equity. This reserve of value should buttress failing banks by providing a mechanism to pay off creditors and depositors and preserve the health of financial markets. In the process, shareholders are wiped out. Scholars and policymakers, however, have neglected to examine which equity investors, in fact, are purchasing bank equity and taking on the default risk of U.S. banks. This Article addresses this question. First, it shows that five asset managers - BlackRock, Vanguard, State Street Global Advisors, Fidelity and …

The Shifting Tides Of Merger Litigation, Randall Thomas, Matthew D. Cain, Jill Fisch, Steven D. Solomon

Vanderbilt Law School Faculty Publications

In 2015, Delaware made several important changes to its laws concerning merger litigation. These changes, which were made in response to a perception that levels of merger litigation were too high and that a substantial proportion of merger cases were not providing value, raised the bar, making it more difficult for plaintiffs to win a lawsuit challenging a merger and more difficult for plaintiffs’ counsel to collect a fee award. We study what has happened in the courts in response to these changes. We find that the initial effect of the changes has been to decrease the volume of merger …

Say On Pay Around The World, Randall Thomas, Christoph Van Der Elst

Vanderbilt Law School Faculty Publications

Shareholders have long complained that top executives are overpaid by corporate directors irrespective of their performance. Largely powerless to stop these practices, in 2002, they prevailed upon the U.K. Parliament to adopt legislation requiring public companies to permit their shareholders to have a mandatory, non-binding vote on the compensation of their top executives (Say on Pay). Since that time, there has been a wave of such legislation enacted in countries around the world, including the U.S., Australia, Belgium, the Netherlands, and Sweden, while Switzerland, Germany and France appear to be moving rapidly in the same direction. In this article, we …

Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse Fried, Darian Ibrahim

Vanderbilt Law School Faculty Publications

Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law, as well as the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a “lingua franca” for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence consistent with this lingua-franca explanation. Indeed, the lingua-franca effect appears to be more important than other factors that …

Shareholder Voting In An Age Of Intermediary Capitalism, Paul H. Edelman, Randall S. Thomas, Robert B. Thompson

Vanderbilt Law School Faculty Publications

Shareholder voting is a key part of contemporary American corporate governance. As numerous contemporary battles between corporate management and shareholders illustrate, voting has never been more important. Yet, traditional theory about shareholder voting, rooted in concepts of residual ownership and a principal/agent relationship, does not reflect recent fundamental changes as to who shareholders are and their incentives to vote (or not vote). In the first section of the article, we address this deficiency directly by developing a new theory of corporate voting that offers three strong and complementary reasons for shareholder voting. In the middle section, we apply our theory …

Carrots & Sticks: How Vcs Induce Entrepreneurial Teams To Sell Startups, Brian Broughman, Jesse Fried

Vanderbilt Law School Faculty Publications

Venture capitalists (VCs) usually exit their investments in a startup via a trade sale. But the entrepreneurial team – the startup’s founder, other executives, and common shareholders – may resist a trade sale. Such resistance is likely to be particularly intense when the sale price is low relative to VCs’ liquidation preferences. Using a hand-collected dataset of Silicon Valley firms, we investigate how VCs overcome such resistance. We find, in our sample, that VCs give bribes (carrots) to the entrepreneurial team in 45% of trade sales; in these sales, carrots total an average of 9% of deal value. The overt …

Should New Zealand Adopt Say On Pay?, Randall Thomas, Susan Watson

Vanderbilt Law School Faculty Publications

No abstract provided.

Dodd-Frank's Say On Pay: Will It Lead To A Greater Role For Shareholders In Corporate Governance?, Randall S. Thomas, Alan R. Palmiter, James F. Cotter

Vanderbilt Law School Faculty Publications

"Say on pay" gives shareholders an advisory vote on a company's pay practices for its top executives. Beginning in 2011, Dodd-Frank mandated such votes at public companies. The first year of "say on pay" under the new legislation may have changed the dialogue and give-and-take in the shareholder-management relationship at some companies, particularly on the question of executive pay.

We study the evolution of shareholder voting on "say on pay" - beginning in 2006 as a fledgling shareholder movement to get "say on pay" on the corporate ballot, evolving as a handful of companies and later the financial firms receiving …

Prediction Markets And Law: A Skeptical Account, Rebecca Haw Allensworth

Vanderbilt Law School Faculty Publications

Enthusiasm for "many minds" arguments has infected legal academia. Scholars now champion the virtues of groupthink, something once thought to have only vices. It turns out that groups often outperform individuals in aggregating information, weighing alternatives, and making decisions. And although some of our legal institutions, such as Congress and juries, already harness the power of the crowd, others could be improved by multiplying the number of minds at work. "Multiplying" implies a simple mathematical formula for improving decisionmaking; modern many minds arguments are more sophisticated than that. They use incentive analyses, game theory, and statistics to study how and …

Does Private Equity Create Wealth? The Effects Of Private Equity And Derivatives On Corporate Governance, Randall Thomas, Ronald W. Masulis

Vanderbilt Law School Faculty Publications

Private equity has reaped large rewards in recent years. We claim that one major reason for this success is due to the corporate governance advantages of private equity over the public corporation. We argue that the development of substantial derivative contracts and trading has significantly weakened the governance of public corporations and has created a need for financially sophisticated directors and much closer supervision of management. The private equity model delivers these benefits and allows corporations to be better governed, creating wealth gains for investors.

The Evolving Role Of Institutional Investors In Corporate Governance And Corporate Litigation, Randall Thomas

Vanderbilt Law School Faculty Publications

Each of the articles in this Symposium sheds new light on the ever-changing role of institutional investors in U.S. corporate governance and corporate litigation. They cover a broad range of topics, including institutional investor activism on executive compensation, proxy access initiatives at the SEC, state and federal litigation, and the current levels of activism by public pension funds. The data and the theoretical contributions of these articles provide important foundation for the ongoing discussion about the role of institutional investors.

Specific Investment: Explaining Anomalies In "Corporate Law", Margaret M. Blair, Lynn A. Stout

Vanderbilt Law School Faculty Publications

This Article has two goals: to praise Professor Robert Clark as a remarkable corporate scholar, and to explore how his work has helped to advance our understanding of corporations and corporate law. Clark wrote his classic treatise at a time when corporate scholarship was dominated by a principal-agent paradigm that viewed shareholders as the principals or sole residual claimants in public corporations and treated directors as shareholders' agents. This view naturally led contemporary scholars to believe that the chief economic problem of interest in corporate law was the "agency cost" problem of getting corporate directors to do what shareholders wanted …

Is U.S. Ceo Compensation Inefficient Pay Without Performance?, Randall Thomas, John E. Core, Wayne Guay

Vanderbilt Law School Faculty Publications

In this paper, we review Pay Without Performance by Professors Lucian Bebchuk and Jesse Fried. The book develops and summarizes the leading critiques of current executive compensation practices in the U.S., and offers a negative, if mainstream, assessment of the state of U.S. executive compensation: U.S. executive compensation practices are failing, and systemic reform is needed. This review summarizes the book in some detail and offers some counter-arguments. The book's thesis is that executive compensation practices are bad for shareholders (not "optimal") because they are the product of "managerial power." Managerial power arises because boards of directors at public companies …

Reforming Corporate Governance: What History Can Teach Us, Margaret M. Blair

Vanderbilt Law School Faculty Publications

In this Article, I turn to the history of corporate law for insight into the role that the corporate form plays in the organization of business enterprises. I then draw implications from this history for thinking about circumstances and situations in which corporate directors should have unimpeded control over business decisions, versus situations in which shareholders should have more input and control over business decisions. In Part I, I review historical evidence of the rapid growth in demand for the corporate form to organize businesses in the United States during the early nineteenth century. I compare the law that governed …

Director's Duties In A Post-Enron World: Why Language Matters, Margaret M. Blair

Vanderbilt Law School Faculty Publications

This essay observes that, in the face of corporate scandals of the last few years, a number of prominent advocates for shareholder primacy have retreated to the position that directors and officers should attempt to maximize long run share value performance, rather than short term value. But the mantra of share value maximization has no distinctive meaning and policy implications if it is not interpreted to mean maximization of short term value. This is because the actions required to maximize share value in the long run are indistinguishable in practice from actions taken in pursuit of other more broadly-stated goals …

Team Production In Business Organizations: An Introduction, Margaret M. Blair, Lynn A. Stout

Vanderbilt Law School Faculty Publications

For the past two decades, legal and economic scholarship has tended to assume that the central economic problem addressed by corporation law is getting managers and directors to act as faithful agents for shareholders. There are other important economic problems faced by business firms, however. This article introduces a Symposium that explores one of those alternate economic problems: the problem of "team production". Team production problems can arise whenever three conditions are met: (1) economic production requires the combined inputs of two or more individuals; (2) at least some of these inputs are "team-specific," meaning they have a significantly higher …

The Effect Of Shareholder Proposals On Executive Compensation, Randall Thomas, Kenneth J. Martin

Vanderbilt Law School Faculty Publications

During the last decade, the stratospheric increases in Chief Executive Officer (CEO) pay levels have made executive compensation a popular target for shareholder activism, particularly when high pay is accompanied by poor corporate performance. Outraged investors have made their views know to corporate boards of directors using shareholder proposals, binding bylaw amendments, "Just Vote No" campaigns, and other activist efforts. As institutional and other shareholders have attempted to monitor board decisions, the question remains: Have their efforts been successful in influencing executive compensation?