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Full-Text Articles in Law

Team Production Revisited, William W. Bratton Sep 2021

Team Production Revisited, William W. Bratton

Faculty Scholarship at Penn Law

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited ...


Influence Through Intimidation: Evidence From Business Lobbying And The Regulatory Process, Alex Acs, Cary Coglianese Jul 2021

Influence Through Intimidation: Evidence From Business Lobbying And The Regulatory Process, Alex Acs, Cary Coglianese

Faculty Scholarship at Penn Law

Interest group influence in the policy process is often assumed to occur through a mechanism of exchange, persuasion, or subsidy. Here, we explore how business groups may also exert influence by intimidating policymakers—a form of persuasion, but one based not on the provision of policy information but of political information. We develop a theory where a business firm lobbies a regulator to communicate political information about its capacity to commit to future influence-seeking activities that would sanction the regulator. The regulator assesses the credibility of this message by evaluating the firm’s commitment to lobbying. Guided by our theory ...


The “Value” Of A Public Benefit Corporation, Jill E. Fisch, Steven Davidoff Solomon Apr 2021

The “Value” Of A Public Benefit Corporation, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

We examine the “value” a PBC form provides for publicly-traded corporations. We analyze the structure of the PBC form and find that other than requiring a designated social purpose it does not differ significantly in siting control and direction with shareholders. We also examine the purpose statements in the charters of the most economically significant PBCs. We find that, independent of structural limitations on accountability, these purpose statements are, in most cases, too vague and aspirational to be legally significant, or even to serve as a reliable checks on PBC behavior. We theorize, and provide evidence, that without a legal ...


Just Say Yes? The Fiduciary Duty Implications Of Directorial Acquiescence, Lisa Fairfax Mar 2021

Just Say Yes? The Fiduciary Duty Implications Of Directorial Acquiescence, Lisa Fairfax

Faculty Scholarship at Penn Law

The rise in shareholder activism is one of the most significant recent phenomena in corporate governance. Shareholders have successfully managed to enhance their power within the corporation, and much of that success has resulted from corporate managers and directors voluntarily acceding to shareholder demands. Directors’ voluntary acquiescence to shareholder demands is quite simply remarkable. Remarkable because most of the changes reflect policies and practices that directors have vehemently opposed for decades, and because when opposing such changes directors stridently insisted that the changes were not in the corporation’s best interest. In light of that insistence, and numerous statements from ...


A Lesson From Startups: Contracting Out Of Shareholder Appraisal, Jill E. Fisch Mar 2021

A Lesson From Startups: Contracting Out Of Shareholder Appraisal, Jill E. Fisch

Faculty Scholarship at Penn Law

Appraisal is a controversial topic. Policymakers have debated the goals served by the appraisal remedy, and legislatures have repeatedly revised appraisal statutes in an effort to meet those goals while minimizing the cost and potential abuse associated with appraisal litigation. Courts have struggled to determine the most appropriate valuation methodology and the extent to which that methodology should depend on case-specific factors. These difficulties are exacerbated by variation in the procedures by which mergers are negotiated and the potential for conflict-of-interest transactions.

Private ordering offers a market-based alternative to continued legislative or judicial efforts to refine the appraisal remedy. Through ...


Stealth Governance: Shareholder Agreements And Private Ordering, Jill E. Fisch Mar 2021

Stealth Governance: Shareholder Agreements And Private Ordering, Jill E. Fisch

Faculty Scholarship at Penn Law

Corporate law has embraced private ordering -- tailoring a firm’s corporate governance to meet its individual needs. Firms are increasingly adopting firm-specific governance through dual-class voting structures, forum selection provisions and tailored limitations on the duty of loyalty. Courts have accepted these provisions as consistent with the contractual theory of the firm, and statutes, in many cases, explicitly endorse their use. Commentators too support private ordering for its capacity to facilitate innovation and enhance efficiency.

Private ordering typically occurs through firm-specific charter and bylaw provisions. VC-funded startups, however, frequently use an alternative tool – shareholder agreements. These agreements, which have largely ...


Lifting Labor’S Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance, Leo E. Strine Jr., Aneil Kovvali, Oluwatomi O. Williams Feb 2021

Lifting Labor’S Voice: A Principled Path Toward Greater Worker Voice And Power Within American Corporate Governance, Leo E. Strine Jr., Aneil Kovvali, Oluwatomi O. Williams

Faculty Scholarship at Penn Law

In view of the decline in gain sharing by corporations with American workers over the last forty years, advocates for American workers have expressed growing interest in allowing workers to elect representatives to corporate boards. Board level representation rights have gained appeal because they are a highly visible part of codetermination regimes that operate in several successful European economies, including Germany’s, in which workers have fared better.

But board-level representation is just one part of the comprehensive codetermination regulatory strategy as it is practiced abroad. Without a coherent supporting framework that includes representation from the ground up, as is ...


Duty And Diversity, Chris Brummer, Leo E. Strine Jr. Feb 2021

Duty And Diversity, Chris Brummer, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In the wake of the brutal deaths of George Floyd and Breonna Taylor, a slew of reforms from Wall Street to the West Coast have been introduced, all aimed at increasing Diversity, Equity, and Inclusion (“DEI”) in corporations. Yet the reforms face difficulties ranging from possible constitutional challenges to critical limitations in their scale, scope and degree of legal obligation and practical effects. In this Article, we provide an old answer to the new questions facing DEI policy, and offer the first close examination of how corporate law duties impel and facilitate corporate attention to diversity. Specifically, we show that ...


Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton Jan 2021

Reconsidering The Evolutionary Erosion Account Of Corporate Fiduciary Law, William W. Bratton

Faculty Scholarship at Penn Law

This Article reconsiders the dominant account of corporate law’s duty of loyalty, which asserts that the courts have steadily relaxed standards of fiduciary scrutiny applied to self-dealing by corporate managers across more than a century of history—to the great detriment of the shareholder interest. The account originated in Harold Marsh, Jr.’s foundational article, Are Directors Trustees? Conflicts of Interest and Corporate Morality, published in The Business Lawyer in 1966. Marsh’s showing of historical lassitude has been successfully challenged in a recent book by Professor David Kershaw. This Article takes Professor Kershaw’s critique a step further ...


Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon Jan 2021

Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

Although securities regulation is distinct from corporate governance, the two fields have considerable substantive overlap. By increasing the transparency and efficiency of the capital markets, securities regulation can also enhance the capacity of those markets to discipline governance decisions. The importance of market discipline is heightened by the increasingly vocal debate over what constitutes “good” corporate governance.

Securities product innovation offers new tools to address this debate. The rise of index-based investing provides a market-based mechanism for selecting among governance options and evaluating their effects. Through the creation of bespoke governance index funds, asset managers can create indexes that correspond ...


Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky Jan 2021

Reversing The Fortunes Of Active Funds, Adi Libson, Gideon Parchomovsky

Faculty Scholarship at Penn Law

In 2019, for the first time in the history of U.S. capital markets, passive funds surpassed active funds in terms of total assets under management. The continuous growth of passive funds at the expense of active funds is a genuine cause for concern. Active funds monitor the management and partake of decision-making in their portfolio companies. Furthermore, they improve price efficiency and managerial performance by engaging in informed trading. The buy/sell decisions of active funds provide other market participants reliable information about the quality of firms. The cost of active investing is significant and it is exclusively borne ...


Caremark And Esg, Perfect Together: A Practical Approach To Implementing An Integrated, Efficient, And Effective Caremark And Eesg Strategy, Leo E. Strine Jr., Kirby M. Smith, Reilly S. Steel Jan 2021

Caremark And Esg, Perfect Together: A Practical Approach To Implementing An Integrated, Efficient, And Effective Caremark And Eesg Strategy, Leo E. Strine Jr., Kirby M. Smith, Reilly S. Steel

Faculty Scholarship at Penn Law

With increased calls from investors, legislators, and academics for corporations to consider employee, environmental, social, and governance factors (“EESG”) when making decisions, boards and managers are struggling to situate EESG within their existing reporting and organizational structures. Building on an emerging literature connecting EESG with corporate compliance, this Essay argues that EESG is best understood as an extension of the board’s duty to implement and monitor a compliance program under Caremark. If a company decides to do more than the legal minimum, it will simultaneously satisfy legitimate demands for strong EESG programs and promote compliance with the law. Building ...


Bankruptcy For Banks: A Tribute (And Little Plea) To Jay Westbrook, David A. Skeel Jr. Jan 2021

Bankruptcy For Banks: A Tribute (And Little Plea) To Jay Westbrook, David A. Skeel Jr.

Faculty Scholarship at Penn Law

In this brief essay, to be included in a book celebrating the work of Jay Westbrook, I begin by surveying Jay’s wide-ranging contributions to bankruptcy scholarship. Jay’s functional analysis has had a profound effect on scholars’ understanding of key issues in domestic bankruptcy law, and Jay has been the leading scholarly figure on cross-border insolvency. After surveying Jay’s influence, I turn to the topic at hand: a proposed reform that would facilitate the use of bankruptcy to resolve the financial distress of large financial institutions. Jay has been a strong critic of this legislation, arguing that financial ...


Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon Jan 2021

Should Corporations Have A Purpose?, Jill E. Fisch, Steven Davidoff Solomon

Faculty Scholarship at Penn Law

Corporate purpose is the hot topic in corporate governance. Critics are calling for corporations to shift their purpose away from shareholder value as a means of addressing climate change, equity and inclusion, and other social values. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, what role it serves.

We start by exploring and rejecting historical, doctrinal, and theoretical bases for corporate purpose. We challenge the premise that purpose can serve a useful function either as a legal constraint on managerial discretion or as a ...


Corporate Social Responsibility, Esg, And Compliance, Elizabeth Pollman Jan 2021

Corporate Social Responsibility, Esg, And Compliance, Elizabeth Pollman

Faculty Scholarship at Penn Law

In 2019, the CEO and chairperson of BlackRock, the world’s largest asset manager, called for corporate leaders to embrace corporate purpose and create value for stakeholders, and 181 CEOs of the Business Roundtable committed to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders. The idea that corporations should engage in socially responsible business practices (“CSR”) or initiatives relating to environmental, social, and governance matters (“ESG”) is gaining prominence, but remains highly contested. Deeper examination reveals that these terms—CSR and ESG—each lack a singular meaning. From aligning shareholder and stakeholder interests ...


The History And Revival Of The Corporate Purpose Clause, Elizabeth Pollman Jan 2021

The History And Revival Of The Corporate Purpose Clause, Elizabeth Pollman

Faculty Scholarship at Penn Law

The corporate purpose debate is experiencing a renaissance. The contours of the modern debate are relatively well developed and typically focus on whether corporations should pursue shareholder value maximization or broader social aims. A related subject that has received much less scholarly attention, however, is the formal legal mechanism by which a corporation expresses its purpose—the purpose clause of the corporate charter. This Article examines corporate purpose through the evolution of corporate charters. Starting with historic examples ranging from the Dutch East India Company to early American corporations and their modern 21st century parallels, the discussion illuminates how corporate ...


Compliance Management Systems: Do They Make A Difference?, Cary Coglianese, Jennifer Nash Jan 2021

Compliance Management Systems: Do They Make A Difference?, Cary Coglianese, Jennifer Nash

Faculty Scholarship at Penn Law

Regulatory compliance is vital for promoting the public values served by regulation. Yet many businesses remain out of compliance with some of the regulations that apply to them—presenting not only possible dangers to the public but also exposing themselves to potentially significant liability risk. Compliance management systems (CMSs) may help reduce the likelihood of noncompliance. In recent years, managers have begun using CMSs in an effort to address compliance issues in a variety of domains: environment, workplace health and safety, finance, health care, and aviation, among others. CMSs establish systematic, checklist-like processes by which managers seek to improve their ...


Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr. Dec 2020

Restoration: The Role Stakeholder Governance Must Play In Recreating A Fair And Sustainable American Economy A Reply To Professor Rock, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In his excellent article, For Whom is the Corporation Managed in 2020?: The Debate Over Corporate Purpose, Professor Edward Rock articulates his understanding of the debate over corporate purpose. This reply supports Professor Rock’s depiction of the current state of corporate law in the United States. It also accepts Professor Rock’s contention that finance and law and economics professors tend to equate the value of corporations to society solely with the value of their equity. But, I employ a less academic lens on the current debate about corporate purpose, and am more optimistic about proposals to change our ...


A Babe In The Woods: An Essay On Kirby Lumber And The Evolution Of Corporate Law, Lawrence Hamermesh Dec 2020

A Babe In The Woods: An Essay On Kirby Lumber And The Evolution Of Corporate Law, Lawrence Hamermesh

Faculty Scholarship at Penn Law

This essay examines the development of corporate law during the time span of the author's career, focusing on the interrelated subjects of valuation, corporate purpose, and shareholder litigation.


Antitrust And Platform Monopoly, Herbert J. Hovenkamp Nov 2020

Antitrust And Platform Monopoly, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. As a result, competition can be made to work in most of them. Further, antitrust enforcement, with its accommodation of firm variety, is generally superior to any form of statutory regulation that generalizes over large numbers.

Assuming that an antitrust violation is found, what should be the remedy? Breaking up large firms subject to extensive ...


Whitman And The Fiduciary Relationship Conundrum, Lisa Fairfax Nov 2020

Whitman And The Fiduciary Relationship Conundrum, Lisa Fairfax

Faculty Scholarship at Penn Law

While the law on insider trading has been convoluted and, in Judge Jed S. Rakoff’s words, “topsy turvy,” the law on insider trading is supposedly clear on at least one point: insider trading liability is premised upon a fiduciary relationship. Thus, all three seminal U.S. Supreme Court cases articulating the necessary elements for demonstrating any form of insider trading liability under § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 made crystal clear that a fiduciary relationship represented the lynchpin for such liability.

Alas, insider trading law is not clear about the source from which ...


Toward Racial Equality: The Most Important Things The Business Community Can Do, Leo E. Strine Jr. Oct 2020

Toward Racial Equality: The Most Important Things The Business Community Can Do, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In this address, former Chief Justice Strine kicked-off an important series, the Conference on Racial Equity in Corporate Governance, co-sponsored by the Millstein Center for Global Markets and Corporate Governance, Columbia Law School; the Institute for Law & Economics, University of Pennsylvania; the Rock Center for Corporate Governance, Stanford University; and the Stanford Center for Racial Justice, Stanford Law School.

The address explains the importance of institutional investors and corporations contributing to ending the persistent inequality suffered by black Americans. And it focuses on the reality that we would have made huge strides toward closing the race gap if our corporate governance and political systems ...


Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp Oct 2020

Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

The antitrust enforcement Agencies' 2020 Vertical Merger Guidelines introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic.

However, we have been there before. The introduction of concentration indexes, particularly the HHI, in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again ...


Stewardship 2021: The Centrality Of Institutional Investor Regulation To Restoring A Fair And Sustainable American Economy, Leo E. Strine Jr. Oct 2020

Stewardship 2021: The Centrality Of Institutional Investor Regulation To Restoring A Fair And Sustainable American Economy, Leo E. Strine Jr.

Faculty Scholarship at Penn Law

In this essay, which formed the basis for the luncheon keynote speech at the Rethinking Stewardship online conference presented by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School and ECGI, the European Corporate Governance Institute, the essential, but not sufficient, role of regulation to promote more effective stewardship by institutional investors is discussed. To frame specific policy recommendations that align the responsibilities of institutional investors with the best interests of their human investors in sustainable wealth creation, environmental responsibility, the respectful treatment of stakeholders, and, in particular, the fair pay and treatment of ...


Fiduciary Law And The Preservation Of Trust In Business Relationships, Brian J. Broughman, Elizabeth Pollman, D. Gordon Smith Aug 2020

Fiduciary Law And The Preservation Of Trust In Business Relationships, Brian J. Broughman, Elizabeth Pollman, D. Gordon Smith

Faculty Scholarship at Penn Law

This chapter explores the role of mandatory fiduciary obligations in preserving trust between business parties. Because contracts are inevitably incomplete, after investment there is always a risk of opportunism. While the parties could try to draft a more detailed agreement prohibiting various forms of opportunism, the very act of haggling over such protections may signal distrust, eliciting costly reactions (defensive measures/hedging/lack of intrinsic motivation) in the counterparty. In the absence of fiduciary protections, a vulnerable party may decide to forgo important protections against opportunism, not because such protections are suboptimal or hard to specify ex ante but because ...


Implicit Communication And Enforcement Of Corporate Disclosure Regulation, Ashiq Ali, Michael T. Durney, Jill E. Fisch, Hoyoun Kyung Jul 2020

Implicit Communication And Enforcement Of Corporate Disclosure Regulation, Ashiq Ali, Michael T. Durney, Jill E. Fisch, Hoyoun Kyung

Faculty Scholarship at Penn Law

This study examines the challenge of implicit communication -- qualitative statements, tone, and non-verbal cues -- to the effectiveness of enforcing corporate disclosure regulation. We use a Regulation Fair Disclosure (Reg FD) setting, given that the SEC adopted the regulation recognizing that managers can convey non-public information privately not just through explicit quantitative disclosures but also through implicit communication. In a high-profile enforcement action, however, the court focused on a literal examination of the manager’s language rather than his positive spin to conclude that the SEC had been “too demanding” in examining the manager’s statements and that its enforcement policy ...


Commercial Law Intersections, Giuliano Castellano, Andrea Tosato Apr 2020

Commercial Law Intersections, Giuliano Castellano, Andrea Tosato

Faculty Scholarship at Penn Law

Commercial law is not a single, monolithic entity. It has grown into a dense thicket of subject-specific branches that govern a broad range of transactions and corporate actions. When one of these events falls concurrently within the purview of two or more of these commercial law branches - such as corporate law, intellectual property law, secured transactions law, conduct and prudential regulation - an overlap materializes. We refer to this legal phenomenon as a commercial law intersection (CLI). Some notable examples of transactions that feature CLIs include bank loans secured by shares, supply chain financing arrangements, patent cross-licensing, and blockchain-based initial coin ...


The Cost Of Doing Business: Corporate Crime And Punishment Post-Crisis, Dorothy S. Lund, Natasha Sarin Feb 2020

The Cost Of Doing Business: Corporate Crime And Punishment Post-Crisis, Dorothy S. Lund, Natasha Sarin

Faculty Scholarship at Penn Law

For many years, law and economics scholars, as well as politicians and regulators, have debated whether corporate criminal enforcement overdeters beneficial corporate activity or in the alternative, lets corporate criminals off too easily. This debate has recently expanded in its polarization: On the one hand, academics, judges, and politicians have excoriated the DOJ for failing to send guilty bankers to jail in the wake of the financial crisis; on the other, the DOJ has since relaxed policies aimed to secure individual lability and reduced the size of fines and number of prosecutions.

A crucial and yet understudied piece of evidence ...


Taxing Bitcoin And Blockchains—What The Irs Told Us (And What It Didn’T), David J. Shakow Jan 2020

Taxing Bitcoin And Blockchains—What The Irs Told Us (And What It Didn’T), David J. Shakow

Faculty Scholarship at Penn Law

The IRS recently issued its second description of how it will treat Bitcoin and other blockchain assets. Some of its analysis leaves open questions that invite further consideration, and important issues remain unresolved. Moreover, because the popular Bitcoin blockchain uses a "proof of work" consensus procedure, issues relating to the alternative "proof of stake" procedure have been neglected.


Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone Sepe Jan 2020

Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone Sepe

Faculty Scholarship at Penn Law

In recent times, there has been an unprecedented shift in power from managers to shareholders, a shift that realizes the long-held theoretical aspiration of market control of the corporation. This Article subjects the market control paradigm to comprehensive economic examination and finds it wanting.

The market control paradigm relies on a narrow economic model that focuses on one problem only, management agency costs. With the rise of shareholder power, we need a wider lens that also takes in market prices, investor incentives, and information asymmetries. General equilibrium theory (GE) provides that lens. Several lessons follow from reference to this higher-order ...