Law Commons^™

The Taxation Of Private Equity Carried Interests: Estimating The Revenue Effects Of Taxing Profit Interests As Ordinary Income, Michael S. Knoll

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In this Article, I estimate the tax revenue effects of taxing private equity carried interests as ordinary income rather than as long-term capital gain as under current law. Under reasonable assumptions, I conclude that the expected present value of additional tax collections would be between 1 percent and 1.5 percent of capital invested in private equity funds, or between $2 billion and $3 billion a year. That estimate, however, makes no allowance for changes in the structure of such funds or the composition of the partnerships, which might substantially reduce tax revenues below those estimates.

Embattled Ceos, Marcel Kahan, Edward B. Rock

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In this paper, we argue that chief executive officers of publicly-held corporations in the United States are losing power to their boards of directors and to their shareholders. This loss of power is recent (say, since 2000) and gradual, but nevertheless represents a significant move away from the imperial CEO who was surrounded by a hand-picked board and lethargic shareholders. After discussing the concept of power and its dimensions, we document the causes and symptoms of the decline in CEO power in several areas: share ownership composition and shareholder activism; governance rules and the board response to shareholder activism; regulatory …

Corporate Taxation And International Charter Competition, Mitchell Kane, Edward B. Rock

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Corporate Charter competition has become an increasingly international phenomenon. The thesis of this article is that this development in the corporate law requires a greater focus on the corporate tax law. We first demonstrate how a tax system’s capacity to distort the international charter market depends both upon its approach to determining corporate location and the extent to which it taxes foreign source corporate profits. We also show, however, that it is not possible to remove all distortions through modifications to the tax system alone. We present instead two alternative methods for preserving an international charter market. The first best …

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.

Demystifying The Right To Exclude: Of Property, Inviolability, And Automatic Injunctions, Shyamkrishna Balganesh

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The right to exclude has long been considered a central component of property. In focusing on the element of exclusion, courts and scholars have paid little attention to what an owner's right to exclude means and the forms in which this right might manifest itself in actual property practice. For some time now, the right to exclude has come to be understood as nothing but an entitlement to injunctive relief- that whenever an owner successfully establishes title and an interference with the same, an injunction will automatically follow. Such a view attributes to the right a distinctively consequentialist meaning, which …

The Managerial Turn In Environmental Policy, Cary Coglianese

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No abstract provided.

Workers, Information, And Corporate Combinations: The Case For Non-Binding Employee Referenda In Transformative Transactions, Matthew T. Bodie

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Employees present a curious puzzle for corporate law. The success of a corporation depends on its employees, from the chief executive officer down to the front-line production or service worker. But for the most part, corporate law relegates employees to the sidelines. Perhaps nowhere is this difference as dramatic as in the realm of mergers, acquisitions, and other transformative transactions. Such transactions are usually negotiated at the highest levels of management, approved by the board, and ultimately approved by the shareholders. In contrast, employees at most may be able to bargain about the effects of the merger through union representatives; …

Confusion And Unpredictability In Shareholder Derivative Litigation: The Delaware Courts' Response To Recent Corporate Scandals, Ann M. Scarlett

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The Delaware courts responded to the recent wave of corporate scandals, exemplified by Enron and WorldCom, by changing their approach to shareholder derivative litigation. This Article analyzes the Delaware courts' response to these scandals and concludes that the courts have created doctrinal confusion and introduced unpredictability into derivative litigation. This Article also analyzes the future negative consequences for shareholders, corporations, directors, investors, and other litigants. Finally, this Article proposes improvements for derivative litigation that may alleviate the confusion and unpredictability created by the Delaware courts' response to the recent scandals.

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

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No abstract provided.

Governance In The Ruins, David A. Skeel Jr.

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What gets an economy up and running after a catastrophic war or a period of oppressive rule? While there are nearly as many answers to these questions as experts, one of the most prominent for the past century has been law. Nearly every page of Law and Capitalism, a remarkable new book by Curtis Milhaupt and Katharina Pistor, stands in implicit or explicit dissent from the prevailing view. Milhaupt and Pistor’s countermodel begins a matrix consisting of two axes. The first contrasts a purely protective regime on one end, with a pervasively “coordinative” approach on the other. The second axis …

Human Freedom And Two Friedmen: Musings On The Implications Of Globalization For The Effective Regulation Of Corporate Behavior, Leo E. Strine Jr.

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In this essay, which was delivered as the Torys Lecture at the University of Toronto, Vice Chancellor Strine considers the implications of globalization for the effective regulation of corporate behavior affecting interests other than those of stockholders against the backdrop of the West’s political and economic experience. He concludes that consistent with prior experience, the globalization of corporate markets will require a corresponding expansion of the polity to protect those aspects of human freedom that are affected in important ways by corporate behavior. As a practical matter, this means that if the U.S. and other Western nations wish to limit …

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

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No abstract provided.

Varieties Of Employee Ownership: Some Unintended Consequences Of Corporate Law And Labor Law, Aditi Bagchi

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Theories of employee ownership implicitly assume that its essential features are the same in all countries. In fact, employee ownership varies considerably across institutional environments. In this paper, I compare its development in the United States, Germany, and Sweden to show that the institutional background - in particular, the existing bodies of corporate and labor law - against which a program of employee ownership arises determines its course. Background institutions determine the cost of worker control over management, the cost of collective decision-making, and the expected gains from risk-bearing. Those consequences of corporate and labor law in turn determine whether …

The Hanging Chads Of Corporate Voting, Marcel Kahan, Edward B. Rock

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Never has voting been more important in corporate law. With greater activism among shareholders and the shift from plurality to majority voting for directors, the number of close votes is rising. But is the basic technology of corporate voting adequate to the task? In this Article, we first examine the incredibly complicated system of US corporate voting, a complexity that is driven by the underlying custodial ownership structure, by dispersed ownership and large trading volumes, and by the rise in short-selling and derivatives. We identify three ways in which things predictably go wrong: pathologies of complexity; pathologies of ownership; and …

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 …

A Better Approach For Balancing Authority And Accountability In Shareholder Derivative Litigation, Ann M. Scarlett

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Corporations present an interesting illustration of the authority versus accountability dilemma. Shareholders elect the directors of the corporation and the law vests those directors with almost unlimited authority to manage the corporation. Yet, shareholders have few effective means for holding directors accountable for their decisions other than through shareholder derivative litigation. In such litigation, the business judgment rule serves as the mechanism by which courts attempt to balance directors' authority to make decisions for the corporation against shareholders' right to hold directors accountable for those decisions.

As this Article discusses, numerous theories exist as to the proper formulation of the …

The False Promise Of One Share, One Vote, Grant M. Hayden, Matthew T. Bodie

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Shareholder democracy has blossomed. The once moribund shareholder franchise is now critical in takeover contests, merger decisions, and board oversight. However, the mechanisms of this vote remain largely under theorized. In this Article, we use voting rights and social choice theory to develop a new approach to the corporate franchise. Political democracies typically tie the right to vote to the level of a person's interest in the outcome of the election. Corporate democracies, on the other hand, tend to define the requisite institutional interest quite narrowly, and thus restrict the right to vote to shareholders alone. This restriction has found …

Corporate Social Responsibility Of Multinational Enterprises And The International Business Law Curriculum, Constance Z. Wagner

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The author argues for expanded coverage of corporate social responsibility in the U.S. law school curriculum. Corporate social responsibility is of increasing importance for businesses, particularly for those companies that conduct multinational operations. Current national legal and regulatory regimes fail to adequately address the social and environmental issues that arise in business operations. As a result, intergovernmental organizations, non-governmental organizations and businesses have begun to promulgate voluntary codes ofconduct. These codes touch on such subjects as core labor standards, environmental protection, bribery offoreign government officials in international business and human rights. Examples include the Organization for Economic Cooperation and Development …