Law Commons^™

Corporate Scandals, Executive Compensation, And International Corporate Governance Convergence: A U.S.-Australia Case Study, Jacob Barney

Jacob Barney

The first decade of the 2000s began with a rash of large-scale corporate scandals touching every corner of the globe, and it draws to a close in the midst of a worldwide recession which, somewhat ironically, has brought to light gargantuan executive compensation packages, resulting in widespread public outcry. Given the global nature of these two sets of corporate crises, it stood to reason that there would emerge a universal movement to revise the laws and practices controlling executive compensation. However, the mere fact that such a movement has emerged does not mean that the response to this movement will …

What Law Schools Should Teach Future Transactional Lawyers: Perspectives From Practice, Michael A. Woronoff

Michael A Woronoff

Since at least the 1980’s, law schools have been chided for doing a poor job at teaching skills. This criticism has been accompanied by pressure to increase their emphasis on skills training. The pressure increased with the publication of the McCrate Report in 1992, and then again with the publication of the Carnegie Report in 2007. This article is based on my remarks given on June 10 at the 2009 mid-year meeting of the AALS Conference on Business Associations. In those remarks, I respond to the questions “Are law schools teaching students adequate transactional skills?” and “From the standpoint of …

Treasury Inc. : How The Bailout Redefines Corporate Theory & Practice, J.W. Verret

John W Verret

Corporate law theory and practice considers shareholder relations with companies and the implications of ownership separated from control. Yet through the TARP bailout and the government's resultant shareholding, ownership and control at many companies has merged, leaving corporate theory and practice for the financial and automotive sectors in chaos. The government's $700 billion bailout is a unique historical event; not merely because of its size, but because of a resulting ripple through corporate scholarship and practice. This article builds on the author's four testimonies before Congress during the financial crisis and implementation of the TARP bailout and his consultation for …

Protecting Foreign Investors From International Securities Fraud, Derek N. White

Derek N White

This article discusses the subject matter jurisdiction of national courts in a little-known type of international securities cause of action that has vexed courts of the developed world. The cause of action is labeled the “foreign-cubed class action”, which is brought when a dispute arises regarding purported improprieties in an international securities transaction that contains foreign investors who purchase securities of foreign issuers on foreign stock exchanges. Notice the three “foreign” elements of the transaction ("foreign" meaning foreign to the court presiding over the action).

The number of foreign-cubed class actions brought in U.S. courts has risen sharply over the …

Give Smaller Companies A Choice: Solving Sarbanes-Oxley Section 404 Inefficiency, Paul P. Arnold

University of Michigan Journal of Law Reform

This Note argues that smaller public companies should have the option to opt out of Section 404 of the Sarbanes-Oxley Act of 2002. Optional compliance is economically preferable to the current approach of mandatory compliance. Companies that choose to comply with Section 404 will send a signal to the financial markets that their internal controls meet the high standards Section 404 demands, and investors will reward such companies if they actually value the benefit of that company's additional controls. Similarly, companies that benefit less from additional internal accounting will be able to avoid Section 404's high costs. To clarify the …

Sarbanes-Oxley & The Culture Of Bribery: Expanding The Territorial Scope Of Private Whistleblower Suits To Overseas Employees, Matt A. Vega

Matt A Vega

SARBANES-OXLEY & THE CULTURE OF BRIBERY: EXPANDING THE TERRITORIAL SCOPE OF PRIVATE WHISTLEBLOWER SUITS TO OVERSEAS EMPLOYEES, by Matt A. Vega

This article has been accepted for publication in Vol. 46, No. 2 Harvard J. on Legis. 425 (Summer 2009).

Abstract: This paper examines the use of private transnational litigation to enforce the Foreign Corrupt Practices Act of 1977 (FCPA). Small, but repetitive bribery of foreign officials by local employees is the Achilles heel of corporate ethics. In fact, it is what perpetuates the “culture of bribery” that makes major corruption possible. Unless overseas employees refuse to give in to …

Taking Stock -- Salary And Options Too: The Looting Of Corporate America, Kenneth R. Davis

Kenneth R. Davis

Abstract “Taking Stock – Salary and Options Too: The Looting of Corporate America” Executive compensation has come to mean corporate greed. CEO pay has soared to incomprehensible levels. Even during the current financial crisis, more CEOs saw pay increases than cuts. Public resentment to multi-million dollar paychecks swelled to outrage when AIG and Merrill Lynch used bailout funds to dispense enormous bonuses to executives. The looting of America’s corporations has led to numerous strategies to curb executive compensation. These strategies include heightened corporate disclosure requirements, tax incentives, say on pay, and shareholder input into the process for nominating directors. All …

Structural Or Not? A Critical Analysis Of The Commission's New Notice On Remedies, Georges Kratsas

Georges Kratsas

In October 2008, the European Commission released its longawaited Notice on remedies acceptable under the EU merger Regulation. This Notice is a positive development in the sense that it incorporates much of the Commission’s past experience and the recent case law of the European Court of Justice. The Commission affirms its preference for structural over behavioral remedies and clarifies many aspects of the negotiations between the Commission and the interested parties. In all, it achieves its purpose of rendering merger control more predictable. However, a number of uncertainties and defects found in the Notice diminish its overall positive impact. This …

The Duty Of Care And The Data Control Systems In The Wake Of Sarbanes-Oxley, Michael R. Siebecker

Chicago-Kent Law Review

The essay examines the wisdom of exempting small public companies from Section 404 of the Sarbanes-Oxley Act of 2002 (SOX), which requires companies to provide management assessment and external auditing of a company's internal control systems over financial data. In particular, the essay questions whether a fiduciary duty of care might require officers and directors to adopt internal control systems, perhaps substantially similar to those envisioned by SOX, even if small public companies were exempt from the ambit of the statute.

London As Delaware?, Adam C. Pritchard

Law & Economics Working Papers Archive: 2003-2009

Regulatory competition has long driven the path of corporate law in the federal system of the United States. Now, jurisdictional competition has spread to exchange listings. New York took an early lead in that competition in the 1990s, but has now been overtaken by London. Can London prevail in the competition for stock listings in the long term? This essay explores that question through the insights offered by Delaware’s dominance in the market for corporate listings. Delaware has prevailed by offering corporate directors a predictable body of that credibly shields directors from the vagaries of political backlash in times of …

Direct And Derivative Claims In Securities Fraud Litigation, Richard A. Booth

Working Paper Series

In the typical securities fraud class action under Rule 10b-5, the plaintiff class consists of buyers who seek damages equal to the difference between the price paid for the stock during the fraud period and the lower price that prevails after corrective disclosure. The argument here is that this claim is really an amalgam of direct and derivative claims and that the derivative claims should result in recovery by the corporation for the benefit of all stockholders. There are three types of losses that arise in the typical stock-drop action. First, part of the loss may be attributable to lower …

Obama's International Tax Plan: A Major Step Forward, Reuven S. Avi-Yonah

Articles

President Barack Obama last week personally introduced a set of proposals to reform U.S. international taxation that are the most significant advance toward preserving the income tax on cross-border transactions since the enactment of the subpart F rules by the Kennedy administration in 1962. (For prior coverage, see Doc 2009-10047 or 2009 TNT 84-1.) In essence, the Obama proposals introduce a 21stcentury version of the vision begun by Thomas Adams in 1918 and continued by Stanley Surrey in 1961: a world in which source and residence taxation are coordinated so as to achieve the underlying goals of the international tax …

Failure To Consider Human Rights Suits As A Potential Basis For Derivative Actions, Daniel Augustus Sansone Foe

Daniel Augustus Sansone Foe

Failure to Consider Human Rights Suits as a Potential Basis for Derivative Actions

This note proposes that in instances where corporate boards have knowingly or through their gross negligence allowed potentially costly human rights abuses to occur or where boards have failed to utilize appropriate monitoring standards to ensure compliance with human rights laws, they may be held to account for resulting losses to their shareholders in derivative actions.

In arriving at this proposition the note explores the current prospects for being held liable under the Alien Torts Statute (28 U.S.C. § 1350) and the direct and indirect costs associated …

National Security Review Of Foreign Mergers And Acquisitions Of Domestic Companies In China And The United States, Kenneth Y. Hui

Cornell Law School Inter-University Graduate Student Conference Papers

China’s recently enacted Anti-Monopoly Law has received much academic attention. In particular, many articles and comments have been written about Article 31 of the Anti-Monopoly Law, a provision on national security review of foreign mergers and acquisitions of domestic companies. The provision has often been labelled as draconian and protectionist. This paper argues that Article 31 is not necessarily so. Article 31 is actually, to a large extent, in line with the national security provisions found in liberal economies. By taking a comparative approach, this paper will demonstrate the similarities between the national security laws in China and the United …

Behind Close Doors: Governance Issues In Private Equity Driven Industries – The Close Corporation Paradox And Its Impact On Private Equity In The Us And Sweden, Kristian Hermanrud

Cornell Law School Inter-University Graduate Student Conference Papers

Publicly traded companies make up only a small fraction of the vast number of corporations operating in the US today. Only about 10,000 companies are traded publicly while there are roughly 20 million corporations doing business in the US. Likewise, over 245 private corporations’ annual revenues exceed $1 billion. Among these, more than twelve employ more than 50,000 employees. Despite the influence on vast amounts of people and capital legislature has, to a large degree, focused on publicly traded companies. The reasons for this stem, in large, back to the years of the market crash in the early thirties and …

Taming The Mandibles Of Death: Secrecy, Disclosure, And Fiduciary Duties In The Revised Uniform Limited Liability Company Act, Allan Vestal, J. Callison

Allan W. Vestal

This article traces the development of limited liability company disclosure and fiduciary duty provisions from the Uniform Limited Liability Company Act to the Revised Uniform Limited Liability Company Act using the community, party autonomy, and structural models.

Turning A Short-Term Fling Into A Long-Term Commitment: Board Duties In A New Era, Nadelle Grossman

Nadelle Grossman

Corporate boards face significant pressure to make decisions that maximize profits in the short run. That pressure comes in part from executives who are financially rewarded for short-term profits despite the long-term risks associated with those profit-making activities. The current financial crisis, where executives at AIG and numerous other institutions ignored the long-term risks associated with their mortgage-backed securities investments, arose largely because those executives were compensated for the short-term profits generated by those investments despite their longer-term risks. Pressure on boards for short-term profits also comes from activist investors who seek to make quick money off of trading in …

The Road Not Taken: Rethinking Securities Regulation And The Case For Federal Merit Review, Daniel Morrissey

Dan Morrissey

Abstract of Morrissey Article The Article assesses the causes of the current financial meltdown and finds that it has resulted from insufficient regulation of the capital markets. The securities legislation of the 1930s enacted in response to the crisis of that era was never strong enough to prevent another severe economic collapse. Even the disclosure-based protection it did afford investors was undermined during the deregulatory movement of the last quarter century. Policy makers must now enact measures that were proposed but passed over during the New Deal reforms so that securities may not be offered or sold if they present …

Eliminating Securities Fraud Class Actions Under The Radar, Barbara Black

Barbara Black

At least since Basic, Inc. v. Levinson, the business community and many influential scholars have challenged the existence of the securities fraud class action on a variety of grounds. Recently, two proposals have been advanced to “fix” the problem of “abusive” securities fraud class actions. One proposal requires arbitration of all securities fraud actions; the other eliminates the corporate defendant in most actions. Proponents assert that shareholders should have the right to adopt these proposals through amendment of the company’s certificate of incorporation. Both these proposals have attracted more than academic interest. In reality, adoption of either proposal would substantially …

The Economics Of Deal Risk: Allocating Risk Through Mac Clauses In Business Combination Agreements, Robert T. Miller

Working Paper Series

In any large corporate acquisition, there is a delay between the time the parties enter into a merger agreement (the signing) and the time the merger is effected and the purchase price paid (the closing). During this period, the business of one of the parties may deteriorate. When this happens to a target company in a cash deal, or to either party in a stock-for-stock deal, the counterparty may no longer want to consummate the transaction. The primary contractual protection parties have in such situations is the merger agreement’s “material adverse change” (MAC) clause. Such clauses are heavily negotiated and …

Has Corporate Law Failed? Addressing Proposals For Reform, Antony Page

Michigan Law Review

Part I of this Review discusses the modem "nexus of contracts" approach to corporations and highlights how Greenfield's views differ. Part II examines corporate goals and purposes, suggesting that Greenfield overstates the impact of the shareholder-primacy norm and does not offer a preferable alternative. Part III critiques the means to the ends--Greenfield's proposals for changing the mechanics of corporate governance. Although several of his proposals are intriguing, they seem unlikely to achieve their pro-social aims. This Review remains skeptical, in part because-even given its problems-the U.S. "director-centric governance structure has created the most successful economy the world has ever seen." …

Turning A Short-Term Fling Into A Long-Term Commitment: Board Duties In A New Era, Nadelle Grossman

Nadelle Grossman

Corporate boards face significant pressure to make decisions that maximize profits in the short run. That pressure comes in part from executives who are financially rewarded for short-term profits despite the long-term risks associated with those profit-making activities. The current financial crisis, where executives at AIG and numerous other institutions ignored the long-term risks associated with their mortgage-backed securities investments, arose largely because those executives were compensated for the short-term profits generated by those investments despite their longer-term risks. Pressure on boards for short-term profits also comes from activist investors who seek to make quick money off of trading in …

Do Independent Boards Behave Differently? Examining The Voluntary Adoption Of Board Monitoring Mechanisms, Anita I. Anand

Anita I Anand

We ask whether firms with an independent board of directors are more likely than firms without an independent board to adopt recommended corporate governance practices designed to enhance the board's monitoring capabilities. Using hand-collected data from Canadian firms listed on both American and Canadian stock exchanges, we find that firms with both types of boards voluntarily adopt corporate governance practices and that independent boards are no more likely to adopt these practices than their non-independent counterparts. One exception to this statement is the formation of board committees. When boards are independent, the audit and compensation committees are far more likely …

Short-Term Fling Or Long-Term Commitment: Board Duties In A New Era, Nadelle Grossman

Nadelle Grossman

Corporate boards face significant pressure to make decisions that maximize profits in the short run. That pressure comes in part from executives who are financially rewarded for short-term profits despite the long-term risks associated with those profit-making activities. The current financial crisis, where executives at AIG and numerous other institutions ignored the long-term risks associated with their mortgage-backed securities investments, arose largely because those executives were compensated for the short-term profits generated by those investments despite their longer-term risks. Pressure on boards for short-term profits also comes from activist investors who seek to make quick money off of trading in …

Effects Of Strategic Tax Behaviors On Corporate Governance, Nicola Sartori

Nicola Sartori

This paper addresses agency tensions and conflicts that may emerge between managers (agents) and shareholders (principals) as a result of aggressive tax planning strategies adopted by publicly held corporations. The interactions between corporate governance and taxation are bilateral and biunique: in fact, on one side, the manner in which corporate governance rules are structured affects the way a corporation fulfills its tax obligations; on the other side, the way tax designs (from the government perspective) and related tax strategies (from the corporation perspective) are planned influences corporate governance dynamics. This article investigates such bilateral relationship limiting the analysis to the …

Stoneridge V. Scientific-Atlanta: Do Section 10(B) And Rule 10b-5 Require A Misstatement Or Omission?, Rodney D. Chrisman

Rodney D. Chrisman

Stoneridge v. Scientific-Atlanta promises to be the most important securities litigation case to reach the Supreme Court since Central Bank of Denver. In this important case, Stoneridge presents the Supreme Court with the opportunity to clarify the application of its ruling in Central Bank to liability for secondary actors under section 10(b) and rule 10b-5. This Article points out that the fundamental question plaguing the lower courts since Central Bank and resulting in two circuit splits is whether section 10(b) requires that a secondary actor actually make a misstatement or omission in order to be held liable under the rule …

Lessons From The Subprime Debacle: Stress Testing Ceo Autonomy, Steven A. Ramirez

Steven A. Ramirez

Corporate governance law in the United States played a central role in the subprime debacle. Specifically, CEOs exercised sufficient autonomy to garner huge compensation payments based upon illusory income. Instead of profits, firms absorbed huge risks. The economic losses arising from this misconduct total trillions of dollars. This article seeks to reconfigure CEO autonomy in the public firm based upon the best extant empirical evidence regarding the optimal contours of CEO autonomy. This vision of optimal autonomy is then viewed through the lens of the subprime catastrophe. The article articulates the political dynamics that have led to suboptimal contours for …

Placebo Ethics, Usha Rodrigues, Mike Stegemoller

Usha Rodrigues

While there are innumerable theories on the best remedy for the current financial crisis, there is agreement on one point, at least: increased transparency is good. We look at a provision from the last round of financial regulation, the Sarbanes Oxley Act of 2002 (“SOX”), which imposed disclosure requirements tailored to prevent some of the kinds of abuses that led to the downfall of Enron. In response to Enron’s self-dealing transactions, Section 406 of SOX required a public company to disclose its code of ethics and to disclose immediately any waivers from that code the company grants to its top …

Macroeconomics & The Modern Corporation, Richard Shamos

Richard Shamos

This paper examines the intellectual basis of corporate law in order to develop a theory of the firm—metering theory—that is rooted in team production and institutional economics. This reconceptualization is distinct from the pure free market approach promoted by agency theory, which emphasizes the role of incentive effects on microeconomic actors. The main limitation of the agency analysis is its reliance on property law to analyze the modern corporation, which is instead driven by entity law. The crux of the economic analysis lies in the application of the macroeconomic model for the flow of goods and money in the economy …

The Legitimate Rights Of Public Shareholders, Lawrence E. Mitchell

Lawrence E. Mitchell

In recent years there has been significant ongoing academic debate over the expansion of public shareholders’ participation rights in corporate governance. The debate has accompanied a dramatic increase in institutional shareholder and hedge fund activism attempting to influence the conduct of corporate affairs.

The legitimacy of shareholder participation rights depends upon the actual role public shareholders play in contributing to the corporation’s function of providing goods and services and, ultimately, to economic growth and social welfare. Nobody in the debate has stopped to examine this question. This paper presents original empirical evidence that demonstrates that public shareholders do not, on …