Law Commons^™

How A “Superstar” Ceo Exposes The Necessity For Third Party D&O Insurance, Angela N. Aneiros, Karen Woody

Scholarly Articles

he influence that “superstar” CEOs have over a company’s board of directors can be alarming. Among other things, Elon’s ability to skirt personal liability for seemingly obvious breaches of duty has raised concerns within the realm of corporate governance and corporate regulation. While much has been written on Elon’s influence on Tesla’s board of directors, one area of the law that often gets overlooked that has exacerbated Elon’s corporate governance issues, is that of directors and officers (D&O) liability insurance. While personally insuring board members seems like a very "Elon" move, it could have broader implications beyond Elon. Are “superstar” …

Leveraging Information Forcing In Good Faith, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

Leveraging Information Forcing in Good Faith, a chapter in Research Handbook on Law and Time, argues that the information-forcing-substance theory has a significant role to play both in how courts decide duty of good faith and oversight matters and in how active and engaged directors can add value in the boardroom. As explored in the chapter, by deploying the theory in corporate-law matters, the courts can reveal the information gaps between officers and directors and create pressure for better processes and discourse within the corporation. In turn, this can impact both the way in which fiduciaries interact with …

Public Primacy In Corporate Law, Dorothy S. Lund

Faculty Scholarship

This Article explores the malleability of agency theory by showing that it could be used to justify a “public primacy” standard for corporate law that would direct fiduciaries to promote the value of the corporation for the benefit of the public. Employing agency theory to describe the relationship between corporate management and the broader public sheds light on aspects of firm behavior, as well as the nature of state contracting with corporations. It also provides a lodestar for a possible future evolution of corporate law and governance: minimize the agency costs created by the divergence of interests between management and …

Rethinking Acting In Concert: Activist Esg Stewardship Is Shareholder Democracy, Dan W. Puchniak, Umakanth Varottil

Research Collection Yong Pung How School Of Law

In May 2021, Engine No. 1, an investment fund, was lauded by the responsible investment community for successfully placing three dissident independent directors on ExxonMobil’s board. It achieved this by being a catalyst for institutional investors to become backers of environmental shareholder activism. The unprecedented success of Engine No. 1’s campaign has spurred calls for a new, more sustained, activist engagement model by institutional investors, now known as “activist stewardship”.However, there is a significant legal hurdle that has been almost entirely overlooked by those calling for this new approach for institutional investors to become activist stewards: acting in concert rules. …

Wireless Investors & Apathy Obsolescence, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

This Article discusses how a subgenre of retail investors makes investors’ apathy obsolete. In prior work, we dub retail investors who rely on technology and online communications in their investing and corporate governance endeavors “wireless investors.” By applying game theory, this Article discusses how wireless investors’ global-scale online interactions allow them to circulate information and coordinate, obliterating collective action problems.

Initiation Payments, Scott Hirst

Faculty Scholarship

Many of the central discussions in corporate governance, including those regarding proxy contests, shareholder proposals, and other activism or stewardship, can be understood as a single question: Is there under-initiation of corporate changes that investors would collectively prefer?

This Article sheds light on this question in three ways. First, the Article proposes a theory of investor initiation, which explains the hypothesis that there is under-initiation of collectively-preferred corporate change by investors. Even though investors collectively prefer that certain corporate changes take place, the costs to any individual investor from initiating such changes through high-cost proxy contests, or even low-cost shareholder …

Startup Biases, Jennifer S. Fan

Articles

This Article provides an original descriptive account of bias in the startup context and explains why litigation is eschewed and what happens when it is used as a mechanism to combat bias in the venture capital ecosystem. Further, this Article identifies two particular phenomena in the startup context that exacerbate gender and racial bias. First, homophily—the idea that like attracts like—abounds and has been part of the DNA of venture capital since its inception. The thick networks that developed as venture capital made its way from the East Coast to the West Coast were limited to an elite group that …

Is "Public Company" Still A Viable Regulatory Category?, George S. Georgiev

Faculty Articles

This Article suggests that the ubiquitous “public company” regulatory category, as currently constructed, has outlived its effectiveness in fulfilling core goals of the modern administrative state. An ever-expanding array of federal economic regulation hinges on public company status, but “public company” differs from most other regulatory categories in that it requires an affirmative opt-in by the subject entity. In practice, firms today become subject to public company regulation only if they need access to the public capital markets, which is much less of a business imperative than it once was due to the proliferation of private financing options. Paradoxically, then, …

Reframing The Dei Case, Veronica Root Martinez

Faculty Scholarship

Corporate firms have long expressed their support for the idea that their organizations should become more demographically diverse while creating a culture that is inclusive of all members of the firm. These firms have traditionally, however, not been successful at improving demographic diversity and true inclusion within the upper echelons of their organizations. The status quo seemed unlikely to move, but expectations for corporate firms were upended after the #MeToo Movement of 2017 and 2018, which was followed by corporate support of the #BlackLivesMatter Movement in 2020. These two social movements, while distinct in many ways, forced firms to rethink …

Wireless Investors & Apathy Obsolescence, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Journal Articles and Book Chapters

This Article discusses how a subgenre of retail investors makes investors’ apathy obsolete. In prior work, we dub this genre of retail investors “wireless investors” for their reliance on technology and online communications. By applying game theory, this Article discusses how wireless investors’ global-scale online communications allow them to circulate information and coordinate, obliterating collective action problems.

Blockchain Games And A Disruptive Corporate Business Model, Xuan-Thao Nguyen

Articles

This Article is the first to identify and theorize on a new disruptive corporate business model unfolding in the gaming industry that is larger than both the movie and music sectors combined. Corporations in blockchain gaming reject the old paradigm of amassing profits by turning the public into spenders for and consumers of corporate products. The new corporate business model transforms members of the public into producers and true owners of new corporate property while earning income and garnering governance voting rights. Through a case study of Axie Infinity, a blockchain game launched in 2021, this Article explores how the …

Systematic Stewardship: It's Up To The Shareholders – A Response To Profs. Kahan And Rock, Jeffrey N. Gordon

Faculty Scholarship

As the author of an article entitled “Systematic Stewardship,” I read Professors Kahan and Rock’s article “Systematic Stewardship with Tradeoffs” (K&R) with considerable interest. I acknowledge the limits on deep asset manager engagement with sources of systematic risk in light of present institutional arrangements and the politics of the moment. Yet I think the most important move in the K&R analysis — the privileging of a “single firm focus” in corporate law instead of a “portfolio firm focus” — simply doesn’t account for the evolution that has already occurred in law and practice.

Long before the development of index funds, …

Dynamic Disclosure: An Exposé On The Mythical Divide Between Voluntary And Mandatory Esg Disclosure, Lisa Fairfax

All Faculty Scholarship

In March 2022, for the first time in its history, the Securities and Exchange Commission (the “SEC”) proposed rules mandating disclosure related to climate change. The proposed rules are remarkable because heretofore many in the business community, including the SEC, vehemently resisted climate-related disclosure, based primarily on the argument that such disclosure is not material to investors. This resistance is exemplified by the current lack of any SEC disclosure mandates for climate change. The proposed rules have sparked considerable pushback including allegations that the rules violate the First Amendment, would be too costly, and focus on “social” or “political” issues …

A Proposed Sec Cyber Data Disclosure Advisory Commission, Lawrence J. Trautman, Neal Newman

Faculty Scholarship

Constant cyber threats result in: intellectual property loss; data disruption; ransomware attacks; theft of valuable company intellectual property and sensitive customer information. During March 2022, The Securities and Exchange Commission (SEC) issued a proposed rule addressing Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, which requires: 1. Current reporting about material cybersecurity incidents; 2. Periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risks; 3. Management’s role in implementing cybersecurity policies and procedures; 4. Board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk; 5. Registrants to provide updates about previously reported cybersecurity …

The Corporate Forum, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

In this response to Professor Jill Fisch’s article "GameStop and the Reemergence of the Retail Investor," we focus on one of the risks associated with the growth of retail investing that Fisch surveys, uncontrolled information sourcing. Drawing on our work on retail investors, we revisit an instrument dear to the U.S. Securities and Exchange Commission, whose potential has not been unleashed so far, the corporate forum. Our response succinctly discusses the main mechanics of the corporate forum, the benefits the corporate forum could provide, and the feasibility hurdles that might undermine the success of corporate forums.

Purpose Proposals, Jill E. Fisch

All Faculty Scholarship

Repurposing the corporation is the hot issue in corporate governance. Commentators, investors and increasingly issuers, maintain that corporations should shift their focus from maximizing profits for shareholders to generating value for a more expansive group of stakeholders. Corporations are also being called upon to address societal concerns – from climate change and voting rights to racial justice and wealth inequality.

The shareholder proposal rule, Rule 14a–8, offers one potential tool for repurposing the corporation. This Article describes the introduction of innovative proposals seeking to formalize corporate commitments to stakeholder governance. These “purpose proposals” reflect a new dynamic in the debate …

Big Three Power, And Why It Matters, Scott Hirst, Lucian Bebchuk

Faculty Scholarship

This Article focuses on the power and corporate governance significance of the three largest index fund managers commonly referred to collectively as the “Big Three.” We present current evidence on the substantial voting power of the Big Three and explain why it is likely to persist and, indeed, further grow. We show that, due to their voting power, the Big Three have considerable influence on corporate outcomes through both what they do and what they fail to do. We also discuss the Big Three’s undesirable incentives both to underinvest in stewardship and to be excessively deferential to corporate managers.

In …

The Uncertain Stewardship Potential Of Index Funds, Jill E. Fisch

All Faculty Scholarship

Regulators and commentators around the world are increasingly demanding that institutional investors engage in stewardship with respect to their portfolio companies. Further, the demand for stewardship has broadened from an expectation that investors engage to reduce agency costs and promote economic value to a call for investors to demand that companies serve a broader range of societal interests and objectives. This chapter considers calls for stewardship in the context of the U.S. capital markets specifically as applied to index funds. It argues that, irrespective of the merits of institutional stewardship generally, the structure of index funds and the business environment …

Corporate Governance Reform And The Sustainability Imperative, Christopher Bruner

Scholarly Works

Recent years have witnessed a significant upsurge of interest in alternatives to shareholder-centric corporate governance, driven by a growing sustainability imperative—widespread recognition that business as usual, despite the short-term returns generated, could undermine social and economic stability and even threaten our long-term survival if we fail to grapple with associated costs. We remain poorly positioned to assess corporate governance reform options, however, because prevailing theoretical lenses effectively cabin the terms of the debate in ways that obscure many of the most consequential possibilities. According to prevailing frameworks, our options essentially amount to board-versus-shareholder power, and shareholder-versus stakeholder purpose. This narrow …

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

Ira M. Millstein Center for Global Markets and Corporate Ownership

The dramatic decline in corporate gainsharing with American workers over the last two generations has contributed to stagnating wages, soaring inequality, and economic insecurity. There are global causes of greater inequality and depressed pay that go beyond the decline in workers’ share. But many public policymakers and economists believe that the reduced share of corporate prof its that American workers receive has been a major factor in the much larger increase in inequality that has occurred in the United States, compared to its market economy allies in the Organization for Economic Co-operation and Development (OECD). To some, the explanation for …

Why Corporate Purpose Will Always Matter, Lyman P.Q. Johnson

Scholarly Articles

Business persons and lawyers (and law professors) perennially struggle over the question whether a business corporation does or should have a purpose other than advancing the interests of shareholders. After briefly setting the stage by describing the dispute over what the positive law of corporate purpose really is and the normative argument over what corporate purpose should be, this short article takes a different turn. It addresses why, in a dynamic, democratic, pluralist society, the foundational issue of corporate purpose remains so important and will not (and should not) go away. However adamantly divergent descriptive and prescriptive positions are held, …

Judicial Review Of Directors' Duty Of Care: A Comparison Between U.S. & China, Zhaoyi Li

Articles

Articles 147 and 148 of the Company Law of the People’s Republic of China (“Chinese Company Law”) establish that directors owe a duty of care to their companies. However, both of these provisions fail to explain the role of judicial review in enforcing directors’ duty of care. The duty of care is a well-trodden territory in the United States, where directors’ liability is predicated on specific standards. The current American standard, adopted by many states, requires directors to “discharge their duties with the care that a person in a like position would reasonably believe appropriate under similar circumstances.” However, both …

Artificially Intelligent Boards And The Future Of Delaware Corporate Law, Christopher Bruner

Scholarly Works

The prospects for Artificial Intelligence (AI) to impact the development of Delaware corporate law are at once over- and under-stated. As a general matter, claims to the effect that AI systems might ultimately displace human directors not only exaggerate the foreseeable technological potential of these systems, but also tend to ignore doctrinal and institutional impediments intrinsic to Delaware's competitive model – notably, heavy reliance on nuanced and context-specific applications of the fiduciary duty of loyalty by a true court of equity. At the same time, however, there are specific applications of AI systems that might not merely be accommodated by …

Toward A Fair And Sustainable Corporate Governance System: Reflections On Leo Strine, Jr.'S Writing On Institutional Investors, Dorothy S. Lund

Faculty Scholarship

It is a privilege to contribute to this Festschrift for my friend, mentor, and co-author, Leo Strine, Jr. It is also a pleasure to revisit his vast body of work and to re-experience the breadth and depth of his scholarship, as well as reflect on his unparalleled influence on the development of corporate law that he brought about while presiding over its most influential courts for twenty-one years.

In thinking about this essay, I recalled a conversation that I had with “CJS” when I was serving as his law clerk. In this conversation, he decried (with James Taylor blasting in …

The Landscape Of Startup Corporate Governance In The Founder-Friendly Era, Jennifer S. Fan

Articles

In corporate governance scholarship, there is an important debate about the nature and roles of the members of the board of directors in venture capital-backed private companies. The impact of a newly emerged, founder-centric model has been underappreciated, while the role of the independent director as tiebreaker or swing vote is vastly overstated. The reality is that corporate governance in these companies is a norm-driven, consensus-building process that rarely spills out into open conflict.

This is the first empirical study of startup corporate governance post-Great Recession and during the pandemic. Using survey and interview methodologies, this Article makes four primary …

Artificially Intelligent Boards And The Future Of Delaware Corporate Law, Christopher Bruner

Scholarly Works

This article argues that the prospects for Artificial Intelligence (AI) to impact corporate law are at once over- and under-stated, focusing on the law of Delaware – the predominant jurisdiction of incorporation for US public companies. Claims that AI systems might displace human directors not only exaggerate AI’s foreseeable technological potential, but ignore doctrinal and institutional impediments intrinsic to Delaware’s competitive model – notably, heavy reliance on nuanced applications of the fiduciary duty of loyalty by a true court of equity. At the same time, however, there are discrete AI applications that might not merely be accommodated by Delaware corporate …

The Educated Retail Investor: A Response To "Regulating Democratized Investing", Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The diffusion of mobile-first investing apps, like Robinhood, has increased retail investor participation in financial markets, particularly from the Millennial and GenZ generations, and has increased the diversity of retail investors. However, mobile-first investing apps are not free from controversy. In Regulating Democratized Investing, Abraham Cable tackles the debate on regulating mobile-first investing apps and largely opposes paternalistic regulation, which would raise unsurmountable barriers at the entrance of the stock market for retail investors. But it concedes to a form of regulation that in Cable’s own words “serves ultra-retail investors a modest portion of what they really want.” We strongly …

Stakeholderism, Corporate Purpose, And Credible Commitment, Lisa Fairfax

All Faculty Scholarship

One of the most significant recent phenomena in corporate governance is the embrace, by some of the most influential actors in the corporate community, of the view that corporations should be focused on furthering the interests of all corporate stakeholders as well as the broader society. This stakeholder vision of corporate purpose is not new. Instead, it has emerged in cycles throughout corporate law history. However, for much of that history—including recent history—the consensus has been that stakeholderism has not achieved dominance or otherwise significantly influenced corporate behavior. That honor is reserved for the corporate purpose theory that focuses on …

The Diversity Risk Paradox, Veronica Root Martinez

Faculty Scholarship

There is a growing body of literature discussing the proper role of diversity, equity, and inclusion efforts by and within public firms. A combination of forces brought renewed energy to this topic over the past few years. The #MeToo movement demonstrated a whole host of inequities faced by women within workplaces. Business Roundtable’s 2019 Statement on the Purpose of a Corporation rejected the view that the purpose of the corporation was solely to be focused on the maximization of shareholder wealth. And, in 2020, the murder of George Floyd ignited a racial reckoning within the United States, which prompted many …

Enabling Esg Accountability: Focusing On The Corporate Enterprise, Rachel Brewster

Faculty Scholarship

Environmental, social, and governance accountability for companies has become an important topic in popular and academic debate in modern society. The idea that corporations should have ESG goals has been embraced by major investment companies, employees, and many corporations themselves. Yet, less attention has been focused on how corporate enterprise law—which governs how corporations structure their relationships between parent corporations and their subsidiaries—creates or contributes to the ESG concerns that the public has with corporations in the first place. Modern enterprise law allows corporations, particularly those operating across national borders, to use their subsidiaries to avoid responsibility for their public …