Law Commons^™

Commercial Bribery And The New International Norms, Don R. Berthiaume

Don R Berthiaume

The United States, through its Foreign Corrupt Practices Act (FCPA), and the member nations of the Organization for Economic Co-Operation and Development (OCED) and Council of Europe (CoE) who have adopted similar legislation have made tremendous strides in hindering corrupt payments to foreign officials relating to business transactions. In response to these enforcement initiatives, many international businesses have taken steps to comply with anti-bribery laws by developing compliance programs and conducting internal investigations and cooperating with law enforcement officials when allegations of corrupt payments arise.

Why Japanese Entrepreneurs Don't Give Up Control To Venture Capitalists, Zenichi Shishido

Zenichi Shishido

The biggest difference in the incentive bargains between entrepreneurs and venture capitalists in the US and Japan is that American entrepreneurs abandon control while Japanese entrepreneurs do not. Years ago, Black & Gilson tried to explain the difference by the existence and non-existence of liquid IPO markets. Although now there are multiple liquid IPO markets in Japan, Japanese entrepreneurs are still reluctant to abandon control of their companies to venture capitalists. While there must be many complementary reasons, such as different market situations, different social norms, etc., for the difference, I will raise a hypothesis that it can be partly …

Who's Afraid Of Shareholder Power? A Comparative Law Perspective, Jennifer G. Hill

Jennifer Hill Professor

Who’s Afraid of Shareholder Power? A Comparative Law Perspective Jennifer G. Hill* Abstract US corporate law is undergoing a seismic shift in relation to shareholder power. Although shareholders have traditionally had restricted participatory rights under US corporate law, this paradigm has been challenged in recent times. The shareholder empowerment debate raised shareholder power as a serious subject for corporate law reform. The global financial crisis has given the issue further impetus, and an unprecedented array of reforms and proposals to increase shareholder power are now on the table in the US. There has, however, been great resistance to adjusting the …

Paying To Break Up: The Metamorphosis Of Reverse Termination Fees, Afra Afsharipour

Afra Afsharipour

Despite our giving lip service to the binding nature of contracts, every law student learns that there are numerous possible “outs” or “walk away rights” associated with any contract. This Article examines one particular walk away right – the reverse termination fee (RTF) – in one particular category of acquisition transactions – strategic transactions.

In sophisticated acquisitions involving public companies, the risk that one party may walk away from the transaction is particularly high because there is generally an interim period between the signing of the agreement and the completion of the acquisition. Accordingly, acquisition agreements are peppered with various …

The De Facto And Estoppel Concepts In The Llc Context: Still Birth Or Stunted Growth?, Emeka Duruigbo

Emeka Duruigbo

Abstract The limited liability company (“LLC”), within a short period since its entrance into the American legal landscape in 1976, has seen a meteoric rise as the business form of choice for many investors. The lack of complete compliance with the statutory requirements for organizing a business, which has posed problems in older business forms, has also found its way into the LLC arena and is only likely to escalate as the popularity of the LLC continues to grow. The consequence has been exposure of business organizers and subsequent investors to ruinous personal liability for business obligations. In response, some …

Review Article: The New American Corporate Governance In Context, Fenner L. Stewart

Fenner L. Stewart Jr.

If corporate boards are becoming more than “rubber stamps”, then Stephen Bainbridge and his new book are in the middle of a coup d'état in corporate governance. On the other hand, if this shift is not occurring and boards remain “rubber stamps”, then director primacy is no more than managerialism with a twist. Moreover, if director primacy represents the emergence of a new order for American corporate governance, then the merits of maintaining Delaware’s status quo director primacy must be carefully assessed, because the stakes are changing – maybe for the better and maybe for the worse. This article traces …

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 …

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 …

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.

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 …

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 …

Why Not Tell The Truth?: Deceptive Practices And The Economic Meltdown, Charles W. Murdock

Charles W. Murdock

Today we are witnessing a crisis caused by economic formulae developed without a responsible exercise of judgment and, in many instances, with a shocking disregard for the truth. The virtue of truthfulness is not just some abstract moral principle. Rather, it is a critical component of a well functioning society. As the current situation demonstrates, the lack of regard for truthfulness can have disastrous consequences, not just for our own country, but around the world.

This article will first examine how broadly truth is devalued throughout our society. Second, it will focus on the lack of truthfulness in politics and …

A Proposal To Strengthen Special Committees, Elizabeth Pollman

Elizabeth Pollman

Special committees make some of the most important decisions facing corporations. Decisionmaking is central to their purpose. That high-quality decisions be made on these issues has become even more urgent in this time of economic volatility and outrage about corporate irresponsibility. Indeed, special committees may be increasingly in the spotlight as the current economic crisis will likely lead to a flood of shareholder litigation, and when credit markets thaw, a wave of strategic transactions.

Sometimes a board will create a special committee of just one person to handle a crucial matter. This Article proposes that courts or legislatures firmly establish …

Complexity As A Catalyst Of Market Failure', Steven L. Schwarcz

Steven L Schwarcz

This article examines how the complexities of modern financial markets and investment securities can trigger market failure. The article also analyzes what steps, including possible regulation, should be taken to reduce the potential for failure. Because market complexities and failures are characteristic of complexities and failures in engineering systems with nonlinear feedback, the article employs a law and engineering analysis, drawing on the literature analyzing those systems.

Corporate Control And The Need For Meaningful Board Accountability, Michelle Harner

Michelle M. Harner

Corporations are vulnerable to the greed, self-dealing and conflicts of those in control of the corporation. Courts historically have regulated this potential abuse by designating the board of directors and senior management as fiduciaries. In some instances, however, shareholders, creditors or others outside of corporate management may influence corporate decisions and, in the process, extract corporate value. Courts generally address this type of corporate damage in one of two ways: they designate controlling shareholders as corporate fiduciaries and they characterize creditors, customers and others as contract parties with no fiduciary duties.

The traditional roles of corporate shareholders and creditors may …

Beyond The Berle And Means Paradigm: Private Equity And The New Capitalist Order, Stephen Diamond

Stephen F. Diamond

The rise of private equity funds represents a new stage in capitalism. These funds combine financial resources and capital markets expertise with detailed operational knowledge of the operations of takeover targets to maximize the creation and expropriation of value on behalf of investors. Their significant size and aggressive buyout record suggests that we may be witnessing the confirmation of Michael Jensen's 1989 prediction, made in the midst of the first wave of leveraged buyouts, of the “eclipse of the public corporation.” Critics of private equity share a view of the corporation rooted in a decades old characterization by Berle and …

Neoclassicism And The Separation Of Ownership And Control, Herbert Hovenkamp

Herbert Hovenkamp

NEOCLASSICISM AND THE SEPARATION OF OWNERSHIP AND CONTROL Herbert Hovenkamp ABSTRACT The separation of ownership and control is a phrase that will forever be associated with Adolf A. Berle and Gardiner C. Means The Modern Corporation and Private Property (1932), as well as with Institutionalist economics, Legal Realism, and the New Deal. Neoclassical economists have generally been sharply critical, both of the historical facts that Berle and Means purported to describe and of the conclusions that they drew. In fact, however, the separation of ownership and control had already been an essential element of the neoclassical theory of corporate governance …

The Challenge To Delaware's Preeminence In Corporate Law, Lawrence Hamermesh

Lawrence A. Hamermesh

This short essay suggests that the focus on federal-state jurisdictional conflict over regulation of corporate governance in the U.S. is misplaced, and that declining levels of IPO's in the U.S. should be a concern shared by lawmakers at both state and federal levels. Those who reflexively advocate inflexible federal governance rules of wide application -- as opposed to regulatory reforms aimed carefully at unboundedly risky financial practices -- should prevail only upon a clear understanding that the potential benefits of such governance rules outweigh the risks associated with them.

Rationalizing Appraisal Standards In Compulsory Buyouts, Lawrence Hamermesh, Michael Wachter

Lawrence A. Hamermesh

This Article makes several contributions to the literature on Delaware appraisal law. We first argue that the "going concern value" standard adopted by the Delaware courts as the measure of "fair value" in share valuation proceedings is superior to its two main competitors, market value and third-party sale value, on grounds of both fairness and efficiency. Application of the going concern value standard has two important consequences. First, it is critical that going concern value be measured in a way that includes not only the present value of the existing assets of the corporation, but also the present value of …

Invisible Ink In The Eighth Arrondissement, Karl T. Muth

Karl T Muth

IMPORTANT: This document may prompt you for a username and password. If this occurs, please simply click "cancel" and the document will load. Thank you. This Article deals with the history of the secret contract that governs the distribution of economic rents enjoyed by Formula One. It further explores the environment in which this secret contract evolved and briefly discusses applications for secret contracts in other scenarios and industries.

With Avarice Aforethought: Insider Trading And 10b5-1 Plans, Karl T. Muth

Karl T Muth

The 10b5-1 plan and its growing popularity create a variety of governance problems and temptations for executives at publicly-traded corporations. The thought, in creating a safe harbor for such plans, was to allow insiders to diversify their individual holdings while in possession of nonpublic, material information. The 10b5-1 plan allows the actual liquidation transaction to occur while the plan participant is in possession of inside information, so long as the orders or instructions causing the trade were created as part of a "plan" that predates the insider's acquisition of the pertinent information. This creates a sort of time machine, where …

Corporations Are People Too: A Multi-Dimensional Approach To The Corporate Personhood Puzzle, Susanna K. Ripken

Susanna K. Ripken

The recent controversy over the billions of dollars authorized by Congress to bail out some of the nation’s largest corporations has illuminated a debate about the nature and role of corporations in our society. This debate involves fundamental questions about what or who it is exactly we are trying to save with bailout money. Has the corporation’s presence become such an integral part of our lives that its status obligates us to treat it as a “person” worth saving. Legal theorists have long puzzled over the nature of the corporate person and the value of calling the corporation a person …

More Private Equity, Less Government Subsidy, And More Tax Efficiency In Urban Revitalization, Roger M. Groves

Roger M. Groves

MORE PRIVATE EQUITY, LESS GOVERNMENT SUBSIDY, AND MORE TAX EFFICIENCY IN URBAN REVITALIZATION: Modeling Profitable Philanthropy and Investment Incentives In hopes of revitalizing depressed urban areas, US tax policy has been to use tax credits as a major incentive to induce private equity re-investment. But those give away subsidies to private investors have failed to have transformative effects, and come at a price in the billions to the public treasury. This article seeks a shift in the tax policy paradigm to increase the private equity investment, while reducing tax subsidy dependence. For the philanthropic urban investor, the short term incentive …

Corporations Are People Too: A Multi-Dimensional Approach To The Corporate Personhood Puzzle, Susanna K. Ripken

Susanna K. Ripken

The recent controversy over the billions of dollars authorized by Congress to bail out some of the nation’s largest corporations has illuminated a debate about the nature and role of corporations in our society. This debate involves fundamental questions about what or who it is exactly we are trying to save with bailout money. Has the corporation’s presence become such an integral part of our lives that its status obligates us to treat it as a “person” worth saving. Legal theorists have long puzzled over the nature of the corporate person and the value of calling the corporation a person …

A Single Theory Of Limited Liability Companies: An Evolutionary Analysis, Thomas E. Geu

Thomas E. Geu

No abstract provided.