Banking and Finance Law Commons^™

Remutualization, Erik F. Gerding

Cornell Law Review

This Article explores how returning to common law or traditional approaches to financial institution governance can inform and improve a range of financial reforms. In particular, this Article seeks to revive the use of organizational form as a tool of financial regulation. Very old varietals, including partnerships and mutual companies, decanted in new bottles can promote financial stability, lower incentives for excessive risk-taking by financial intermediaries, provide mechanisms to police their market conduct, and better align their incentives with the interests of their customers and consumers.

Horizontal Directors, Yaron Nili

Northwestern University Law Review

Directors wield increasing influence in corporate America, making pivotal decisions regarding corporate affairs and management. A robust literature recognizes directors’ important role and examines their incentives and performance. In particular, scholars have worried that “busy directors”—those who serve on multiple corporate boards—may face time constraints that affect their performance. Little attention, however, has been paid to directors who sit on the boards of multiple companies within the same industry. This Article terms them “horizontal directors” and spotlights, for the first time, the legal and policy issues they raise. The “horizontal” feature of directorships, a term often used in the antitrust …

The Role Of The Board Of Financial Services Firms In Improving Their Firm's Culture, Ciaran Walker

Seattle University Law Review

In this Article, we look at the role the board is expected to play under regulatory requirements and guidance; we then look specifically at the failings of boards in a number of the recent “scandals.” Finally, we offer a number of suggestions on ways in which the board can have a more effective role in improving firms’ culture. In this latter regard, we specifically focus on industry (rather than firm-specific) initiatives that could enable the board to have a more effective role, particularly in light of the setting up of the industry-funded Banking Standards Board in the U.K. and the …

Developing Fiduciary Culture In Vietnam, Brian Jm Quinn

Seattle University Law Review

This Article examines Vietnam’s efforts during the past two and a half decades to build up its legal infrastructure during its transition from a centrally planned to a market economy. In particular, this Article will focus on the development of legal and regulatory infrastructure to support the development of the corporate sector and fiduciary culture in Vietnam. In thinking about corporate law, I do not intend to single out this particular area of law as somehow special in the context of transition. In fact, its commonness and generality are what makes the experience of the development of corporate law and …

Epistemic Corporate Culture: Knowledge, Common Knowledge, And Professional Oaths, Boudewijn De Bruin

Seattle University Law Review

This Article does not assume that professional oaths accomplish what they are intended to do. Yet, I believe that oaths can fulfill important functions once they are crafted as part of carefully designed, more comprehensive approaches to managing ethical culture. Or better, I believe that by investigating more closely what an oath really is and what its preconditions are, we may gain insights that will help to change corporate culture for the better, even if companies do not wish to adopt oaths to manage ethics. Methodologically, this Article is grounded in various strands of philosophical research. In particular, I build …

Why Do Good People Do Bad Things? A Multi-Level Analysis Of Individual, Organizational, And Structural Causes Of White-Collar Crime, Dr. Joe Mcgrath

Seattle University Law Review

This Article draws on the Securities and Exchange Commission’s (SEC) complaint against Serageldin, the transcript for his plea hearing, and the transcript for his sentencing hearing. The SEC’s complaint provides a prosecutorial account of the fraud. It also includes actual extracts from Serageldin’s recorded phone calls at Credit Suisse which provide a realtime narrative of the fraud. The court transcripts detail Serageldin’s own account of the fraud and give a biographical account of Serageldin’s life, provided by his mother, who offered character evidence on his behalf. These perspectives allowed for the recasting of the SEC’s account of the fraud and …

In The Name Of Shareholder Value: Origin Myths Of Corporations And Their Ongoing Implications, Karen Ho

Seattle University Law Review

Part I of this Article analyzes some of the contemporary critiques of, and debates around, shareholder value in order to illustrate why many of these contestations demonstrate underlying gaps or problematic assertions in the history and politics of shareholder value, especially if they are delimited by the narrow legal frames and neoliberal assumptions of corporations. It also provides the context necessary to explicate and ground why shareholder primacy and ownership assumptions are historically and legally flawed, and how financial values and assumptions continue to be championed (and financial power elided), despite the recent implosions of shareholder value. Part II expands …

Bank Culture And The Official Sector: A Spectrum Of Options, Michael Held, Thomas M. Noone

Seattle University Law Review

If you think culture is too squishy, please hear us out. In Part I of this Article, we set out what we mean by culture. In Part II, we explain why we are interested in culture and why it matters to us now. In Part III, we will survey the work of other public authorities in their efforts to address culture. In our view, these efforts fall into several categories along a spectrum from more advisory to more prescriptive. We do not endorse any particular method. All of these efforts are useful attempts to address a common problem: repeated ethical …

Coercive Competition: A New Paradigm For Culture And Conduct Risk Management, Stephen Scott

Seattle University Law Review

Ultimately, this is an Article about human behavior, its causes and consequences. A subject so vast does not confine itself to any one, narrow, academic swim-lane and neither do I. Rather, I have afforded myself the luxury of borrowing liberally from a range of disciplines and their associated literatures, seeking to weave a coherent narrative that allows us to ask “what are we to do?” and to posit an approach to identifying responsive ideas that at least warrant some consideration.

Management Culture And Surveillance, J.S. Nelson

Seattle University Law Review

As the modern workplace increasingly adopts technology, that technology is being used to surveil workers in ways that can be highly invasive. Ostensibly, management uses surveillance to assess workers’ productivity, but it uses the same systems to, for example, map their interpersonal relationships, study their conversations, collect data on their health, track where they travel on and off the job, as well as monitor and manipulate their emotional responses. Many of these overreaches are justified in the name of enterprise control. That justification should worry us. This Article aims to make us think about how surveillance is being used as …

"Tone At The Top" And The Communication Of Corporate Values: Lost In Translation?, Alfredo Contreras, Aiyesha Dey, Claire Hill

Seattle University Law Review

Many firms that were involved in large-scale corporate frauds had strong corporate codes of ethics and values statements. These firms were also subject to considerable social pressures to be mindful of their reputations; frauds are “negative reputational events.” Notably, the frauds not infrequently involved possible, or even outright, illegality. Why didn’t these strong forces—strong codes of ethics and firms’ clear interest in maintaining a good reputation, as well as the fear of legal liability—do more to prevent the frauds? It seems hard to imagine that serious misdeeds could occur if the top management was committed to preventing them. But top …

The Effects Of Shareholder Primacy, Publicness, And "Privateness" On Corporate Cultures, Donald C. Langevoort

Seattle University Law Review

My conundrum question is this: suppose managerialism triumphed in the governance wars so as to regain its desired level of autonomy from shareholder pressures for boards and managers—would we then expect to see a cultural shift inside corporations toward greater honesty and civil engagement, and if so, why? A helpful diagnostic question is to ask how managers currently construe shareholder and market primacy. Have they internalized it as a value or do they instead resent the demands? My argument here leans more toward resentment, though my contribution is more about how to develop a credible hypothesis than how to prove …

Unsubstantiated Allegations And Organizational Culture, Eugene Soltes

Seattle University Law Review

When organizations investigate allegations of misconduct, they routinely determine that some allegations are unsubstantiated. A variety of factors may contribute to the conclusion that an allegation does not warrant substantiation, including a lack of supporting evidence, false claims against others within the organization, and a failure to conduct a thorough inquiry. This Article examines the potential value of examining unsubstantiated allegations of misconduct to better understand an organization’s culture. I show that unsubstantiated allegations provide insight into where future violations may occur, employees’ proclivity to engage in subsequent violations, and firm productivity. I conclude by discussing ways that organizations can …

The Problem With Predators, June Carbone, William K. Black

Seattle University Law Review

Both corporate theory and sex discrimination law start with presumptions that CEOs seek to advance legitimate ends and design the internal organization of business enterprises to achieve such ends. Yet, a growing literature questions why CEOs and boards of directors nonetheless select for Machiavellianism, narcissism, psychopathy, and toxic masculinity, despite the downsides associated with these traits. Three scholarly literatures—economics, criminology, and gender theory—draw on advances in psychology to shed new light on the construction of seemingly dysfunctional corporate cultures. They start by questioning the assumption that CEOs—even CEOs of seemingly mainstream businesses—necessarily seek to advance “legitimate” ends. Instead, they suggest …

Regulating Banking Ethics: A Toolkit, David Zaring

Seattle University Law Review

There is little doubt that culture matters for institutions—entities ranging from economics departments to soccer teams spend plenty of time thinking about the cultures they hope to foster—and that culture is also exceedingly hard to measure or define. Regulators now have had a decade since the financial crisis to operationalize their approach to guiding and improving the ethics and culture of the banks they oversee. Understanding what they have chosen to do makes it easier to assess the value of the effort to make cultural transformation an important part of a regulatory program. It also offers lessons to the broader …

Dankruptcy: When The Green Runs Out, Marijuana Debtors Have Few Options, Jorge J. Rodriguez

Arkansas Law Review

The legalized marijuana industry is lucrative but surrounded with uncertainties. The divergence between state and federal law has pushed this industry into a state of limbo. Furthermore, at the federal level, the lack of enforcing the prohibition has only exacerbated the uncertainty. Historically, the federal government has taken a very relaxed approach and allowed marijuana businesses to operate with minimal interference. As a result, there is a thriving legalized marijuana industry operating throughout the majority of the United States. However, there are many obstacles which plague and threaten the future of this relatively young industry. Of particular importance, and the …

The Overturning Of Quill And The New Nexus Standard, Ethan T. Kirner

DePaul Business & Commercial Law Journal

No abstract provided.

Blowing The Whistle In The Digital Age: Are You Really Anonymous? The Perils And Pitfalls Of Anonymity In Whistleblowing Law, Tanya M. Marcum J.D., Jacob Young D.B.A., Ethan T. Kirner

DePaul Business & Commercial Law Journal

No abstract provided.

Jpmorgan Chase London Whale Z: Background & Overview, Arwin G. Zeissler, Rosalind Bennett, Andrew Metrick

Journal of Financial Crises

In December 2011, the Chief Executive Officer and Chief Financial Officer of JPMorgan Chase (JPM) instructed the bank’s Chief Investment Office to reduce the size of its Synthetic Credit Portfolio (SCP) during 2012, so that JPM could decrease its Risk-Weighted Assets as the bank prepared to adopt the impending Basel III bank capital regulations. However, the SCP traders were also told to minimize the trading costs incurred to reduce Risk-Weighted Assets, while still maintaining the opportunity to profit from unexpected corporate bankruptcies. In an attempt to balance these competing objectives, head SCP derivatives trader Bruno Iksil suggested in January 2012 …

In Memory Of Professor James E. Bond, Janet Ainsworth

Seattle University Law Review

Janet Ainsworth, Professor of Law at Seattle University School of Law: In Memory of Professor James E. Bond.

Buyer Beware: Variation And Opacity In Esg And Esg Index Funds, Dana Brakman Reiser, Anne Tucker

Faculty Scholarship

No abstract provided.

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Stephen J. Choi, Robert E. Scott, G. Mitu Gulati

Faculty Scholarship

The textbook model of commercial contracts between sophisticated parties holds that terms are proposed, negotiated and ultimately priced by the parties. Parties reach agreement on contract provisions that best suit their transaction with the goal of maximizing the joint surplus from the contract. The reality, of course, is that the majority of the provisions in contemporary commercial contracts are boilerplate terms derived from prior transactions and even the most sophisticated contracting parties pay little attention to these standard terms, focusing instead on the price of the transaction. With standard-form or boilerplate contracts, this dynamic of replicating by rote the terms …

Restructuring Vs. Bankruptcy, Jason Roderick Donaldson, Edward R. Morrison, Giorgia Piacentino, Xiaobo Yu

Faculty Scholarship

We develop a model of a firm in financial distress. Distress can be mitigated by filing for bankruptcy, which is costly, or preempted by restructuring, which is impeded by a collective action problem. We find that bankruptcy and restructuring are complements, not substitutes: Reducing bankruptcy costs facilitates restructuring, rather than crowding it out. And so does making bankruptcy more debtor-friendly, under a condition that seems likely to hold now in the United States. The model gives new perspectives on current relief policies (e.g., subsidized loans to firms in bankruptcy) and on long-standing legal debates (e.g., the efficiency of the absolute …

Bankruptcy’S Role In The Covid-19 Crisis, Edward R. Morrison, Andrea C. Saavedra

Faculty Scholarship

Policymakers have minimized the role of bankruptcy law in mitigating the financial fallout from COVID-19. Scholars too are unsure about the merits of bankruptcy, especially Chapter 11, in resolving business distress. We argue that Chapter 11 complements current stimulus policies for large corporations, such as the airlines, and that Treasury should consider making it a precondition for receiving government-backed financing. Chapter 11 offers a flexible, speedy, and crisis-tested tool for preserving businesses, financing them with government funds (if necessary), and ensuring that the costs of distress are borne primarily by investors, not taxpayers. Chapter 11 saves businesses and employment, not …

The Covid-19 Pandemic And Business Law: A Series Of Posts From The Oxford Business Law Blog, Gert-Jan Boon, Markus K. Brunnermeier, Horst Eidenmueller, Luca Enriques, Aurelio Gurrea-Martínez, Kathryn Judge, Jean-Pierre Landau, Marco Pagano, Ricardo Reis, Kristin Van Zwieten

Faculty Scholarship

The COVID-19 Pandemic is the biggest challenge for the world since World War Two, warned UN Secretary General, António Guterres, on 1 April 2020. Millions of lives may be lost. The threat to our livelihoods is extreme as well. Job losses worldwide may exceed 25 million.

Legal systems are under extreme stress too. Contracts are disrupted, judicial services suspended, and insolvency procedures tested. Quarantine regulations threaten constitutional liberties. However, laws can also be a powerful tool to contain the effects of the pandemic on our lives and reduce its economic fallout. To achieve this goal, rules designed for normal times …

Revising Boilerplate: A Comparison Of Private And Public Company Transactions, Robert E. Scott, Stephen J. Choi, Mitu Gulati

Faculty Scholarship

The phenomenon of “sticky boilerplate” causing inefficient contract terms to persist exists across a variety of commercial contract types. One explanation for this failure to revise suboptimal terms is that the key agents on these transactions, including attorneys and investment bankers, are short sighted; their incentives are to get the deal done rather than ensure that they are using the best terms possible for their clients. Moreover, these agents face a first mover disadvantage that deters unilateral revisions to inefficient terms. If agency costs are indeed driving the stickiness phenomenon, we expect that the pace of revision will vary across …

The Case For Accountability & Transparency: How Corporate Asset Forfeiture Creates A Conflict Of Interest, Tiffany J. Klinger

Fordham Journal of Corporate & Financial Law

Asset forfeiture is a tool used by law enforcement to seize property or profits related to criminal activity. Due to the public's growing distain of asset forfeiture, congressional and state reform has attempted to curtail the use of civil asset forfeiture over the past twenty years. However, little attention has been given where asset forfeiture is used against corporations. This Note sheds light as to how asset forfeiture is used against the organizational defendant and makes the following observations: First, asset forfeiture is a powerful tool in corporate criminal proceedings; however, forfeiture lacks the procedural restraints that are placed on …

We Three Kings: Disintermediating Voting At The Index Fund Giants, Caleb N. Griffin

Maryland Law Review

No abstract provided.

Crowdfunding Issuers In The United States, Andrew A. Schwartz

Publications

Startup companies can now legally sell shares of stock, bonds, or other securities to the broad public using equity crowdfunding, a new type of online capital market modeled on Kickstarter and other reward crowdfunding websites. Through equity crowdfunding, entrepreneurs can go directly to the broad public (the “crowd”) for investment, without having to go through the usual (and costly) process of an initial public offering (IPO). Equity crowdfunding thus offers a chance for all entrepreneurs, regardless of their physical location, gender, or anything else, to solicit investors and raise capital.

In 2012, new federal legislation—the Jumpstart Our Business Startups (JOBS) …

Remutualization, Erik F. Gerding

Publications

Policymakers need to rediscover the organizational form of business entity as a tool of financial regulation. Recent and classic scholarship has produced evidence that financial institutions organized as alternative entity forms – including investment bank partnerships and banks and insurance companies organized as mutual or cooperatives – tend to take less risk, exploit customers/consumer less, or commit less misconduct compared to counterparts organized as investor-owned corporations. This article builds off the work of Hill and Painter on investment banks organized as partnerships, Hansmann on the history and economics of banks and insurance companies organized as mutuals and cooperatives, and other …