Banking and Finance Law Commons^™

Theory, Evidence And Policy On Dual-Class Shares: A Country-Specific Response To A Global Debate, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

Dual-class shares have become one of the most controversial issues in today´s capital markets and corporate governance debates around the world. Namely, it is not clear whether companies should be allowed to go public with dual-class shares and, if so, which restrictions (if any) should be imposed. Three primary regulatory models have been adopted to deal with dual-class shares: (i) prohibitions, existing in countries like the United Kingdom, Germany, Spain, Colombia, or Argentina; (ii) the permissive model adopted in several jurisdictions, including Canada, Sweden, the Netherlands, and particularly the United States; and (iii) the restrictive approach recently implemented in Hong …

Disclosure's Purpose, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field – for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers— addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and …

Corporate Governance For Sustainability, Andrew Johnston, Jeroen Veldman, Robert G. Eccles, Simon Deakin, Jerry Davis, Marie-Laure Djelic, Katharina Pistor, Blanche Segrestin, William M. Gentry, Cynthia A. Williams, David Millon, Paddy Ireland, Beate Sjåfjell, Christopher M. Bruner, Lorraine E. Talbot, Hugh Christopher Willmott, Charlotte Villiers, Carol Liao, Bertrand Valiorgue, Jason Glynos, Todd L. Sayre, Bronwen Morgan, Rick Wartzman, Prem Sikka, Filip Gregor, David Carroll Jacobs, Roger Gill, Roger Brown, Vincenzo Bavoso, Neil Lancastle, Julie Matthaei, Scott Taylor, Ulf Larsson-Olaison, Jay Cullen, Alan J. Dignam, Thomas Wuil Joo, Ciarán O'Kelly, Con Keating, Roman Tomasic, Simon Lilley, Kevin Tennent, Keith Robson, Willy Maley, Iris H-Y Chiu, Ewan Mcgaughey, Chris Rees, Nina Boeger, Adam Leaver, Marc T. Moore, Leen Paape, Alan D. Meyer, Marcello Palazzi, Nitasha Kaul, Juan Felipe Espinosa-Cristia, Timothy Kuhn, David J. Cooper, Susanne Soederberg, Andreas Jansson, Susan Watson, Ofer Sitbon, Joan Loughrey, David Collison, Maureen Mcculloch, Navajyoti Samanta, Daniel J.H. Greenwood, Grahame F. Thompson, Andrew R. Keay, Alessia Contu, Andreas Rühmkorf, Richard Hull, Irene-Marie Esser, Nihel Chabrak

Faculty Scholarship

The current model of corporate governance needs reform. There is mounting evidence that the practices of shareholder primacy drive company directors and executives to adopt the same short time horizon as financial markets. Pressure to meet the demands of the financial markets drives stock buybacks, excessive dividends and a failure to invest in productive capabilities. The result is a ‘tragedy of the horizon’, with corporations and their shareholders failing to consider environmental, social or even their own, long-term, economic sustainability.

With less than a decade left to address the threat of climate change, and with consensus emerging that businesses need …

Delegating Portfolio Management To Index Creators: The Consequences For Corporate Governance, Dorothy S. Lund

Faculty Scholarship

The recent popularity of index investing and corresponding influx of assets into passively managed mutual funds has generated a large literature in law and in finance about the implications for securities markets, antitrust, corporate governance, and beyond. But few have explored the index landscape itself. Professor Robertson’s article is an important exception, and her findings — in particular, that indices are more diverse and dynamic than many would have expected — have implications for all of these debates.

Citizen Capitalism: How A Universal Fund Can Provide Influence And Income To All (2019), Lynn A. Stout, Sergio Gramitto, Tamara Belinfanti

Books

Corporations have a huge influence on the life of every citizen--this book offers a visionary but practical plan to give every citizen a say in how corporations are run while also gaining some supplemental income. It lays out a clear approach that uses the mechanisms of the private market to hold corporations accountable to the public.

This would happen through the creation of what the authors call the Universal Fund, a kind of national, democratic, mega mutual fund. Every American over eighteen would be entitled to a share and would participate in directing its share voting choices. Corporations and wealthy …

The Core Corporate Governance Puzzle: Contextualizing The Link To Performance, Merritt B. Fox, Ronald J. Gilson, Darius Palia

Faculty Scholarship

There is a puzzle at the core of corporate governance theory. Prior scholarship reports a strong relationship between firms best at creating shareholder value and those rated highly by the established corporate governance indices. Little work explores why, however. We hypothesize that the link between governance and performance depends centrally on context. We illustrate the importance of context by exploring circumstances when a firm's governance structure can operate as a signal of the quality of its management. The idea is that better managers are on average more likely to choose a highly rated governance structure than are bad managers because …

The Corporate Purpose Of Social License, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

This Article deploys the sociological theory of social license, or the acceptance of a business or organization by the relevant communities and stakeholders, in the context of the board of directors and corporate governance. Corporations are generally treated as “private” actors and thus are regulated by “private” corporate law. This construct allows for considerable latitude. Corporate actors are not, however, solely “private.” They are the beneficiaries of economic and political power, and the decisions they make have impacts that extend well beyond the boundaries of the entities they represent.

Using Wells Fargo and Uber as case studies, this Article explores …

Too-Big-To-Fail Shareholders, Yesha Yadav

Vanderbilt Law School Faculty Publications

To build resilience within the financial system, post-Crisis regulation relies heavily on banks to fund themselves more fully by issuing equity. This reserve of value should buttress failing banks by providing a mechanism to pay off creditors and depositors and preserve the health of financial markets. In the process, shareholders are wiped out. Scholars and policymakers, however, have neglected to examine which equity investors, in fact, are purchasing bank equity and taking on the default risk of U.S. banks. This Article addresses this question. First, it shows that five asset managers - BlackRock, Vanguard, State Street Global Advisors, Fidelity and …

Dual-Class Shares In Singapore – Where Ideology Meets Pragmatism, Pey Woan Lee

Research Collection Yong Pung How School Of Law

This article seeks to understand the rationale for and potential implications of the introduction of dual class shares (DCS) in Singapore. It does so by first considering the theoretical as well as evidential arguments for and against the use of DCS, followed by a survey on the reception (or otherwise) of such structures in four common law jurisdictions with vibrant capital markets, viz., Canada, the United States, United Kingdom and Hong Kong. It observes that the chief argument cited by business founders to justify the use of DCS structures is the desire to enhance a firm’s long-term profitability by shielding …

The Law And Finance Of Initial Coin Offerings, Aurelio Gurrea-Martinez, Nydia Remolina Leon

Research Collection Yong Pung How School Of Law

The rise of new technologies is changing the way companies raise funds. Along with the increase of crowdfunding in recent years, the use of Initial Coin Offerings (ICOs) has emerged more recently as a new form to raise capital. Companies in the United States raised more than $4 billion in 2017 and over $6.3 billion were raised through ICOs in the first three months of 2018. In a typical ICO, a company receives cryptocurrencies in exchange for certain rights embodied in “tokens”, whose nature, treatment and implications are generating controversy among securities regulators around the world.

Quacks Or Bootleggers: Who’S Really Regulating Hedge Funds?, Jeremy Kidd

Articles

Influential scholars of corporate law have questioned previous federal interventions into corporate governance, calling it quackery. Invoking images of medical malpractice, these critiques have argued persuasively that Congress, in responding to crises, makes policy that disrupts efficient private rules and established state laws. This Article applies the Bootleggers and Baptists theory to show that Dodd–Frank’s hedge fund rules are more than just negligent or reckless, but designed to benefit special interests that compete with the hedge fund model. Those rules offer no solutions to any real or perceived risks arising from hedge fund investing, but might offer an advantage to …

Contested Visions: The Value Of Systems Theory For Corporate Law, Tamara Belinfanti, Lynn A. Stout

Articles & Chapters

Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remains hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. Although the prevailing narrative for the past quarter-century has been that corporations “belong” to shareholders and should pursue “shareholder value,” support for this approach, which has been justified as essential for managerial accountability, is eroding. It persists today primarily in the form of the argument that corporations should seek “long-term” shareholder value. Yet, as this Article shows, when shareholder value …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

Too Big To Fool: Moral Hazard, Bailouts, And Corporate Responsibility, Steven L. Schwarcz

Faculty Scholarship

Domestic and international regulatory efforts to prevent another financial crisis have been converging on the idea of trying to end the problem of “too big to fail”—that systemically important financial firms take excessive risks because they profit from success and are (or at least, expect to be) bailed out by government money to avoid failure. The legal solutions being advanced to control this morally hazardous behavior tend, however, to be inefficient, ineffective, or even dangerous—such as breaking up firms and limiting their size, which can reduce economies of scale and scope; or restricting central bank authority to bail out failing …

Controlling Systemic Risk Through Corporate Governance, Steven L. Schwarcz

Faculty Scholarship

Most of the regulatory measures to control excessive risk taking by systemically important firms are designed to reduce moral hazard and to align the interests of managers and investors. These measures may be flawed because they are based on questionable assumptions. Excessive corporate risk taking is, at its core, a corporate governance problem. Shareholder primacy requires managers to view the consequences of their firm’s risk taking only from the standpoint of the firm and its shareholders, ignoring harm to the public. In governing, managers of systemically important firms should also consider public harm. This proposal engages the long-standing debate whether …

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

Faculty Scholarship

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.

Corporate Darwinism: Disciplining Managers In A World With Weak Shareholder Litigation, James D. Cox, Randall S. Thomas

Faculty Scholarship

Because representative shareholder litigation has been constrained by numerous legal developments, the corporate governance system has developed new mechanisms as alternative means to address managerial agency costs. We posit that recent significant governance developments in the corporate world are the natural consequence of the ineffectiveness and inefficiency of shareholder suits to address certain genre of managerial agency costs. We thus argue that corporate governance responses evolve to fill voids caused by the inability of shareholder suits to monitor and discipline corporate managers.

We further claim that these new governance responses are themselves becoming stronger due in part to the rising …

Misalignment: Corporate Risk-Taking And Public Duty, Steven L. Schwarcz

Faculty Scholarship

This article argues for a “public governance duty” to help manage excessive risk-taking by systemically important firms. Although governments worldwide, including the United States, have issued an array of regulations to attempt to curb that risk-taking by aligning managerial and investor interests, those regulations implicitly assume that investors would oppose excessively risky business ventures. That leaves a critical misalignment: because much of the harm from a systemically important firm’s failure would be externalized onto the public, including ordinary citizens impacted by an economic collapse, such a firm can engage in risk-taking ventures with positive expected value to its investors but …

Balance And Team Production, Kelli A. Alces

Seattle University Law Review

For decades, those holding the shareholder primacy view that the purpose of a corporation is to earn a profit for its shareholders have been debating with those who believe that corporations exist to serve broader societal interests. Adolph Berle and Merrick Dodd began the conversation over eighty years ago, and it continues today, with voices at various places along a spectrum of possible corporate purposes participating. Unfortunately, over time, the various sides of the debate have begun to talk past each other rather than engage with each other and have lost sight of whatever common ground they may be able …

The Long Road To Reformulating The Understanding Of Directors' Duties: Legalizing Team Production Theory?, Thomas Clarke

Seattle University Law Review

In this Article, the historical evolution of corporate governance is considered, highlighting the different eras of governance, the dominant theoretical and practical paradigms, and the reformulation of paradigms and counter paradigms. Two alternative and sharply contrasting theorizations, one collective and collaborative (the work of Berle and Means), the other individualistic and contractual (agency theory and shareholder value) are focused upon. The explanatory potential of Blair and Stout’s team production theory is elaborated, along with its conception of the complexity of business enterprise, with a mediating hierarch (the board of directors) securing a balance between the interests of different stakeholders. The …

Downstream Securities Regulation, Anita Krug

All Faculty Scholarship

Securities regulation wears two hats. Its “upstream” side governs firms in connection with their obtaining financing in the securities markets. That is, it regulates firms’ and issuers’ offers and sales of securities, whether in public offerings to retail investors or in private offerings to institutional investors. Its “downstream” side, by contrast, governs financial services providers, who assist with investors’ activities in those markets. Their services include providing advice regarding securities investments, as investment advisers do; aggregating investors’ assets for purposes of enabling those investors to invest their assets collectively, as mutual funds do; and acting as “middlemen” between buyers and …

A Comparative Study Of Monitoring Of Management In German And U.S. Corporations After Sarbanes-Oxley: Where Are The German Enrons, Worldcoms, And Tycos?, Florian Stamm

Georgia Journal of International & Comparative Law

No abstract provided.

The Sarbanes-Oxley Act Of 2002: Are Stricter Internal Controls Constricting International Companies?, Jennifer K. Coalson

Georgia Journal of International & Comparative Law

No abstract provided.

The Governance Structure Of Shadow Banking, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

The Governance Structure Of Shadow Banking: Rethinking Assumptions About Limited Liability, Steven L. Schwarcz

Faculty Scholarship

In an earlier article, I argued that shadow banking — the provision of financial services and products outside of the traditional banking system, and thus without the need for bank intermediation between capital markets and the users of funds — is so radically transforming finance that regulatory scholars need to rethink their basic assumptions. This article attempts to rethink the corporate governance assumption that owners of firms should always have their liability limited to the capital they have invested. In the relatively small and decentralized firms that dominate shadow banking, equity investors tend to be active managers. Limited liability gives …

Improving Hedge Fund Governance, Houman B. Shadab

Articles & Chapters

This Article provides the first comprehensive scholarly analysis of the internal governance of hedge funds. Hedge fund governance consists of the funds’ underlying legal regime and the practices they adopt in response to lacking permanent capital and to reduce agency costs. Hedge fund governance is important because better governance can improve investor returns and help managers raise and retain capital. I argue that hedge fund governance is best understood as a type of responsive managerialism. It is a type of managerialism because applicable law and contracting structures give managers uniquely wide-ranging control over the fund and its operations. Hedge fund …

Corporate Governance Theory And Review Of Board Decisions, Christopher M. Bruner

Scholarly Works

No abstract provided.

Janus Capital Group, Inc. V. First Derivative Traders: Further Limited Liability, And Missing An Opportunity To Curb Corporate Misconduct, Zachary K. Ostro

Journal of Business & Technology Law

No abstract provided.

Ring-Fencing, Steven L. Schwarcz

Faculty Scholarship

“Ring-fencing” is often touted as a regulatory solution to problems in banking, finance, public utilities, and insurance. However, both the precise meaning of ring-fencing, as well as the nature of the problems that ring-fencing regulation purports to solve, are ill defined. This article examines the functions and conceptual foundations of ring-fencing. In a regulatory context, the term can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk. So utilized, ring-fencing can help to protect public-benefit activities performed by private-sector firms, as well as to mitigate systemic risk and the too-big-to-fail problem inherent …

Venture Capital Investments In China: The Use Of Offshore Financing Structures And Corporate Relocations, Jing Li

Michigan Business & Entrepreneurial Law Review

Based on an analysis of the relevant Chinese laws and regulations governing the corporate governance structure of venture capital (“VC”)-invested firms, as well as a discussion on the feasibility of employing different alternatives to make direct and indirect VC investments in Chinese portfolio firms, this article studies a hand-collected sample consisting of the twenty-nine VCbacked Chinese portfolio firms that have been financed and listed from 1990 to 2005 in order to empirically show how these investments were actually made in practice. The findings show that twenty-three out of the twentynine firms received their VC investments in various offshore holding entities, …