Business Organizations Law Commons^™

The Post-Revolutionary Period In Corporate Law: Returning To The Theory Of The Firm, Matthew T. Bodie

Seattle University Law Review

The consensus on corporate law theory has narrowed the field’s doctrinal and methodological foci. Although the vibrancy of shareholder primacy has at times been called into question as a matter of law, both boardrooms and courts have taken the normative call for shareholder wealth maximization increasingly to heart. There is little doubt that the revolution has not only substantially affected legal theory but also legislation, court decisions, and corporate behavior. It achieved a level of success unusual for an academic discipline; it not only transformed the field but also the world. We now find ourselves in the post-revolutionary period. For …

The Evolution Of The American Corporation And Global Organizational Biodiversity, Ugo Pagano

Seattle University Law Review

The Evolution of the Modern Corporate Structure has been one of the most influential chapters of The Modern Corporation & Private Property. But Berle and Means’s superb analysis is framed in the American context and cannot be easily generalized to other experiences. Their corporate model arose in a democratic country where “production engineers” commanded more respect than financiers and capitalist dynasties. Other countries followed different organizational paths, characterized by different institutional complementarities between labor and financial markets that generated “concentrated equilibria” different from the American “dispersed equilibrium.” This Article argues that the divide can be traced to the different aristocratic …

Consumer Lock-In And The Theory Of The Firm, David G. Yosifon

Seattle University Law Review

The advent of the modern corporation separated not only ownership from control but also production from consumption. The agency problem that arose between owners and managers of firms also emerged between producers and consumers. Just as corporations needed to lock-in capital to sustain large-scale operations, so too did they need to lock-in consumers to justify and reduce the risks of asset-specific investment. Large corporate operations succeeded because they solved both the capital and consumer lock-in challenges. This Article explores ways in which modern consumers, like shareholders, can find themselves in a very real sense locked into the corporations with which …

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Seattle University Law Review

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

We Don’T Need You Anymore: Corporate Social Responsibilities, Executive Class Interests, And Solving Mizruchi And Hirschman’S Paradox, Richard Marens

Seattle University Law Review

Previously, Northern Italian, Dutch, and then English entrepreneurs had dominated global trade in turn, and when after a century or so their respective hegemonies began to show cracks, each group refocused its efforts in the service of tapping already-accumulated wealth through financial speculation and, in the process, also financed the rise of their successors.20 If Dahrendorf was correct, and American capital was managed during the era of American industrial dominance by “a class of career bureaucrats, whose primary loyalty lay with their employer rather than with a class of property owners,”21 there are good reasons to believe that that has …

Rethinking The Nature Of The Firm: The Corporation As A Governance Object, Peer Zumbansen

Seattle University Law Review

This Article attempts to bridge two discourses—corporate governance and contract governance. Regarding the latter, a group of scholars has recently set out to develop a more comprehensive research agenda to explore the governance dimensions of contractual relations, highlighting the potential of contract theory to develop a more encompassing theory of social and economic transactions. While a renewed interest in the contribution of economic theory for a concept of contract governance drives one dimension of this research, another part of this undertaking has been to move contract theory closer to theories of social organization. Here, these scholars emphasize the “social” or …

The Uncorporation And The Unraveling Of 'Nexus Of Contracts' Theory, Grant M. Hayden, Matthew T. Bodie

Michigan Law Review

A corporation is not a contract. It is a state-created entity. It has legal personhood with the right to form contracts, suffer liability for torts, and (as the Supreme Court recently decided) make campaign contributions. However, many corporate law scholars have remained wedded to the conception-metaphor, model, paradigm, what have you-of the corporation as a contract or "nexus" of contracts. The nexus of contracts theory is meant to point up the voluntary, market-oriented nature of the firm and to dismiss the notion that the corporation owes anything to the state. It is also used as a justification for preserving the …

Contracts As Organizations, D. Gordon Smith, Brayden G. King

Faculty Scholarship

Empirical studies of contracts have become more common over the past decade, but the range of questions addressed by these studies is narrow, inspired primarily by economic theories that focus on the role of contracts in mitigating ex post opportunism. We contend that these economic theories do not adequately explain many commonly observed features of contracts, and we offer four organizational theories to supplement-and in some instances, perhaps, challenge-the dominant economic accounts. The purpose of this Article is threefold: first, to describe how theoretical perspectives on contracting have motivated empirical work on contracts; second, to highlight the dominant role of …

Innovative Transactional Pedagogies, Joan Macleod Heminway, Michael A. Woronoff, Lyman P.Q. Johnson

Scholarly Articles

Our law schools are embracing in a more powerful way innovative transactional pedagogies that address not only theory, policy, and doctrine, but also legal skills. This transcribed panel discussion explores three of these pedagogies – teaching corporate finance as advanced contract drafting, teaching numeracy, and teaching substance and skill in contract drafting through the use of in-office meetings and analytical memos – and describes how they are being implemented in law teaching. The panel was part of the “Transactional Education: What’s Next?” conference hosted by the Emory University School of Law’s Center for Transactional Law and Practice on June 4-5, …

Contract, Uncertainty, And Innovation, Ronald J. Gilson, Charles F. Sabel, Robert E. Scott

Faculty Scholarship

Contract today increasingly links entrepreneurial innovations to the efforts and finance necessary to transform ideas into value. In this chapter, we describe the match between a form of contract that “braids”1 formal and informal contractual elements in novel ways and the process by which innovation is pursued.

The Uncorporation And The Unraveling Of 'Nexus Of Contracts' Theory, Grant M. Hayden, Matthew T. Bodie

All Faculty Scholarship

This is a review of The Rise of the Uncorporation, by Larry E. Ribstein (Oxford University Press 2010). The Rise of the Uncorporation gives a compelling account of the increasing reliance on business forms other than the corporation. These new organizational forms - such as limited liability companies, limited liability partnerships, partnerships, and the like - give businesses greater freedom to structure themselves in ways that best facilitate their particular needs. And this, according to Ribstein, is an unqualified good, for it allows firms to operate more efficiently than if they were forced to assume an intensely regulated form.

Like …

The “Non-Cumulation Clause”: An “Other Insurance” Clause By Another Name, Chris French

Faculty Scholarship

How long-tail liability claims such as asbestos bodily injury claims and environmental property damage claims are allocated among multiple triggered policy years can result in the shifting of tens or hundreds of millions of dollars from one party to another. In recent years, insurers have argued that clauses commonly titled, “Prior Insurance and Non-Cumulation of Liability” (referred to herein as “Non-Cumulation Clauses”), which are found in commercial liability policies, should be applied to reduce or eliminate their coverage responsibilities for long-tail liability claims by shifting their coverage responsibilities to insurers that issued policies in earlier policy years. The insurers’ argument …

Outsourcing Modularity, And The Theory Of The Firm, Margaret M. Blair, Erin O'Hara O'Connor, Gregg Kirchhoefer

Vanderbilt Law School Faculty Publications

Firms have increasingly moved productive activities from within to outside the firm through outsourcing arrangements. According to some estimates, the value of outsourcing contracts has been nearly 100 billion dollars per year since 2004. Firm outsourcing happens for a number of reasons, including to save labor costs, capture the benefits of regulatory arbitrage, and take advantage of economies of scale in the provision of firm needs. We review a number of outsourcing contracts for evidence that contract techniques are used to help modularize the relationship between the firm and its service provider. Consistent with what modularity theory might predict, some …

A Contractual Approach To Shareholder Oppression Law, Benjamin Means

Faculty Publications

According to standard law and economics, minority shareholders in closely held corporations must bargain against opportunism by controlling shareholders before investing. Put simply, you made your bed, now you must lie in it. Yet most courts offer a remedy for shareholder oppression, often premised on the notion that controlling shareholders owe fiduciary duties to the minority or must honor the minority's reasonable expectations. Thus, law and economics, the dominant mode of corporate law scholarship, appears irreconcilably opposed to minority shareholder protection, a defining feature of the existing law of close corporations.

This Article contends that a more nuanced theory of …

"If You Poison Us Do We Not Die?" - A Critical Analysis Of The Legality Of Poison Puts In The Wake Of San Antonio Fire And Police Pension Fund V. Amylin, Inc., Marcus Kai Hintze

BYU Law Review

No abstract provided.

Contract Interpretation Redux, Alan Schwartz, Robert E. Scott

Faculty Scholarship

Contract interpretation remains the largest single source of contract litigation between business firms. In part this is because contract interpretation issues are difficult, but it also reflects a deep divide between textualist and contextualist theories of interpretation. While a strong majority of U.S. courts continue to follow the traditional, "formalist" approach to contract interpretation, some courts and most commentators prefer the "contextualist" interpretive principles that are reflected in the Uniform Commercial Code and the Second Restatement. In 2003, we published an article that set out a formalist theory of contract interpretation to govern agreements between business firms. We argued that, …

Excuse Doctrine: The Eisenberg Uncertainty Principle, Victor P. Goldberg

Faculty Scholarship

The world is in a bit of a mess. Oil prices soared to more than $140 per barrel and within months plummeted to below $40. The pound fell from $2 to less than $1.40. Housing and stock prices crashed. Foreclosures, bankruptcies, and bailouts became newspaper staples. When things go awry like this, inevitably many people and firms regret having entered into contracts under more favorable circumstances. Many of them will be looking for ways to limit, or better yet, avoid the consequences. A preeminent contracts scholar, Melvin Eisenberg (2009), has provided them with considerable ammunition in a recent paper, arguing …

Reply: Clawback To The Future, Miriam A. Cherry, Jarrod Wong

Faculty Publications

(Excerpt)

In Clawbacks: Prospective Contract Measures in an Era of Excessive Executive Compensation and Ponzi Schemes (the “Article”), we undertook the task of proposing a doctrine of clawbacks that would not only furnish a framework for analyzing the term more systematically, but would also describe the ways the doctrine would relate to established rules of contract law. With his response, In the Shadow of the Omnipresent Claw: In Response to Professors Cherry & Wong (the “Response”), Michael Macchiarola has provided us with an opportunity to articulate these thoughts on the doctrine of clawbacks further, and for that opportunity and his …

A Standard Clause Analysis Of The Frustration Doctrine And The Material Adverse Change Clause, Andrew A. Schwartz

Publications

In the darkest depths of a corporate merger agreement lies the MAC clause, a term that permits the acquirer to walk away from a transaction if, between signing and closing, the target company experiences a "Material Adverse Change." Multibillion-dollar deals rise or fall based on the anticipated interpretation of a MAC clause, and invocation of the clause in a sensitive transaction could trigger the collapse of the global financial system. In short, the MAC clause is the most important contract term of our time. And yet--due to an almost total lack of case law--no one knows what it means.

In …

Failure Of A "Basic Assumption": The Emerging Standard For Excuse Under Mae Provisions, Nathan Somogie

Michigan Law Review

The onset of the current economic crisis has led many strategic and financial acquirers to reconsider the desirability of transactions to which they had previously agreed. Because many of these agreements contain substantial termination fees, buyers have increasingly sought to be excused from their contractual obligations by invoking Material Adverse Effect ("MAE") provisions. Reliance on MAE clauses as a basis for termination has historically been risky due to a lack of clarity in the case law regarding the standard for excuse under such provisions. A recent decision by the Delaware Chancery Court, Hexion v. Huntsman, the third in a …

Void Contracts And The Applicability Of Choice Of Law Clauses To Consequential Restitutionary Claims: Cimb Bank Bhd V Dresdner Kleinwort Ltd [2008] 4 Slr 543, Adeline Swee Ling Chong

Research Collection Yong Pung How School Of Law

This note examines the Singapore Court of Appeal’s judgment in CIMB Bank Bhd v Dresdner Kleinwort Ltd, focusing specifically on what role, if any, should be played by a choice of law clause contained in a void contract in relation to the restitutionary aftermath of voidness.

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." …

Debunking The Corporate Fiduciary Myth, Kelli A. Alces

Scholarly Publications

No abstract provided.

On Uncertainty, Ambiguity, And Contractual Conditions, Eric L. Talley

Faculty Scholarship

This article uses the recent Delaware Chancery Court case of Hexion v. Huntsman as a template for motivating thoughts about how contract law should interpret contractual conditions in general – and "material adverse event" provisions in particular – within environments of extreme ambiguity (as opposed to risk). Although ambiguity and aversion there to bear some facial similarities to risk and risk aversion, an optimal contractual allocation of uncertainty does not always track the optimal allocation of risk. After establishing these intuitions as a conceptual proposition, I endeavor to test them empirically, using a unique data set of 528 actual material …

It's Just Secured Credit: The Natural Law Case In Defense Of Some Forms Of Secured Credit, Brian Mccall

Faculty Articles

For decades scholars have been debating whether of not the institution of security can be explained and justified. After much discussion from varying points of view and hermeneutics, although some insights have been gained, the answer to the original question remains unresolved. This article attempts to bring new life to this debate by building on Professors Mooney and Harris’ idea of security interest as property right while taking account of the valid concerns of scholars such as Elizabeth Warren and Lyn Lopucki that certain results produced by the current system seem unjust. This reconciliation of these two strands of secured …

The Diverging Meaning Of Good Faith, Mark J. Loewenstein

Publications

This article explores the meaning of "good faith" in the context of corporations and unincorporated entities. The courts, particularly in Delaware, have developed two different approaches. In the corporate arena, the courts are fashioning a notion of good faith that seems to require an examination of director motivations. In the unincorporated arena, good faith has a meaning grounded in contract law. These are two different concepts and reflect the fundamental differences between corporations and unincorporated entities, with the former based on fiduciary duties and the latter on contract. There are, however, indications that this "divergence" is starting to disappear, and …

Learning From Our History: Evaluating The Modern Housing Finance Market In Light Of Ancient Principles Of Justice, Brian Mccall

Faculty Articles

Since I first accepted an invitation to join this symposium, the subprime mortgage crisis has exploded into a systemic financial crisis. Analysis and pundits alike seem on a quest to outdo each other in using dramatic phrases to describe its historic proportions. The causes of a crisis so large must have a multiplicity of causes lying in the realms of bank regulation and supervision, the operation and regulation of the securitization market and the derivatives and insurance markets. Yet, the root and spark of the various financial reverberations initiated in the home mortgage finance market. My presentation will focus on …

Branding The Small Wonder: Delaware's Dominance And The Market For Corporate Law, Omari Scott Simmons

University of Richmond Law Review

No abstract provided.

Corporations And The Market For Law, Erin O'Hara O'Connor, Larry E. Ribstein

Scholarly Publications

The state competition for corporate law has long been studied as a distinct phenomenon. Under the traditional view, corporations are subject to a unique choice-of-law rule, the “internal affairs doctrine” (IAD). This rule is explained as a historical accident, or by the special logistics of the corporate contract. The resulting market for corporate law appears to have special characteristics, particularly including the dominance of the single state of Delaware. This article challenges the traditional view. It shows that the corporate law market is best understood as a special application of the general market for law. Parties to many types of …