Business Organizations Law Commons^™

The Diminishing Duty Of Loyalty, Julian Velasco

Journal Articles

Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. The justification for this dichotomy is twofold. First, differential treatment is appropriate because of the relative urgencies of the underlying subject matter: loyalty issues pose greater risks than do care issues. Second, the deference …

Serial Collusion By Multi-Product Firms, Michael J. Meurer, William Kovacic, Robert Marshall

Faculty Scholarship

We provide empirical evidence that many multi-product firms have each participated in several cartels over the past 50 years. Standard analysis of cartel conduct, as well as enforcement policy, is rooted in the presumption that each cartel in which a given firm participates is a singular activity, independent of other cartel conduct by the firm. We argue that this analysis is deficient in many respects in the face of serial collusion by multi-product firms. We offer policy recommendations to reign in serial collusion, including a mandatory coordinated effects review for any merger involving a serial colluder, regardless of the apparent …

Franchise Regulation For The Fissured Economy, Andrew Elmore

Faculty Scholarship

Franchise stores employ nearly nine million people in the United States. Many franchisors, which own trademarks that they license to franchisees, are among the largest, most sophisticated corporations in the United States. Yet franchise store employees are often paid below the minimum wage and frequently report unsafe workplaces and workplace discrimination.

The thesis of this Article is that widespread employment law noncompliance in franchise stores is symptomatic of the failure of employment law to recognize the measures that franchisors use to protect their brand in franchise stores. Franchisors often develop intensive relationships with franchisees and franchise store employees as representatives …

Proxy Access Voting: Evaluating Proxy Access And The Recent Phenomenon Of Corporations Adopting Shareholder Protective Policies, Danielle Vukovich

San Diego International Law Journal

Shareholders hold a financial stake in a corporation, and therefore are often viewed as owners of the corporation and believed to be in control for all corporate actions. However, their powers are circumscribed. Board of directors committees nominate directors to serve the corporation and these directors have the power to select the corporation’s officers. The committees provide shareholders a slate of proposed directors that are voted on and approved at the annual shareholder meeting. Shareholders may also propose their own slate of directors, but this typically requires a proxy contest, which can be expensive due to the costs both associated …

The Corporate Law Dilemma And The Enlightened Sovereign Control Paradigm: In Search Of A New Legal Framework, Vincenzo Bavoso

Brooklyn Journal of Corporate, Financial & Commercial Law

This Article is centered on the proposal of a new model of corporate decision-making: the enlightened sovereign control paradigm. In revisiting the long-standing academic debate on the corporate objective, typically enshrined in the dichotomy between shareholder value and stakeholder theory, a critique of these existing models is put forward. In particular, it questions the ability of the existing theories to take account of the complex and multidimensional risks that are created by the company which affect different constituencies both inside and outside the company. While the global financial crisis of 2008 reignited the urgency to further define an appropriate legal …

Uncharted Waters? Legal Ethics And The Benefit Corporation, Joseph Pileri

St. Mary's Journal on Legal Malpractice & Ethics

Corporate law norms are reflected in lawyers’ ethical duties. The enactment of benefit corporation legislation across the country signals a legislative acknowledgment that corporate law can serve as a public, rather than a merely private, ordering mechanism. Benefit corporations expressly adopt a public benefit as a legal purpose of the enterprise. While many have written about this important development with respect to corporate fiduciary law, this essay is the first to explore the professional and ethical responsibility of lawyers representing benefit corporations. In the last century, as scholars and courts drove an understanding of corporate law that elevated the interests …

Take This Job And Shove It: The Pragmatic Philosophy Of Johnny Paycheck And A Prayer For Strict Liability In Appalachia, Eugene "Trey" Moore Iii

The Scholar: St. Mary's Law Review on Race and Social Justice

Abstract forthcoming

Asarco Llc V. Atlantic Richfield Company, Ryan L. Hickey

Public Land & Resources Law Review

The Comprehensive Environmental Response, Compensation, and Liabiltiy Act, commonly known as CERCLA, facilitates cleanup of hazardous waste sites and those contaminated by other harmful substances by empowering the Environmental Protection Agency to identify responsible parties and require them to undertake or fund remediation. Because pollution sometimes occurrs over long periods of time by multiple parties, CERCLA also enables polluters to seek financial contribution from other contaminators of a particular site. The Ninth Circuit clarified the particuar circumstances under which contribution actions may arise in Asarco LLC v. Atlantic Richfield Co., holding non-CERCLA settlements may give rise to CERCLA contribution …

Mutuals: An Area Of Legal Climate Change, Karl T. Muth, Andrew Leventhal

William & Mary Business Law Review

Underappreciated in its importance and often-misunderstood in its implications, the choice between a company limited by shares and a company organized as a mutual is an important decision in sectors ranging from agriculture to banking to insurance. Adding gravity to this particular decision is the difficulty and enormous cost of corporate metamorphosis between company types later in the company’s life. The authors examine the history of the mutual form, its popularity’s rise and fall during the twentieth century, and its advantages and disadvantages in today’s environment.

Federalism Of Personal Finance: State & Federal Retirement Plans, William Birdthistle

All Faculty Scholarship

In this Article, I consider possible approaches that attempt to improve the plans through which millions of Americans tend to their life savings. I begin by considering the inadequacies of our current system of defined contribution accounts and then address two possible alternatives: the first being a federal account universally available to Americans based largely on the model of the Thrift Savings Plan; the second being a system of statebased retirement accounts like those that have already been developed in a handful of states. Though I conclude that a single, federal plan would be superior, either alternative approach would be …

The Macpherson-Henningsen Puzzle, Victor P. Goldberg

Faculty Scholarship

In the landmark case of MacPherson v. Buick, an automobile company was held liable for negligence notwithstanding a lack of privity with the injured driver. Four decades later, in Henningsen v. Bloomfield Motors, the court held unconscionable the standard automobile company warranty which limited its responsibility to repair and replacement, even in a case involving physical injury. This suggests a puzzle: if it were so easy for firms to contract out of liability, did MacPherson accomplish anything?

Economic Individualism And Preference Formation, Andrzej Rapaczynski

Faculty Scholarship

This note examines some issues involved in an attempt to go beyond the assumption, long-made by most economists, that people’s preferences are simply to be treated as “given” and that the principle of consumer sovereignty entails a refusal to consider some (or some people’s) revealed preferences as more authoritative than others. The most important break with that assumption has been the development of behavioral economics, which shows that people may not always know what they really want, and that economists have to develop a more critical approach, distinguishing people’s true preferences from those that are merely apparent. While this approach, …

How Investors Can (And Can't) Create Social Value, Paul Brest, Ronald J. Gilson, Mark A. Wolfson

Faculty Scholarship

Most investors throughout the world have a single goal: to earn the highest risk- adjusted financial returns. They would not accept a lower financial return from an investment that also produced social benefits.

More recently, an increasing number of socially-motivated investors have goals beyond maximizing returns. They also seek to align their investments with their social values (value alignment), and some also seek to cause the companies in which they invest to create more social value as a result of their investment (social value creation). We show in this essay that while it is relatively easy to achieve value alignment, …

Foreword – The 2017 Tax Cuts: How Polarized Politics Produced Precarious Policy, Michael J. Graetz

Faculty Scholarship

By lowering the corporate tax rate from 35% to 21%, the 2017 tax legislation brought the U.S. statutory rate into closer alignment with the rates applicable in other Organisation for Economic Co-operation and Development (OECD) nations, thereby decreasing the incentive for businesses to locate their deductions in the United States and their income abroad. Its overhaul of the U.S. international income tax rules simultaneously reduced preexisting incentives for U.S. multinationals to reinvest their foreign earnings abroad and put a floor on the benefits of shifting profits to low-tax jurisdictions. The 2017 legislation also added an unprecedented, troublesome lower rate for …

Corporate Governance As Privately-Ordered Public Policy: A Proposal, Lynn A. Stout, Sergio Alberto Gramitto Ricci

Faculty Works

In this Article, we show how our society can use corporate governance shifts to address, if not entirely resolve, a number of currently pressing social and economic problems. These problems include: rising income inequality; demographic disparities in wealth and equity ownership; increasing poverty and income insecurity; a need for greater innovation and investment in solving problems like disease and climate change; the “externalization” of many costs of corporate activity onto third parties such as customers, employees, creditors, and the broader society; the corrosive influence of corporate money in politics; and discontent and loss of trust in the capitalist system among …

Re-Examining The Law And Economics Of The Business Judgment Rule: Notes For Its Implementation In Non-Us Jurisdictions, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

The business judgment rule, as it has been traditionally understood, seems to be based on three underlying assumptions that make this rule economically desirable. First, directors are subject to a credible threat of being sued for a breach of the duty of care. Second, the primary role of the corporation is to maximise shareholder value. Third, shareholders want the directors to pursue those investment projects with the highest net present value regardless of their volatility. This article challenges these assumptions and argues that the business judgment rule might not be desirable in some jurisdictions outside the United States and even …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …

International Financial Regulatory Standards And Human Rights: Connecting The Dots, Daniel D. Bradlow, Motoko Aizawa, Margaret Wachenfeld

Scholarly Articles in Law Reviews & Journals

This paper’s hypothesis is that the international standard setting bodies (SSBs) could improve the quality of their international standards by incorporating a human rights analysis. It focuses on five SSBs and seven of their international standards and its findings include the following: First, the standards all implicate the right of non-discrimination, and the rights to information, privacy and an effective remedy. Second, they each raises economic, social and cultural rights issues, including the obligation to allocate ‘maximum available resources’ to the progressive realization of economic, social and cultural rights; the human rights responsibilities of private actors exercising delegated regulatory authority, …

Adolf Berle During The New Deal: The Brain Truster As An Intellectual Jobber, Robert Thompson

Georgetown Law Faculty Publications and Other Works

Thirty-seven year old law professor Adolf Berle had a career year in 1932. His book published that year, The Modern Corporation and Private Property (written with Gardiner Means), framed the fundamental twentieth century change in understanding modern corporations. Berle’s exchange with Merrick Dodd on the purpose of the corporation that played out that spring on the pages of the Harvard Law Review launched a still fierce debate over the role of shareholders and other stakeholders. His service as a brain truster for Franklin Roosevelt during the fall election gave voice to the transformative economic policies of the New Deal. This …

Individual Autonomy In Corporate Law, Elisabeth De Fontenay

Faculty Scholarship

The field of corporate law is riven with competing visions of the corporation. This Article seeks to identify points of broad agreement by negative implication. It examines two developments in corporate law that have drawn widespread criticism from corporate law scholars: the Supreme Court's recognition of corporate religious rights in Burwell v. Hobby Lobby and the Nevada legislature's decision to eliminate mandatory fiduciary duties for corporate directors and officers. Despite their fundamental differences, both resulted in expanding individual rights or autonomy within the corporation-for shareholders and managers, respectively.

The visceral critiques aimed at these two developments suggest a broadly shared …

Were The 1982 Merger Guidelines Old News?, Alan J. Meese, Sarah L. Stafford

Faculty Publications

This paper examines the impact of the 1982 Department of Justice Merger Guidelines on the stock market prices of publicly traded firms in the United States. We argue that those Guidelines were perceived by the market as a real change in enforcement policy that would result in substantial deregulation of mergers throughout the economy. We conduct an event study of S&P 500 firms to test this hypothesis and find evidence of a significant positive effect on the stock prices of firms in moderately concentrated industries subject to antitrust regulation, the firms for which the 1982 Guidelines articulate a substantially less …

Uniform Commercial Acts, Samuel Williston

Dickinson Law Review (2017-Present)

No abstract provided.

Could The Pay Ratio Disclosure Backfire? Examining The Effects Of The Sec's Pay Ratio Disclosure Rule, Jillian Loh

Texas A&M Law Review

At the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), President Barack Obama asserted that, “We all win when investors around the world have confidence in our markets. We all win when shareholders have more power and more information. . . . And we all win when folks are rewarded based on how well they perform, not how well they evade accountability.” After the financial crisis in 2008, the Obama Administration recognized the need to reconstruct the existing American financial regulatory system to ensure that a financial meltdown would never happen again. It …

Corporate Privilege And An Individual's Right To Defend, Susan B. Heyman

Law Faculty Scholarship

No abstract provided.

The Limits Of Performance-Based Regulation, Cary Coglianese

University of Michigan Journal of Law Reform

Performance-based regulation is widely heralded as a superior approach to regulation. Rather than specifying the actions regulated entities must take, performance-based regulation instead requires the attainment of outcomes and gives flexibility in how to meet them. Despite nearly universal acclaim for performance-based regulation, the reasons supporting its use remain largely theoretical and conjectural. Owing in part to a lack of a clear conceptual taxonomy, researchers have yet to produce much empirical research documenting the strengths and weaknesses of performance-based regulation. In this Article, I provide a much-needed conceptual framework for understanding and assessing performance-based regulation. After defining performance-based regulation and …

The Global Fight Against Base Erosion And Profit Shifting Under The Oecd’S Country-By-Country Reporting Rules: A Possible Solution?, Oladiwura Ayeyemi Eyitayo-Oyesode

LLM Theses

The base erosion and profit shifting (BEPS) phenomenon continues to create detrimental consequences in states. BEPS is engendered by two fundamental factors, namely, unhealthy fiscal policies of tax havens and preferential tax regimes, and transfer mispricing by multinational corporations (MNCs). The OECD, through its BEPS Project notes that the lack of transparency in the global activities of MNCs is a major cause of BEPS. To close this gap, the OECD released the CBCR Rules. This thesis discusses the severity of the BEPS phenomenon and assesses the anti-BEPS efforts of the OECD. Upon an assessment of these efforts, this thesis argues …

The Role Of Social Enterprise And Hybrid Organizations, Ofer Eldar

Faculty Scholarship

Recent years have brought remarkable growth in hybrid organizations that combine profit-seeking and social missions. Despite popular enthusiasm for such organizations, legal reforms to facilitate their formation and growth—particularly, legal forms for hybrid firms—have largely been ineffective. This shortcoming stems in large part from the lack of a theory that identifies the structural and functional elements that make some types of hybrid organizations more effective than others. In pursuit of such a theory, this Article focuses on a large class of hybrid organizations that has been effective in addressing development problems, such as increasing access to capital and improving employment …

The Death Of The Firm, June Carbone, Nancy Levit

Faculty Works

This Article maintains that the decision in Burwell v. Hobby Lobby, which referred to the corporation as a legal fiction designed to serve the interests of the people behind it, signals the “death of the firm” as a unit of legal analysis in which business entities are treated as more than the sum of their parts and appropriate partners to advance not just commercial, but public ends. The Hobby Lobby reference to the firm as a fiction is a product of a decades-long shift in the treatment of corporations. This shift reflects both an ideological embrace of the free-market-oriented “agency-cost” …

The Agency Costs Of Activism: Information Leakage, Thwarted Majorities, And The Public Morality, John C. Coffee Jr.

Faculty Scholarship

Few doubt that hedge fund activism has radically changed corporate governance in the United States – for better or for worse. Proponents see activists as desirable agents of change who intentionally invest in underperforming companies to organize more passive shareholders to support their proposals to change the target’s business model and/or management. So viewed, the process is fundamentally democratic, with institutional shareholders determining whether or not to support the activist’s proposals.

Skeptics respond that things do not work this simply. Actual proxy contests are few, and most activist engagements are resolved through private settlement negotiations between the activists, who rarely …