Business Organizations Law Commons^™

The Financialization Of The U.S. Corporation: What Has Been Lost, And How It Can Be Regained, William Lazonick

Seattle University Law Review

As the U.S. economy struggles to recover from the Great Recession, the erosion of middle-class jobs and the explosion of income inequality have endured long enough to raise serious questions about whether the U.S. economy is beset by deep structural problems. My argument is that the employment problem that the United States now faces is largely structural. But the structural problem is not a labormarket mismatch between the skills that prospective employers want and the skills that potential workers have, as many economists have argued. Nor is the problem automation. Rather, the employment problem stems from changes in the ways …

The Modern Corporation Magnified: Managerial Accountability In Financial-Services Holding Companies, Anita K. Krug

Seattle University Law Review

This Article first recalls the primary contours of Adolf Berle and Gardiner Means’s acclaimed observations regarding the separation of ownership and control in the “modern corporation,” as well as their conclusions about the implications of those observations for the doctrine of shareholder primacy. Second, the Article describes how the activities of FSHCs generally differ from what we think corporations do and, certainly, from what Berle and Means conceived of as the purpose of corporations or, indeed, any business enterprise. Third, this Article articulates how those business activities render more acute the problem of the separation of ownership and control that …

Toward A More Resilient Financial System?, Joanna Gray

Seattle University Law Review

The concept of “resilience” in the context of financial systems calls for closer analysis, as most of the current efforts to reshape financial systems seek to render them more resilient. Resilience has become a necessary complement to the paradigm shift taking place in global financial regulation toward “macroprudential” regulation—a term used to describe a new viewing platform and decisionmaking plane for financial regulation. From this new perspective, regulators can address the state of the financial system as a whole, as well as its component parts. This Article seeks to illustrate how legal and regulatory measures that foster resilience have become …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

Seattle University Law Review

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

The Long Road Back: Business Roundtable And The Future Of Sec Rulemaking, Jill E. Fisch

Seattle University Law Review

The Securities and Exchange Commission (SEC or Commission) has faced a number of challenges in the last few years. Judge Rakoff’s decision in Citigroup, the Madoff scandal, and the Business Roundtable decision are just a few of the developments that have dealt lasting damage to the SEC’s reputation. Critics have scrutinized the agency’s decisionmaking on multiple fronts—from its enforcement policy to the quality of its rulemaking—and the SEC has largely come up short in the analysis. The once-revered top cop of the securities markets has taken a hit, and it is unclear whether it can recover. The Business Roundtable decision …

The Future Of Shareholder Democracy In The Shadow Of The Financial Crisis, Alan Dignam

Seattle University Law Review

This Article argues that the U.K. regulatory response to the financial crisis, in the form of “stewardship” and shareholder engagement, is an error built on a misunderstanding of the key active role shareholders played in the enormous corporate governance failure represented by the banking crisis. Shareholders’ passivity, rather than activity, has characterized the reform perception of the shareholder role in corporate governance. This characterization led to the conclusion that if only they were more active they would be more responsible “stewards” of the corporation. If, as this Article argues, shareholder activity was part of the problem in the banks, then …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Seattle University Law Review

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

The Market For Corporate Control: New Insights From The Financial Crisis In Ireland, Blanaid Clarke

Seattle University Law Review

In an ever-changing legal and economic environment, it is incumbent on us to subject all such premises to scrutiny in order to consider their continued application. This Article considers the effect of the MCC on the management of Irish credit institutions in the run-up to the financial crisis. Part II sets the background by explaining how the MCC has become an integral part of takeover regulation in Europe. The weaknesses in the efficient market hypothesis, which underlie the MCC and are summarized in Part III, appear not to have undermined the theory’s credibility in the minds of public policy makers …

Banking And Competition In Exceptional Times, Brett Christophers

Seattle University Law Review

This Article has two main aims: to provide a critical consideration of this contemporary antitrust “revival” from an explicitly political–economic perspective and to point toward some theoretical resources that might facilitate such an assessment.Part II looks backward at the evolution and application of competition law in the banking sector over the relatively longue durée. In this Part, I invoke the concept of “exception” to understand how antitrust policy has developed, and my chief interlocutors are the perhaps unlikely figures of Giorgio Agamben and Karl Marx. Part III looks forward and considers the central question around which the recent resurgence of …

Conceptions Of Corporate Purpose In Post-Crisis Financial Firms, Christopher M. Bruner

Seattle University Law Review

American “populism” has had a major impact on the development of U.S. corporate governance throughout its history. Specifically, appeals to the perceived interests of average working people have exerted enormous social and political influence over prevailing conceptions of corporate purpose—that is, the aims toward which society expects corporate decision-making to be directed. In this Article, I assess the impact of American populism upon prevailing conceptions of corporate purpose, contrasting its unique expression in the context of financial firms with that arising in other contexts. I then examine its impact upon corporate governance reforms enacted in the wake of the financial …

Shareholders And Social Welfare, William W. Bratton, Michael L. Wachter

Seattle University Law Review

This Article addresses the questions of whether and how shareholders matter for social welfare, finding that different and contrasting answers have prevailed during different periods of recent history. Observers in the mid-twentieth century believed that the socioeconomic characteristics of real-world shareholders were highly pertinent to social welfare inquiries. But those observers went on to conclude that there followed no justification for catering to shareholder interest, for shareholders occupied elite social strata. The answer changed during the twentieth century’s closing decades, when observers came to accord the shareholder interest a key structural role in the enhancement of economic efficiency even as …

Central Bank-Led Capitalism?, Andrew Bowman Et Al.

Seattle University Law Review

Since the first acute episode of financial crisis in autumn 2008, the world has manifestly changed in dramatic ways that reinforce skepticism and challenge the old assumptions of political economy. Hence this Article about central banks, whose pivotal role in post-crisis capitalism has not been adequately politically or theoretically addressed in any existing literature and can now be opened up by a conjunctural analysis that recognises uncertainty and mutability. There are several reasons why this is an intellectually and politically interesting task. Central banks have become an object of controversy and public attention after being pivotally involved in crisis management, …

Making Money: Leverage And Private Sector Money Creation, Margaret M. Blair

Seattle University Law Review

Contrary to the beliefs of most macroeconomists, the financial sector in the United States has grown too large in the last few decades as a consequence of financial innovation that has encouraged the use of too much “leverage” (financing with debt) by financial institutions (as well as by consumers and other borrowers). In Part II, I connect the dots between excessive leverage, risk, and financial market volatility. In Part III, I explore the role that the “shadow-banking sector” has had in driving leverage. In Part IV, I explain why leverage at the level of financial institutions matters for the macroeconomy. …

The Governance And Disclosure Of The Firm As An Enterprise Entity, Yuri Biondi

Seattle University Law Review

During recent decades, the rapid pace of financial markets involving new modes of management, governance, and regulation has framed business firms. This corporate drift toward financialization is summarized under the “shareholder value” label. What do financial markets do? Unequivocally, they organize trading on shares that are securities: tradable financial entitlements established by law, which formalize expectations, and claims of financial rents paid by the issuing company. Actually, how continued quotation on share exchanges came to be the barometer of economic or social welfare is a different matter. The latter adoption has required quite a great leap from “the euthanasia of …

Rationales And Designs To Implement An Institutional Big Bang In The Governance Of Global Finance, Emilios Avgouleas

Seattle University Law Review

The colossal challenges facing international finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC), a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes that would allow banks to fail more easily, and stricter frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to …

Framing Address: A Framework For Analyzing Financial Market Transformation, Steven L. Schwarcz

Seattle University Law Review

The title of this Symposium originally was “Rethinking Financial and Securities Markets.” It is, of course, somewhat presumptuous for scholars to try to rethink financial markets per se. Markets, including financial markets, are driven primarily by supply and demand. But scholars can and should try to influence the future of financial markets by rethinking their fundamental aspects. This Symposium presents work from leading scholars in the fields of law, economics, finance, and accounting. I will try to frame the discussion from the perspectives of these four disciplines. First, however, we need to identify what it is about financial markets that …

Inequities In Corporate And Securities Law: Disabling The Exploitative Chinese Corporation And Charting A Path To International Commercial Accountability, Jonathan P. Schmidt

San Diego International Law Journal

This article seeks to illuminate these issues and provide a roadmap for the U.S. federal and state legislatures to come together to protect the U.S. investor from the type of accounting fraud and stock misinformation that was the impetus behind enacting the Sarbanes-Oxley Act of 2002. First, this article will discuss the legal backdrop and legislative policy behind U.S. laws such as SOX and its enforcement mechanisms, and the ability for shareholders to bring securities class action derivative actions for financial fraud. This article will also discuss trade secrets laws, criminal extradition treaties, international enforcement of judgments, and elucidate the …

Methods For Multicountry Studies Of Corporate Governance (And Evidence From The Brikt Countries), Bernard S. Black, Antonio Gledson De Carvalho, Vikramaditya Khanna, Woochan Kim, B. Burcin Yurtoglu

Law & Economics Working Papers

We discuss the perils in multicountry studies of corporate governance (CG), focusing on emerging markets. The existing studies are massively multicountry studies, which cover many firms across many countries, but rely on the same limited governance elements in each countries, have few firm-level control variables, and use pure-cross-sectional data. This paper discusses the severe data and construct validity issues in these studies, proposes methods to respond to those issues, and applies those methods through a study of five major emerging markets (Brazil, India, Korea, Russia, and Turkey). We develop unique time-series datasets on governance in each country. We address construct …

Zappers & Employment Tax Fraud, Richard Thompson Ainsworth

Faculty Scholarship

Beyond the grey area of worker misclassifications and general employment tax irregularities there are darker employment relationships where workers are intentionally paid in cash “off-the-books” or “under-the-table.” Grey employment relationships present civil enforcement issues that may become criminal; darker-relationships are criminal from the beginning. Zappers are found on the dark side.

Zappers are fraud-technologies that automatically (and remotely) skim cash from electronic cash registers (ECRs) or back room point of sales (POS) systems. Globally, tax auditors are finding that Zappers frequently provide the cash that is used to compensate “under-the-table” workers. In fact, a Zapper appears to be at the …

The Department Of Justice Merger Guidelines: A Critique And A Proposed Improvement, R. Preston Mcafee, Michael A. Williams

Pepperdine Law Review

No abstract provided.

The New Shareholder Power, John C. Carter

Pepperdine Law Review

No abstract provided.

Revisiting The Leveraged Buyout: Is Constructive Fraud Going Too Far?, 46 J. Marshall L. Rev. 429 (2013), Angelo Guisado

UIC Law Review

No abstract provided.

Space Entrepreneurs: Business Strategy, Risk, Law, And Policy In The Final Frontier, 46 J. Marshall L. Rev. 1039 (2013), Michael Laisné

UIC Law Review

Human civilization is on the brink of exploring another frontier. As usual, the super power governments of the world have played a major role in the initial stages. Now, as was the case when brave settlers came to colonize the West, and railroads and financial empires were built, society must rely on the private sector to take civilization to the final frontier. This article will give an overview of the current laws and policies relevant to space entrepreneurship (Part II). The Article explores the road to becoming a space entrepreneur including, a description of startup risks (Part III), an overview …

Economics Of Bankruptcy – Introduction, Edward R. Morrison

Faculty Scholarship

This essay surveys important contributions to the economics of bankruptcy. It is an introductory chapter for a forthcoming volume (from Edward Elgar Press) that compiles the work of legal scholars as well as economists working in the field of corporate finance. The essay begins with the foundational theories of Baird, Jackson, and Rea and then collects scholarly work extending, testing, or revising those theories. At various points I identify questions that merit further study, particularly empirical testing.

Teaching Antitrust After The Financial Crisis, Maurice E. Stucke

Journal of Business & Technology Law

No abstract provided.

“Publicness” In Contemporary Securities Regulation After The Jobs Act, Donald C. Langevoort, Robert B. Thompson

Georgetown Law Faculty Publications and Other Works

The JOBS Act of 2012 reflects the largest deregulatory change to the Securities Exchange Act of 1934 over its more than 75 year history. It contracts the coverage of those companies subject to the obligations of ‘publicness” and it introduces an “on ramp” that will permit most newly-public companies to meet a lesser set of disclosure, internal control and governance obligations for up to five years. We set these changes against a larger discussion of when a private enterprise should be forced to take on public status in securities regulation, a topic that has been entirely under theorized. We conclude …

The Patent Litigation Explosion, James Bessen, Michael J. Meurer

Faculty Scholarship

This Article provides the first look at patent litigation hazards for public firms during the 1980s and 1990s. Litigation is more likely when prospective plaintiffs acquire more patents, when firms are larger and technologically close and when prospective defendants spend more on research and development ("R&D"). The latter suggests inadvertent infringement may be more important than piracy. Public firms face dramatically increased hazards of litigation as plaintiffs and even more rapidly increasing hazards as defendants, especially for small public firms. The increase cannot be explained by patenting rates, R&D, firm value or industry composition. Legal changes are the most likely …

Teaching Business Associations Law In The Evolving New Market Economy, Joan Macleod Heminway

Journal of Business & Technology Law

No abstract provided.

The Agency Costs Of Agency Capitalism: Activist Investors And The Revaluation Of Governance Rights, Ronald J. Gilson, Jeffrey N. Gordon

Faculty Scholarship

Equity ownership in the United States no longer reflects the dispersed share ownership of the canonical Berle-Means firm. Instead, we observe the reconcentration of ownership in the hands of institutional investment intermediaries, which gives rise to "the agency costs of agency capitalism." This ownership change has occurred because of (i) political decisions to privatize the provision of retirement savings and to require funding of such provision and (ii) capital market developments that favor investment intermediaries offering low-cost diversified investment vehicles. A new set of agency costs arises because in addition to divergence between the interests of record owners and the …

The Corporate Preference For Trade Secret, Andrew A. Schwartz

Publications

Many inventions can be legally protected either by patent or by trade secrecy, and a conventional wisdom exists on how to select between them. This Article adds to that literature by showing that corporations should have an inherent preference for trade secret over patent for reasons relating to their legal form. Among them is the idea that corporations are perpetual entities and therefore perfectly suited to reap the perpetual returns that only a trade secret can offer. The Article also addresses the potential for a conflict between the inherent corporate preference for trade secret and the preferences of corporate managers, …