Business Organizations Law Commons^™

Supreme Court Amicus Brief Of 19 Corporate Law Professors, Friedrichs V. California Teachers Association, No. 14-915, John C. Coates, Iv, Lucian A. Bebchuk, Bernard S. Black, John C. Coffee Jr., James D. Cox, Ronald J. Gilson, Jeffrey N. Gordon, Lawrence A. Hamermesh, Henry Hansmann, Robert J. Jackson Jr., Marcel Kahan, Vikramaditya S. Khanna, Michael Klausner, Reinier Kraakman, Donald C. Langevoort, Edward B. Rock, Mark J. Roe, Helen S. Scott

Faculty Scholarship

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt …

Majority Control And Minority Protection, Zohar Goshen, Assaf Hamdani

Faculty Scholarship

This chapter examines legal issues concerning majority control and minority protection in firms with concentrated ownership governance structures, with particular emphasis on the tradeoff between the goals of protecting minority shareholders and allowing controllers to pursue their vision and how corporate law should balance these conflicting goals. Focusing primarily on Delaware corporate law, it suggests that holding a control block allows majority shareholders to pursue their idiosyncratic vision in the manner they see fit, even against minority investors’ objections. Idiosyncratic vision refers to the subjective value that entrepreneurs attach to their business idea or vision, and this chapter considers its …

Convergence And Persistence In Corporate Law And Governance, Jeffrey N. Gordon

Faculty Scholarship

This chapter discusses the question of “convergence or persistence” in corporate law and governance. It first considers efforts to measure convergence directly by focusing on the evolution of law-on-the-books governance provisions before analyzing capital market evidence on convergence, with particular emphasis on capital market indicators such as the decline in “cross-listings” onto US stock exchanges by firms from jurisdictions with weaker investor protection and the increase in initial public offerings (IPOs) on emerging market stock markets. The chapter proceeds by reviewing evidence of divergence, especially “divergence within convergence,” and the failure of the European Union to produce more convergent corporate …

Loser Pays: The Latest Installment In The Battle-Scarred, Cliff-Hanging Survival Of The Rule 10b-5 Class Action, John C. Coffee Jr.

Faculty Scholarship

When I was an upper-year student at Yale Law School in the late 1960s, I was sometimes as undermotivated as contemporary upper-year law students regularly appear to be. But there was then an appropriate role model for us: a graduate student, brimming with efficiency and self-discipline, who occupied a carrel in the law library, seemingly working day and night on a special research project. He had piled law review articles and cases a foot or more about his carrel, and anyone walking by could see that he seemed obsessed with something called Rule 10b-5. I had dimly heard of this …

Tax And Corporate Governance: The Influence Of Tax On Managerial Agency Costs, David M. Schizer

Faculty Scholarship

This chapter examines the influence of tax on managerial agency costs, with particular emphasis on public companies in the United States. Focusing on “C-corporations,” this chapter first considers why tax is an imperfect vehicle for mitigating managerial agency costs. It then discusses how tax influences the compensation of managers, both in ways policy makers intended, and in ways they did not. The chapter also considers how tax affects management decisions about capital structure, hedging, and acquisitions. In addition, this chapter explores the tax system’s influence on the ability and incentives of shareholders to monitor management. This chapter then concludes with …

Ex Ante Choice Of Jury Waiver Clauses In Mergers, Darius Palia, Robert E. Scott

Faculty Scholarship

This paper examines empirically why sophisticated parties in some merger and acquisition deals choose to waive their right to jury trials and some do not. We examine merger agreements for a large sample of 276 deals for the 11-year period 2001 to 2011. We exclude private company deals and those where the choice of forum and law is Delaware. First, we find that 48.2% of the deals have jury waiver clauses. Second, we find that deals in which New York is chosen as the governing law and forum state are more likely to include a jury waiver clause. No other …

Innovation And The Role Of Public-Private Collaboration In Contract Governance: Governing Global Finance: Towards Contractual Governance, Katharina Pistor

Faculty Scholarship

The global financial crisis demonstrated the vulnerability, if not failure, of existing governance structures for financial markets. Even if it is true that financial crises cannot be avoided, there may be room for improving existing structures. This chapter suggests that such an improvement might lie in switching from exclusive, hierarchical, and coercive forms of governance to inclusive, horizontal, cooperative ones—and uses the shorthand ‘contractual governance’ for the latter. Starting from the presumption that new forms of governance are frequently born in crisis, the chapter analyses several responses to the crisis and asks whether they display features of alternative forms of …

Outcome Report Of Roundtable On Human Rights Impact Assessments (Hrias) Of Large-Scale Foreign Investments, Columbia Center On Sustainable Investment

Columbia Center on Sustainable Investment Staff Publications

CCSI, the Sciences Po Law School Clinic, and the Columbia Law School Human Rights Institute recently published an outcome document of a one-day roundtable focused on the opportunities and challenges presented by human rights impact assessments (HRIAs) of large-scale foreign investments. The roundtable, which was held in April 2014 at Columbia University, provided an opportunity for collaborative reflection on the development of HRIAs, as well as on ways to enhance HRIAs as a framework and tool for both human rights advocacy and human rights risk management in respect of foreign investments.

By sharing the outcomes of the roundtable, this document …

Corporate Headhunting, Daniel C. Richman

Faculty Scholarship

A wide range of commentators – including some pretty sophisticated ones – have raked through the ruins of the 2008 financial collapse, confident that there are significant criminal prosecutions to bring against individuals and that the Justice Department should be faulted for its failure to bring them. Their confidence that blockbuster criminal cases could have been made rests on shaky grounds. So, too, does their faith that the hunting of heads is a socially productive response to the collapse. If anything, a focus on headhunting will only distract from, and reduce the pressure for, efforts to explain the collapse and …

Protecting Reliance, Victor P. Goldberg

Faculty Scholarship

Reliance plays a central role in contract law and scholarship. One party relies on the other's promised performance, its statements, or its anticipated entry into a formal agreement. Saying that reliance is important, however, says nothing about what we should do about it. The focus of this Essay is on the many ways that parties choose to protect reliance. The relationship between what parties do and what contract doctrine cares about is tenuous at best. Contract performance takes place over time, and the nature of the parties 'future obligations can be deferred to take into account changing circumstances. Reliance matters …

The Case For An Unbiased Takeover Law (With An Application To The European Union), Luca Enriques, Ronald J. Gilson, Alessio M. Pacces

Faculty Scholarship

Takeover regulation should neither hamper nor promote takeovers, but instead allow individual companies to decide the contestability of their control. Based on this premise, we advocate a takeover law exclusively made of default and menu rules supporting an effective choice of the takeover regime at the company level. For political economy reasons, we argue that different default rules should apply to newly public companies and companies that are already public when the new regime is introduced. Newly public companies should be governed by default rules that favor the interests of (minority) shareholders over those of management and controlling shareholders, because …

Irredeemably Inefficient Acts: A Threat To Markets, Firms, And The Fisc, Alex Raskolnikov

Faculty Scholarship

This Article defines and explores irredeemably inefficient acts – a conceptually distinct and empirically important category of socially undesirable conduct. Though inefficient behavior is, no doubt, pervasive, the standard view holds that inefficient conduct may be converted into efficient behavior by forcing actors to internalize the external harms of their decisions. For some acts, however such conversion is impossible. These acts are not just inefficient forms of otherwise socially beneficial activities – they are not just contingently inefficient. Rather, they are inefficient at their core; they reduce social welfare no matter what the regulator does. These irredeemably inefficient (or just …

The Nordic Model Of Corporate Governance: The Role Of Ownership, Ronald J. Gilson

Faculty Scholarship

It is commonplace to credit the invention of the public corporation as an important engine of economic growth. The creation of a long-lived vehicle that gave investors both tradable shares and limited liability allowed talented managers to raise capital to fund enterprise. Writing in 1926, the Economist magazine heralded this role:

The economic historian of the future may assign to the nameless inventor of the principle of limited liability, as applied to trading corporations, a place of honor with Watt and Stephenson, and other pioneers of the Industrial Revolution. The genius of these men produced the means by which man’s …

Fee-Shifting Bylaw And Charter Provisions: Can They Apply In Federal Court? – The Case For Preemption, John C. Coffee Jr.

Faculty Scholarship

In the first months after a decision of the Delaware Supreme Court upholding a fee-shifting bylaw under which the unsuccessful plaintiff shareholder was required to reimburse all defendants for their legal and other expenses in the litigation, some 24 public companies adopted a similar provision – either by means of a board-adopted bylaw or by placing such a provision in their certificate of incorporation (in the case of companies undergoing an IPO). In effect, private ordering is introducing a one-sided version of the “loser pays” rules. Indeed, as drafted, these provisions typically require a plaintiff who is not completely successful …

Merger Control Procedures And Institutions: A Comparison Of The Eu And Us Practice, William E. Kovacic, Petros C. Mavroidis, Damien J. Neven

Faculty Scholarship

The objective of this paper is to discuss and compare the role that different constituencies play in US and EU procedures for merger control. We describe the main constituencies (both internal and external) involved in merger control in both jurisdictions and discuss how a typical merger case would be handled under these procedures. At each stage, we consider how the procedure unfolds, which parties are involved, and how they can affect the procedure. Our discussion reveals a very different ecology. EU and US procedures differ in terms of their basic design and in terms of the procedures that are naturally …

Systemic Harms And Shareholder Value, John Armour, Jeffrey N. Gordon

Faculty Scholarship

The financial crisis has demonstrated serious flaws in the corporate governance of systemically important financial firms. In particular, the norm that managers should seek to maximize shareholder value, as measured by the stock price, proves to be a faulty guide for managerial action in systemically important firms. This is not only because the failure of such firms will have spillovers that defy the cost-internalization of the tort system, but also because these spillovers will harm their own majoritarian shareholders. The interests of diversified shareholders fundamentally diverge from the interests of managers and other controllers because the failure of a systemically …

Value Creation By Business Lawyers In The 21st Century, Ronald J. Gilson

Faculty Scholarship

It’s a delight to be here. When I started working on Value Creation by Business Lawyers – or when I was in law school – we could have held today’s meeting in a telephone booth. There was nothing even remotely in the curriculum. Victor Brudney and Marvin Chirlestien’s Corporate Finance book was still in mimeograph form – note the dated technology reference. David Herwitz’s Business Planning book had been around for a while, but it was strictly legal. And that exhausted it. What I take the greatest pleasure from is the fact that a number of years later, enough to …

Corporate Governance And Executive Compensation: Evidence From Japan, Robert J. Jackson Jr., Curtis J. Milhaupt

Faculty Scholarship

Lawmakers around the world are now urging corporations to adopt governance and executive pay standards drawn largely from the American corporate law context. Yet little is known about how corporate governance actually influences executive compensation decisions outside of the United States-and whether adoption of these standards is likely to be desirable for investors abroad.

In this Article, we take advantage of a recent change in Japanese law to provide the first direct empirical evidence on executive pay in Japan. The evidence provides striking detail on the amount and structure of Japanese executive compensation. The data point to a previously unappreciated …

Time To Amend The Delaware Takeover Law, Stephen M. Shapiro, Dorothy S. Lund

Faculty Scholarship

As Professor Subramanian demonstrates with cogent statistical evidence, now is the time for the courts to put Section 203 in the dock and examine its constitutional merits. Better still, the Delaware legislature should clean house and amend this provision's criteria. In practical effect, it forbids a competitive tender offer, injuring shareholders who benefit from tender offer premiums, and the national economy, which benefits from the gravitation of industrial resources to their highest-valued uses.

Following the U.S. Supreme Court's decision in Edgar v. MITE Corp., which invalidated an Illinois takeover statute, the federal district court in Delaware routinely enjoined application of …

Finding Order In The Morass: The Three Real Justifications For Piercing The Corporate Veil, Jonathan Macey, Joshua Mitts

Faculty Scholarship

Few doctrines are more shrouded in mystery or litigated more often than piercing the corporate veil. We develop a new theoretical framework that posits that veil piercing is done to achieve three discrete public policy goals, each of which is consistent with economic efficiency: (1) achieving the purpose of an existing statute or regulation; (2) preventing shareholders from obtaining credit by misrepresentation; and (3) promoting the bankruptcy values of achieving the orderly, efficient resolution of a bankrupt's estate. We analyze the facts of veil-piercing cases to show how the outcomes are explained by our taxonomy. We demonstrate that a supposed …

Ongoing Issues In Russian Corporate Governance, Merritt B. Fox

Faculty Scholarship

This Article concerns Russian corporate governance today. It starts by arguing that there are fundamental differences between the policy questions raised by SOEs and those raised by non-SOEs and that the analysis needs to separate out these two kinds of corporations. The Article then goes on to consider several ongoing issues relating to non-SOEs. To start, it suggests the need for a set of rules, backed by reliably applied stiff sanctions, requiring disclosure of all situations where a person, by himself or as a member of a coordinated group, is the beneficial owner of sufficient shares to be able to …

Incorporating By Reference: Knowing Law In The Electronic Age, Peter L. Strauss

Faculty Scholarship

Last October, the Office of the Federal Register published a Notice of Proposed Rulemaking (78 Fed. Reg. 60,784 (Oct. 2, 2013)) to revise its regulations governing the practice of "incorporation by Reference," which permits federal agencies to create binding regulatory obligations just by referring to standards that have been developed by private nongovernmental organizations, standards development organizations (SDOs) such as the American National Standards Institute (ANSI) or the American Society of Mechanical Engineers (ASME). This rulemaking should be of substantial interest to the occupational safety community. While its comment period has closed, comments remain open until May 12, 2014, on …

Social Entrepreneurship And Uncorporations, Jesse Finrock, Eric L. Talley

Faculty Scholarship

Larry Ribstein’s pioneering analysis of alternative business forms during the late twentieth century highlighted the contractarian freedom that these forms provided. The rise of the LLC model was of particular interest to Ribstein, who assessed how this model brought greater freedom to those who held duties and obligations within the corporate structure. This Article takes up Ribstein’s mantle by assessing the development the alternative “social enterprise” business forms manifested in benefit corporations (BC) and flexible purpose corporations (FPC). Both forms allow an incorporated entity to articulate and pursue a social benefit alongside the maximization of shareholder returns. Despite its utility, …

Changes In Ownership: Beyond The Berle-Means Paradigm, Ira M. Millstein Center For Global Markets And Corporate Ownership

Ira M. Millstein Center for Global Markets and Corporate Ownership

The “Changes in Ownership: Beyond the Berle-Means Paradigm” Symposium, held April 2013, explored whether, and how, the recent explosion of new ownership models alters the paradigm of dispersed ownership developed by Adolf Berle and Gardiner Means three generations ago. That model indicated that public corporations were owned by dispersed shareholders whose separate ownership positions were too small to justify extensive monitoring of managerial performance. This view of the distribution of ownership in U.S. corporations has been foundational for both much academic work and for much of corporate law and governance, which have been aimed at addressing the monitoring shortfall.

The …

Toward A Constitutional Review Of The Poison Pill, Lucian A. Bebchuk, Robert J. Jackson Jr.

Ira M. Millstein Center for Global Markets and Corporate Ownership

We argue that the state-law rules governing poison pills are vulnerable to challenges based on preemption by the Williams Act. Such challenges, we show, could well have a major impact on the corporate law landscape.

The Williams Act established a federal regime regulating unsolicited tender offers, but states subsequently developed a body of state antitakeover laws that impose additional impediments to such offers. In a series of well-known cases during the 1970s and 1980s, the federal courts, including the Supreme Court, held some of these state antitakeover laws preempted by the Williams Act. To date, however, federal courts and commentators …

Extraterritorial Financial Regulation: Why E.T. Can't Come Home, John C. Coffee Jr.

Faculty Scholarship

This Essay begins with a deliberately off-putting title: extraterritorial financial regulation. Old-time "conflict of laws" scholars would call this an oxymoron, pointing to recent Supreme Court decisions – most notably, Morrison v. National Australia Bank Ltd. and Kiobel v. Royal Dutch Petroleum Co. – that have applied a strong presumption against extraterritoriality to curb the reach of U.S. law. Even those international law scholars who are sympathetic to the regulation of multinational financial institutions might prefer to avoid this term and talk instead of "global financial regulation" because they conceptualize international financial regulation as implemented through networks of cooperating multinational …

Toward A Constitutional Review Of The Poison Pill Essay, Lucian A. Bebchuk, Robert J. Jackson Jr.

Faculty Scholarship

We argue that the state-law rules governing poison pills are vulnerable to challenges based on preemption by the Williams Act. Such challenges, we show, could well have a major impact on the corporate law landscape.

The Williams Act established a federal regime regulating unsolicited tender offers, but states subsequently developed a body of state antitakeover laws that impose additional impediments to such offers. In a series of well-known cases during the 1970s and 1980s, the federal courts, including the Supreme Court, held some of these state antitakeover laws preempted by the Williams Act. To date, however, federal courts and commentators …

Agency Capitalism: Further Implications Of Equity Intermediation, Ronald J. Gilson, Jeffrey N. Gordon

Faculty Scholarship

This chapter continues our examination of the corporate law and governance implications of the fundamental shift in ownership structure of U.S. public corporations from the Berle-Means pattern of widely distributed shareholders to one of Agency Capitalism – the reconcentration of ownership in intermediary institutional investors as record holders for their beneficial owners. A Berle-Means ownership distribution provided the foundation for the agency cost orientation of modern corporate law and governance – the goal was to bridge the gap between the interests of managers and shareholders that dispersed shareholders could not do for themselves. The equity intermediation of the last 30 …

Constraints On Private Benefits Of Control: Ex Ante Control Mechanisms Versus Ex Post Transaction Review, Ronald J. Gilson, Alan Schwartz

Faculty Scholarship

We ask how to regulate pecuniary private benefit consumption. These benefits can compensate controlling shareholders for monitoring managers and investing effort in implementing projects. Controlling shareholders may consume excessive benefits, however. We argue (a) ex post judicial review of controlled transactions dominates ex ante restrictions on the controlled structures: the latter eliminate efficiencies along with abuses of the controlled company form; (b) controlling shareholders should be permitted to contract with investors over private benefit levels. Both work with better courts. Hence, we recommend creating a European-level corporate court, whose jurisdiction parties can invoke by contract.

The Role Of Unfair Competition In The Common Law, Shyamkrishna Balganesh, Gideon Parchomovsky

Faculty Scholarship

Does the idea of “unfair competition” present the law with a viable alternative to thinking about the regulation of information and informational resources, independent of the traditional categories of the common law (e.g., property/tort) and the assumptions that these categories entail? In this chapter, we argue that, although the answer to that question is no, unfair competition nevertheless plays an important role in complementing the categories of property and torts as they apply to competitive settings. Specifically, unfair competition allows courts to both broaden and narrow the traditional notions of property and torts – especially as they apply to the …