Business Organizations Law Commons^™

Accessory Disloyalty: Comparative Perspectives On Substantial Assistance To Fiduciary Breach, Deborah A. Demott

Faculty Scholarship

Culpable participation in a fiduciary's breach of duty is independently wrongful. Much about this contingent form of liability is open to dispute. In the United States, well-established general doctrine defines the elements requisite to establishing accessory liability, which is categorized as a tort and often referred to as "aiding-and abetting" liability. What's controversial is how the tort applies to particular categories of actors, most recently investment banks that advise boards of target companies in M&A transactions. In the United Kingdom, in contrast, accessory liability in connection with a breach of trust or fiduciary duty is controversial because the law is …

The "New Insiders": Rethinking Independent Directors' Tenure, Yaron Nili

Faculty Scholarship

Director independence is a cornerstone of modern corporate governance. Regulators, scholars, companies and shareholders have all placed a strong emphasis on director independence as a means to ensure that investors’ interests in their companies are well served. But what makes a director independent? While regulators and stock exchanges have tackled this elusive standard in different ways, the end goal is always the same – ensuring that the director is able to exercise truly independent judgment and further the best interests of shareholders. Surprisingly, these regulatory bodies have failed to consider the impact board tenure might have on director independence. This …

Quieting The Sharholders' Voice: Empirical Evidence Of Pervasive Bundling In Proxy Solicitations, James D. Cox, Fabrizio Ferri, Colleen Honigsberg, Randall S. Thomas

Faculty Scholarship

The integrity of shareholder voting is critical to the legitimacy of corporate law. One threat to this process is proxy “bundling,” or the joinder of more than one separate item into a single proxy proposal. Bundling deprives shareholders of the right to convey their views on each separate matter being put to a vote and forces them to either reject the entire proposal or approve items they might not otherwise want implemented.

In this Paper, we provide the first comprehensive evaluation of the anti-bundling rules adopted by the Securities and Exchange Commission (“SEC”) in 1992. While we find that the …

Pricing Disintermediation: Crowdfunding And Online Auction Ipos, A. Christine Hurt

Faculty Scholarship

No abstract provided.

Political Uncertainty And The Market For Ipos, Jay B. Kesten, Murat C. Mungan

Faculty Scholarship

This Article presents a simple theory and model of the effects of political uncertainty on the market for IPOs. Our model generates four central predictions: (i) increased political uncertainty reduces the frequency of IPOs; (ii) firms that choose to conduct an IPO during periods of political uncertainty are, on average, of higher quality and generate greater return on investment in the secondary market; (iii) political uncertainty increases the cost of capital for IPO firms; but (iv) underpricing is less pronounced during periods of heightened political uncertainty. We demonstrate that each of these predictions is consistent with available empirical evidence.

Our …

Se(C)(3): A Catalyst For Social Enterprise Crowdfunding, Dana Brakman Reiser, Steven A. Dean

Faculty Scholarship

The emerging consensus among scholars rejects the notion of tax breaks for social enterprises, concluding that such prizes will attract strategic claimants, ultimately doing more harm than good The SE(c)(3) regime proposed by this Article offers entrepreneurs and investors committed to combining financial returns and social good with a means of broadcasting that shared resolve. Combining a measured tax benefit for mission-driven activities with a heightened burden on shareholder financial gains, the revenue-neutral SE(c)(3) regime would provide investors and funding platforms with a low-cost means of screening out "greenwashed" ventures.

Unsophisticated Sentencing, Miriam Baer

Faculty Scholarship

No abstract provided.

Time To Lift The Veil Of Inequality In Health Care Coverage: Using Corporate Law To Defend The Affordable Care Act, Seema Mohapatra

Faculty Scholarship

No abstract provided.

Incorporating Legal Claims, Maya Steinitz

Faculty Scholarship

Recent years have seen an explosion of interest in commercial litigation funding. Whereas the judicial, legislative, and scholarly treatment of litigation finance has regarded litigation finance first and foremost as a form of champerty and sought to regulate it through rules of legal professional responsibility (hereinafter, the "legal ethics paradigm"), this Article suggests that the problems created by litigation finance are all facets of the classic problems created by "the separation of ownership and control" that have been a focus of business law since the advent of the corporate form. Therefore, an "incorporation paradigm," offered here, is more appropriate. "Incorporating …

Phishing And Vat Fraud In Co2 Permits: The Digital Invoice Customs Exchange Solution, Richard Thompson Ainsworth

Faculty Scholarship

In accordance with Directive 2003/87/EC of October 13, 2003, trade in greenhouse gas emissions commenced in the European Union (EU) on January 1, 2005. The EU-Emissions Trading System (EU-ETS) was born.

The EU has a Value Added Tax (VAT). VAT is a transaction-based levy on all trade in goods and services. Each Member State has a VAT as a condition of membership. Until January 3, 2017 transactions in CO2 permits are taxed as services. After this date they are exempt as financial instruments.

This change in VAT treatment of CO2 permits is directly attributable to rampant fraud in the market. …

The Logic And Limits Of Liens, Edward Janger

Faculty Scholarship

No abstract provided.

Series Of Unincorporated Business Entities: The Mobius Strip And Klein Bottle Of Business Entity Law, Daniel S. Kleinberger

Faculty Scholarship

Back in the day – say, 1990 – limited liability companies (LLCs) were the cutting edge of business entity law. Today, LLCs dominate entity formation, and the cutting edge has moved further out – to the notion of a “series,” a quasi-separate, quasi-person existing within an LLC.

Business lawyers are generally familiar with series of stocks and bonds, but those series have nothing to do with the LLC series discussed in this article. To avoid confusion, this article refers to protected series, which, as we will see, are the Mobius strips or Klein bottles of entity law.

Keynote Reflections: The Public Governance Duty, Steven L. Schwarcz

Faculty Scholarship

Firms must take ever greater risks to try to innovate and create value in our increasingly competitive and complex global economy. Corporate governance law generally delegates control over excessive risk-taking to the firm’s investors, principally its risk-seeking shareholders. But this does not cover the type of risk-taking that led to the global financial crisis and that is becoming ever more common - risk-taking that could have systemic consequences to the financial system. I argue for a “public governance duty,” requiring managers of systemically important firms to assess the impact of risk-taking on the public as well as on investors, and …

Corporate Law And The Limits Of Private Ordering, James D. Cox

Faculty Scholarship

Solomon-like, the Delaware legislature in 2015 split the baby by amending the Delaware General Corporation Law to authorize forum-selection bylaws and to prohibit charter or bylaw provisions that would shift to the plaintiff defense costs incurred in connection with shareholder suits that were not successfully concluded. The legislature acted after the Boilermakers Local 154 Retirement Fund. v. Chevron Corp ATP Tour, Inc. v. Deutscher Tennis Bund, broadly empowered the board vis-à-vis the shareholders through the board’s power to amend the bylaws. Repeatedly the analysis used by each court referenced the contractual relationship the shareholders had through the articles of …

Intermediary Influence, Kathryn Judge

Faculty Scholarship

Ronald Coase and others writing in his wake typically assume that institutional arrangements evolve to minimize transaction costs. This Article draws attention to a powerful, market-based force that operates contrary to that core assumption: Intermediary influence." The claim builds on three observations: (1) many transaction costs now take the form of fees paid to specialized intermediaries, (2) intermediaries prefer institutional arrangements that yield higher transaction fees, and (3) intermediaries are often well positioned to promote self-serving arrangements. As a result, high-fee institutional arrangements often remain entrenched even in the presence of more-efficient alternatives.

This Article uses numerous case studies from …

The Uncertain Future Of The Corporate Contribution Ban, Richard Briffault

Faculty Scholarship

Concern about the role of corporate money in democracy has been a longstanding theme in American politics. In the late nineteenth century, the states began to adopt laws restricting the use of corporate funds in elections. The first permanent federal campaign finance law – the Tillman Act of 1907 – targeted corporations by prohibiting federally-chartered corporations from making contributions in any election and prohibiting all corporations from making contributions in federal elections. Subsequently amended, continued, and strengthened by the Federal Corrupt Practices Act of 1925, the Taft-Hartley Act of 1947, the Federal Election Campaign Act of 1971, and the Bipartisan …

Licensing Commercial Value: From Copyright To Trademarks And Back, Jane C. Ginsburg

Faculty Scholarship

Copyright and trademarks often overlap, particularly in visual characters. The same figure may qualify as a pictorial, graphic or sculptural work on the one hand, and as a registered (or at least used) trademark on the other. The two rights, though resting on distinct foundations, tend to be licensed together. Trademarks symbolize the goodwill of the producer, and are protected insofar as copying that symbol is likely to confuse consumers as to the source or approval of the goods or services in connection with which the mark is used. For famous marks, the dilution action grants a right against uses …

Does Google Content Degrade Google Search? Experimental Evidence, Michael Luca, Tim Wu, Sebastian Couvidat, Daniel Frank

Faculty Scholarship

While Google is known primarily as a search engine, it has increasingly developed and promoted its own content as an alternative to results from other websites. By prominently displaying Google content in response to search queries, Google is able to use its dominance in search to gain customers for this content. This may reduce consumer welfare if the internal content is inferior to organic search results. In this paper, we provide a legal and empirical analysis of this practice in the domain of online reviews. We first identify the conditions under which universal search would be considered anticompetitive. We then …

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 …

Delaware’S Implied Contractual Covenant Of Good Faith And “Sibling Rivalry” Among Equity Holders, Daniel S. Kleinberger

Faculty Scholarship

An obligation of good faith and fair dealing is implied in every common law contract and is codified in the Uniform Commercial Code (“U.C.C”). The terminology differs: Some jurisdictions refer to an “implied covenant;” others to an “implied contractual obligation;” still others to an “implied duty.” But whatever the label, the concept is understood by the vast majority of U.S. lawyers as a matter of commercial rather than entity law. And, to the vast majority of corporate lawyers, “good faith” does not mean contract law but rather conjures up an important aspect of a corporate director’s duty of loyalty.

Nonetheless, …

The Role Of The Profit Imperative In Risk Management, Christopher French

Faculty Scholarship

Risks in the world abound. Every day there is a chance that each of us could be in a car accident. Or, one of us could be the victim of a tornado, flood or earthquake. Every day someone becomes deathly ill from an insidious disease. Our properties are in constant peril—one’s house could catch fire at any time or a tree could fall on it during a storm. Any one of these events could have devastating financial consequences, and they are just a few of the many risks that impact our daily lives. One of the principal ways we manage …

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 …

Expanding The Array Of Accountable Actors: Human Rights And Corporate Social Responsibility, Erika George

Faculty Scholarship

Additional actors are being asked to assume responsibility for protecting human rights and preventing violations. I argue that it is appropriate and important to expand the human rights paradigm into other arenas, including corporate social responsibility. Expanding the array of actors understood to have a responsibility to respect human rights could serve to aid an under-resourced and overburdened human rights system to advance the rights protections that it was created to promote. While human rights activists have traditionally turned to intergovernmental institutions and state governments to protect rights and to remedy violations, the recent trend is to expand our understanding …

Appraisal Arbitrage And The Future Of Public Company M&A, Minor Myers, Charles R. Korsmo

Faculty Scholarship

No abstract provided.

The Value Of Soft Variables In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company is worth more as a going concern than on a liquidation basis, what creates that additional value? Is it the people, management decisions, the simple synergies of the operating business, or some combination of these types of soft variables? And perhaps more importantly, who owns or has an interest in these soft variables? This article explores these questions under existing legal doctrine and practice norms. Specifically, it discusses the characterization of soft variables under applicable law and in financing documents, and it surveys related judicial decisions. It also considers the overarching public policy and Constitutional implications of …