Business Organizations Law Commons^™

Risky Business, Michael S. Baram

Faculty Scholarship

In prior studies by high-level commissions, emphasis was given to improving the scientific basis and institutional procedures for risk assessment and risk regulation within existing statutory frameworks. Recommendations have led to slow but steady progress. This study is considerably different. It emphasizes a public health approach for efficient use of resources in a new flexible framework for risk management, reductionist approaches to risk assessment and characterization, increased public involvement, and various methods for managing such public involvement. It provides a mix of aspirations and concepts, procedures, and "shop floor rules" for putting the new system of risk management into practice. …

Lmo's: Treasure Chest Or Pandora's Box, Michael S. Baram

Faculty Scholarship

Biotechnology is beginning to trans- A form agriculture across the globe. After thousands of years of traditional plant and animal breeding, and centuries of mechanization and chemical application, genetic research has opened a Pandora's box of living modified organisms (LMOs) designed to improve the productivity and efficiency of commercial agriculture. A multitude of transgenic crops and animals is now being introduced into commerce by biotechnology companies, and b nations are puzzling out how to appropriate the benefits and manage the risks.

American biotechnology companies and agencies are the leading proponents of using LMOs. They claim that two decades of costly …

Corporate Governance And Managerial Incompetence: Lessons From Kmart, D. Gordon Smith

Faculty Scholarship

Modern corporate governance scholars often extol an activist role by institutional investors in directing corporate activity. Widely viewed as a solution to the collective action problems that inhibit such activism by individual investors, institutional investors are praised for adding value to corporations through their participation in the decision making process. The ouster of Joseph Antonini as Chief Executive Officer of Kmart Corporation in 1995 might be taken as a vindication of this view, because substantial evidence indicates that institutional investors played a crucial role in influencing Kmart's board of directors to remove him. In this Article, Professor Smith challenges this …

The Role Of The Corporate Attorney Within The Takeover Context: Loyalties To Whom, Miriam Baer

Faculty Scholarship

No abstract provided.

Fired Employees And/Or Frozen-Out Shareholders (An Essay), Deborah A. Schmedemann

Faculty Scholarship

The thesis of this essay can be stated as follows: Shareholder-employees should be able to recover for loss of employment, within the cause of action provided by corporate law, where the termination violates public law, breaches the agreement among the shareholders, or is unsupported by legitimate business purposes. In Part II, this essay presents the employment model, including the paradigm of employment that the law builds on, the starting premise of employment law, the roles of private and public law, and the remedies afforded for violations of an employee's rights. In Part III, this essay develops the corporate model, discussing …

Getting Out Of Business: Tax Costs And Opportunities In Exiting A Closely Held Business, Denise D. J. Roy

Faculty Scholarship

The primary purpose of this article is to encourage closely held business owners and their lawyers to consider exit costs, opportunities and strategies when making the initial choice-of-entity decision. A secondary purpose is to provide information about tax consequences and exit strategies useful to owners of businesses that are already up and running, whether in drafting a buy-sell agreement or planning for a specific transaction. Therefore, the article begins by comparing the major tax consequences of exiting the alternative entity types available to closely held businesses for tax purposes--C corporations, S corporations and partnerships. Part II of this article provides …

F. Hodge O'Neal Corporate And Securities Law Symposium: Path Dependence And Comparative Corporate Governance, Ronald J. Mann, Curtis J. Milhaupt

Faculty Scholarship

The study of institutions, and particularly the study of institutions that societies use to govern business enterprises, is at a point of transition. In the last two or three decades, scholars focusing on economic principles to define appropriate legal rules and corporate institutions rose up to challenge the traditional orthodoxy of corporate governance found in the Berle and Means corporation.

One of the most exciting trends in the literature rests upon the "increasing marginal returns" school of economics associated with Brian Arthur and the Santa Fe Institute. The traditional neoclassical economic theory of production, familiar from decades of undergraduate and …

Resolving The Subsidiary Director's Dilemma, Eric J. Gouvin

Faculty Scholarship

Although subsidiaries play a significant role in our economy, surprisingly little has been written about the duties of their directors. Despite widespread acceptance of holding companies as commonplace business entities, several legal problems inherent in the holding company form of ownership remain unresolved. Holding companies raise legal dilemmas for subsidiary directors that are easier to ignore than to resolve. This Article examines the subsidiary director's dilemma and demonstrates that traditional models of corporate structure are not adequate for the subsidiary-parent situation. The Author argues that the law should recognize the special relationship between a parent and its subsidiary and adopt …

The Absence Of Cross-Cultural Communication: Sec Mandatory Disclosure And Foreign Corporate Governance, James A. Fanto

Faculty Scholarship

No abstract provided.

Venture Capital And The Structure Of Capital Markets: Banks Versus Stock Markets, Ronald J. Gilson, Bernard S. Black

Faculty Scholarship

The United States has many banks that are small relative to large corporations and play a limited role in corporate governance, and a well developed stock market with an associated market for corporate control. In contrast, Japanese and German banks are fewer in number but larger in relative size and are said to play a central governance role. Neither country has an active market for corporate control. We extend the debate on the relative efficiency of bank- and stock market-centered capital markets by developing a further systematic difference between the two systems: the greater vitality of venture capital in stock …

Positivism And The Separation Of Law And Economics, Avery W. Katz

Faculty Scholarship

The modem field of law and economics – that is, the application of economic analysis to legal subjects other than trade and business regulation – is now over thirty years old, but it remains controversial in the legal academy and, to a lesser extent, in the profession at large. Since its beginnings in the early 1960s, the economic approach has provoked substantial opposition and antagonism. The sources of this resistance, however, are a matter of dispute. Many economists and economically influenced lawyers attribute it to more traditional lawyers' reluctance to learn a new and unfamiliar set of concepts and techniques. …

Corporate Governance And Economic Efficiency: When Do Institutions Matter?, Ronald J. Gilson

Faculty Scholarship

Until the 1980s, corporate governance was largely the province of lawyers. It was a world of specific rules – more or less precise statutory requirements governing shareholder meetings, the election of directors, notice requirements and the like – that were essentially unrelated to what corporations actually do. From this perspective, the corporation's productive activity was simply a black box onto which standard governance structures were superimposed with little effect on what took place within. Corporate law was "trivial" or, as Bayless Manning so evocatively portrayed it, simply "great empty corporation statutes – towering skyscrapers of rusted girders internally welded together …

When Should An Offer Stick? The Economics Of Promissory Estoppel In Preliminary Negotiations, Avery W. Katz

Faculty Scholarship

The purpose of this Article is to examine the doctrine of promissory estoppel, as it applies in the context of preliminary negotiations, from the viewpoint of the economic theory of rational choice. This is part of a larger project that attempts to understand better the regulatory role of contract formation law generally. From a regulatory vantage point, estoppel and related legal doctrines operate as economic regulations; they shape the bargaining process by influencing the negotiators' incentives to make and to rely on preliminary communications. As with all economic regulations, however, some rules do better than others at promoting efficient exchange, …

Proprietary Norms In Corporate Law: An Essay On Reading Gambotto In The United States, Deborah A. Demott

Faculty Scholarship

No abstract provided.

(Dis)Assembling Rights Of Women Workers Along The Global Assembly Line: Human Rights And The Garment Industry Symposium: Political Lawyering: Conversations On Progressive Social Change, Laura Ho, Catherine Powell, Leti Volpp

Faculty Scholarship

Some observers would like to explain away sweatshops as immigrants exploiting other immigrants, as "cultural, or as the importation of a form of exploitation that normally does not happen here but occurs elsewhere, in the "Third World." While the public was shocked by the discovery at El Monte, garment workers and garment worker advocates have for years been describing abuses in the garment industry and have ascribed responsibility for such abuses to manufacturers and retailers who control the industry. Sweatshops, like the one in El Monte, are a home-grown problem with peculiarly American roots. Since the inception of the garment …

Foreword: A Recipe For Effecting Institutional Changes To Achieve Privatization, Tamar Frankel

Faculty Scholarship

Symposium A Recipe for Effecting Institutional Changes to Achieve Privatization

Of the many questions raised by privatization, this mini-conference will focus on the "how" in different countries: developed and developing, Western countries and the Eastern bloc (including China), emphasizing methodology and cultural traits. Clearly, the "how" will differ in fundamental aspects depending on the political and economic conditions of countries in which the process is taking place

The focus on the "how," however, does not mean that we will not consider other important questions that the movement to privatize raises. The papers presented in this mini-conference reflect a wide range …

Corruption Of The Class Action: The New Technology Of Collusion, John C. Coffee Jr.

Faculty Scholarship

Professor Coffee's article, an oral version of which was given at the Cornell Mass Torts conference, is appearing in the Columbia Law Review. However, because commentators in this volume have responded to it, he has authorized the following summary of his views.

Shareholder Dividend Options, Zohar Goshen

Faculty Scholarship

This Article proposes a legal norm that shifts discretion over dividend policy from managers to the capital markets (i.e., shareholders). State corporate law could effect such a shift by adopting a rule that mandates shareholder control over the dividend decision. The rule would require every firm to adopt an option mechanism that, at predetermined dates, provided each of the firm's shareholders with the right to select either cash or stock dividends in an amount equal to the shareholder's pro rata share of the firm's earnings. For instance, the law might require that, once a year, the firm offer to each …

Competition Versus Consolidation: The Significance Of Organizational Structure In Financial And Securities Regulation, John C. Coffee Jr.

Faculty Scholarship

It's as predictable as the swallows' return to Capistrano. At the outset of each new Administration, a Presidential Task Force proposes a restructuring of the federal administrative agencies. New developments in rapidly evolving markets, it is argued, require a consolidation of agencies to generate a broader perspective, to create a "level playing field," and to end the possibility of a "race to the bottom" (to the extent that market participants can opt for one regulatory system over another). The proposal draws little overt criticism, but turf-conscious agencies quietly mobilize their constituencies to oppose the reform. The first sign of trouble …

The Transformation Of French Corporate Governance And United States Institutional Investors, James A. Fanto

Faculty Scholarship

No abstract provided.

The Case Against Regulating The Market For Contingent Employment, Maria O'Brien

Faculty Scholarship

No abstract provided.

Business Combination Antitakeover Statutes, The Unintended Repudiation Of The Internal Affairs Doctrine, And Constitutional Constraints On Choice Of Law, Robert E. Suggs

Faculty Scholarship

This article examines the constitutional validity of business combination antitakeover statutes. Delaware and other important corporate law jurisdictions enacted these statutes during the 1980s to inhibit hostile leveraged corporate takeovers and protect incumbent managements. These statutes work by prohibiting transactions which enable a hostile acquirer with a mere majority of target stock to sell target assets for cash and retain all the cash to service acquisition debt while paying off with securities the minority shareholders' interest in the assets sold. This allows the takeover to be financed with the assets acquired. Analyzing the structural operation of these statutes in greater …

The Mythology Of Article 9, Robert E. Scott

Faculty Scholarship

Debt Collection as Rent Seeking marks an important moment in contemporary jurisprudence: the transformation of David Carlson from trenchant, fire-in-the-belly, no-holds-barred critic to abstract-modeling, implausible-assuming, game-theorizing, law and economics maven. On that basis alone, it is a great read.

Is Unlimited Liability Really Unattainable: Of Long Arms And Short Sales, Mark R. Patterson

Faculty Scholarship

Unlimited shareholder liability would radically change the way we look at corporations. In an unlimited-liability world, one part at least of the veil between corporation and shareholder would no longer exist. As a result, the relationship between corporation and shareholder would be, both in law and in fact,much closer than it is currently. The two parts of this change-the legal and the factual-would reinforce each other. The legal change would be reflected in court decisions enforcing unlimited liability Regardless of the exact contours that decisions in this area took initially, there would be at least some shareholders-mutual funds, for example--whom …

Re-Engineering Corporate Disclosure: The Coming Debate Over Company Registration, John C. Coffee Jr.

Faculty Scholarship

Statutory obsolescence is the fate of all legislation. At some point in the natural "life cycle" of any statute, courts tend to move from purposive statutory construction, focused on the actual legislative intent, to greater deference towards administrative expertise as they implicitly recognize that the original legislative intent no longer fits the contemporary institutional landscape. Given that the federal securities laws were passed during the 1930s, they have now entered the geriatric zone where their possible obsolescence must be considered. Some academics have already called for the SEC's elimination on precisely this basis. Practitioners complain about the "metaphysical" and "hypertechnical" …

Presumptions And Burdens Of Proof As Tools For Legal Stability And Change, Tamar Frankel

Faculty Scholarship

Presumptions and burdens of proof are used, among other purposes, to maintain legal stability and at the same time effect change. By imposing the burden of proof on the party asserting a certain outcome, courts can calibrate burdens of proof and substantive rules until experience points to rule retention or amendment. As agents of change, presumptions and burdens of proof are far more flexible and less brittle than rules.¹

This Article tells the story of presumptions and burdens of proof in litigation between corporate shareholders and managements. This litigation is replete with volatile presumptions and innovative burdens of proof, …

Working And Poor: The Increasingly Popular Practice Of Excluding Disabled Employees From Health Care Coverage, Maria O'Brien

Faculty Scholarship

One might think, since passage of the Americans With Disabilities Act of 1990 (ADA),' that the employment story for disabled employees or would-be disabled employees was cheerful, or at least improving. This may be true in so far as obtaining and retaining employment is concerned;' however, the ADA, because it permits employers and third-party insurers to continue to utilize traditional risk management techniques, has resulted in reduced or (in some cases) non-existent employee benefits for the disabled. At the same time, more and more employers are opting to self-insure under the Employee Retirement Income Security Act of 1974 (ERISA),3 in …

The Sec And The Institutional Investor: A Half-Time Report, John C. Coffee Jr.

Faculty Scholarship

Nothing that the Securities and Exchange Commission ("SEC") has done in recent years has been as controversial or significant as its efforts to reform the proxy rules to permit greater communication among shareholders. Nothing that it has undertaken recently has also been left as incompletely or equivocally realized as these same efforts. That the SEC's efforts at facilitating shareholder communication have been controversial and significant is by now a commonplace observation. That they are incomplete and equivocal requires more explanation. Although the discovery that an agency is behaving inconsistently is hardly a revelation, more than politics appears to be at …

Insider Trading Deterrence Versus Managerial Incentives: A Unified Theory Of Section 16(B), Merritt B. Fox

Faculty Scholarship

Part I of this article assesses the social costs of a crude rule of thumb. Because section 16(b) applies to a given class of paired transactions, it deters both transactions based on inside information and transactions not so based. Each time section 16(b) is stretched to include a class of paired transactions, it deters some additional innocent transactions. This side effect will take the form of officers' and directors' purchasing fewer shares in their own companies and refusing to accept as large a portion of their compensation in a form based on share price. There are strong theoretical and empirical …

Thinking To Be Paid Versus Being Paid To Think, Merritt B. Fox

Faculty Scholarship

In the first chapter of The Economic Structure of Corporate Law, Frank Easterbrook and Daniel Fischel make an arresting statement:

... [P]eople who are backing their beliefs with cash are correct; they have every reason to avoid mistakes, while critics (be they academics or regulators) are rewarded for novel rather than accurate beliefs. Market professionals who estimate these things wrongly suffer directly; academics and regulators who estimate wrongly do not pay a similar penalty. Persons who wager with their own money may be wrong, but they are less likely to be wrong than are academics and regulators, who are wagering …