Business Organizations Law Commons^™

Challenging Gender Discrimination In Closely Held Firms: The Hope And Hazards Of Corporate Oppression Doctrine, Meredith R. Miller

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The #MeToo Movement has ushered sexual harassment out of the shadows and thrown a spotlight on the gender pay gap in the workplace. Harassment and unfair treatment have, however, been difficult to extinguish. This has been true for all workers, including partners – those women who are owners in their firms and claim that they have suffered harassment or unfair treatment based on gender. That is because a partner’s lawsuit for discrimination often will suffer an insurmountable hurdle: plaintiff’s status as a partner in the firm means that they may not be considered an “employee” under the relevant employment discrimination …

Dual Class Stock In Comparative Context, Christopher Bruner

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Review of the article by Marc T. Moore, Designing Dual Class Sunsets: The Case for a Transfer-Centered Approach, University College London Faculty of Laws Working Paper No. 9/2019, available at SSRN.

Buyer Beware: Variation And Opacity In Esg And Esg Index Funds, Dana Brakman Reiser, Anne M. Tucker

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Evidence of the tremendous rise in the significance of environmental, social, and governance (ESG) investing is coming from all quarters. Fund flows into ESG investment vehicles are growing at a sustained and sometimes exponential pace. Fund complexes are rushing to design products, creating and rebranding scores of mutual funds and exchange traded funds (ETFs), including lower-cost indexed options. Industry leaders, critics, and commentators are all heralding the sea change as a shift in investing-and corporate governance-to more broadly consider environmental and social factors. This Article provides vital context for this conversation. Its descriptive account of the ESG investment landscape drawn …

Cybersecurity Oversight Liability, Benjamin P. Edwards

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A changing cybersecurity environment now poses a significant corporate-governance challenge. Although some cybersecurity data breaches may be inevitable, courts now increasingly consider when a corporation's officers and directors may be held liable on theories that they acted in bad faith and failed to adequately oversee the corporation's affairs. This short essay reviews recent derivative decisions and encourages corporate boards to recognize that in an environment filled with increasing threats, a reasonable response will require devoting real resources and attention to cybersecurity issues.

Legal Literature Review Of Social Entrepreneurship And Impact Investing (2007-2017): Doing Good By Doing Business, Deborah Burand, Anne M. Tucker

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Although the ambition to do good by doing business is not new, the burgeoning realization of this ambition is. As the fields of social entrepreneurship and impact investing advance in size, scope and complexity, questions about the roles of corporations and capital markets in society intensify. What is legal scholarship contributing to this discussion? This Article reviews the scholarly contributions of 260 articles written by over 150 authors about the fields of social enterprise, social finance, and impact investing. The Article maps the contri- butions of legal scholarship over the last decade-from 2007 (when the term "impact investing" was first …

Explaining Choice-Of-Entity Decisions By Silicon Valley Start-Ups, Gregg Polsky

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Perhaps the most fundamental role of a business tax advisor is to recommend the optimal entity choice for nascent business enterprises. Nevertheless, even in 2018, the choice-of-entity analysis remains highly muddled. Most tax practitioners across the United States consistently recommend flow-through entities, such as LLCs and S corporations, to their clients. In contrast, a discrete group of highly sophisticated tax professionals, those who advise start-ups in Silicon Valley and other hotbeds of start-up activity, prefer C corporations.

Prior commentary has described and tried to explain this paradox without finding an adequate explanation. These commentators have noted a host of superficially …

Book Review: Global Lawmakers: International Organizations In The Crafting Of World Markets By Susan Block-Lieb And Terence C. Halliday, Melissa J. Durkee

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Susan Block-Lieb and Terence Halliday gradually build up an empirically grounded, meticulously realized argument that individual lawmakers matter. When one allows facts to inform theory rather than the other way around, the authors show, what becomes clear is that individual lawmakers are not just governmental delegates, but a whole variety of professionals, industry association representatives, and others with some stake in the lawmaking process. These actors work not just through formal processes, but also through an array of informal ones. Most importantly, their presence matters to the content of the legal norms that take hold around the world. The book …

Corporations And Sustainability, Beate Sjåfjell, Christopher Bruner

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This chapter introduces the Handbook, providing an overview of its aims and structure, as well as the core research questions that the contributions to it collectively address. It discusses sustainability-related problems associated with the legal form of the corporation, and provides background on state-of-the-art research in natural sciences and other relevant fields that inform our understanding of sustainability. It concludes with specific research questions and a presentation of the Handbook’s structure.

Learning To Be More Than A Lawyer, Carol Morgan

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No abstract provided.

Asset Partitioning And Financial Innovation, Christopher Bruner

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Review of the article by Ofer Eldar and Andrew Verstein titled “The Enduring Distinction between Business Entities and Security Interests”, 92 Southern California Law Review, no. 2 (2019).

There's A Problem With Buybacks, But It's Not What Senators Think, Daniel J. Hemel, Gregg D. Polsky

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In a deeply divided Washington, one of the few issues on which leading lawmakers on both sides of the aisle appear to agree is that corporations should be discouraged from buying back their stock from shareholders. This short article argues that, while this anti-buyback sentiment is misguided, there nevertheless are good tax policy arguments for reforming the tax treatment of buybacks. The article recommends adoption of a 1969 proposal made by Professor Marvin Chirelstein that would recharacterize (for tax purposes) buybacks as a pro rata cash dividend, followed by sales of shares from the shareholders who participate in the buyback …

Do Conflicts Of Interest Require Outside Boards? Yes. Bsps? Maybe., Usha Rodrigues

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From the Symposium: Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance

Boards of directors are curious creatures. The law generally requires corporations to have them—indeed, they are the focus of the corporate law we teach in Business Associations in U.S. law schools. The corporation is managed by directors or under their direction; directors hire and fire officers; directors are necessary for fundamental transactions.

But the reason why corporations have directors is not entirely clear. In the prototypical privately held corporation, the family firm, the same individuals serve both as directors and officers. The CEO (better known as …

Corporate Governance Reform In Post-Crisis Financial Firms: Two Fundamental Tensions, Christopher Bruner

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The manner in which financial firms are governed directly impacts the stability and sustainability of both the financial sector and the "real" economy, as the financial crisis and associated regulatory reform efforts have tragically demonstrated. However, two fundamental tensions continue to complicate efforts to reform corporate governance in post-crisis financial firms. The first relates to reliance on increased equity capital as a buffer against shocks and a means of limiting leverage. The tension here arises from the fact that no corporate constituency desires risk more than equity does, and that risk preference only tends to be stronger in banks, and …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

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Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

The Up-C Revolution, Gregg D. Polsky, Adam H. Rosenzweig

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Over the past few years, a revolutionary new tax structure, known as the Up-C, has become increasingly popular, particularly in instances where an LLC is being taken public. In such an Up-C IPO, a newly formed C corporation is placed on top of the existing LLC, which continues to operate the business. Shares of the C corporation are sold to new investors, and the proceeds are used by the C corporation to buy an interest in the LLC. Meanwhile, the legacy owners of the LLC (typically, founders and private investment funds) retain their interests in the LLC, while receiving exchange …

The Long And The Short: Portfolio Turnover Ratios & Mutual Fund Investment Time Horizons, Anne M. Tucker

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Mutual fund portfolio turnover ratios (PTR) are at the center of the short-termism debate, which criticizes corporate maneuvers taken to prop up near-term earnings at the expense of long-term, value focused investments and policies. Scholars and policymakers often rely on portfolio turnover ratios to argue that mutual fund short-termism, as measured by the PTR, is increasing and infecting operating company time horizons. This article answers two main questions central to discerning mutual funds' role in the short-termism debate. The first is, how long, on average do U.S. registered mutual funds hold onto their assets? The second is, how good of …

Tournament Of Managers: Lessons From The Academic Leadership Market, Usha Rodrigues

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Why do firms usually make, not buy, their chief executive officers (CEOs)? Public corporations hire their CEOs from within the firm 78% of the time. They do so although earlier studies have found no clear evidence that internal hires perform better than external ones. So why do firms prefer them? Few scholars have focused on this simple question.

The reason why firms favor internal candidates matters not only in its own right, but also for an overlooked reason: it informs the controversial question of executive compensation. Currently board-compensation committees look to peer benchmarks to set executive pay. But, taking cues …

Will Swing Pricing Save Sedentary Shareholders?, Anne M. Tucker, Holly Van Den Toorn

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This Article explains and explores new Securities Exchange Commission rules authorizing optional swing pricing for mutual funds. Swing pricing is an anti-dilution tool intended to protect sedentary investors who enter, and stay, in a fund. Workers setting aside money for retirement are often sedentary investors. Mutual funds are the mainstay vehicle for retirement investors, yet as sedentary shareholders they can experience significant asset dilution over their savings lifetime. Swing pricing—a mutual fund pricing mechanism that allocates transaction costs to the triggering shareholders—could save sedentary shareholders, collectively, billions of dollars. The mutual fund industry's operational complexities and competing regulatory obligations may …

20/20 Vision In The Long & Short-Termism Debate, Anne M. Tucker

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What is an optimal investment time horizon—for institutions, individual shareholders and corporations? This question can evoke emotional, ideological, and theoretical responses. The answers usually deeply entrenched debates over the fundamental roles of markets versus regulation and between the appropriate loci of corporate power: the board of directors versus the shareholders. Too long-term and it is myopia; too near-term and is it short-termism. Neither label is inconsequential, so the debates are not tepid, academic, or marginal.

Corporate Governance Reform In Post-Crisis Financial Firms: Two Fundamental Tensions, Christopher Bruner

Scholarly Works

The manner in which financial firms are governed directly impacts the stability and sustainability of both the financial sector and the "real" economy, as the financial crisis and associated regulatory reform efforts have tragically demonstrated. However, two fundamental tensions continue to complicate efforts to reform corporate governance in post-crisis financial firms. The first relates to reliance on increased equity capital as a buffer against shocks and a means of limiting leverage. The tension here arises from the fact that no corporate constituency desires risk more than equity does, and that risk preference only tends to be stronger in banks, and …

Distributed Ledgers, Traceable Shares, And The Division Of Power In Corporate Law, Christopher M. Bruner

Scholarly Works

Review of Traceable Shares and Corporate Law, 113 Nw. U. L. Rev. __ by George S. Geis (forthcoming 2018)

Center-Left Politics And Corporate Governance: What Is The 'Progressive' Agenda?, Christopher Bruner

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For as long as corporations have existed, debates have persisted among scholars, judges, and policymakers regarding how best to describe their form and function as a positive matter, and how best to organize relations among their various stakeholders as a normative matter. This is hardly surprising given the economic and political stakes involved with control over vast and growing "corporate" resources, and it has become commonplace to speak of various approaches to corporate law in decidedly political terms. In particular, on the fundamental normative issue of the aims to which corporate decision-making ought to be directed, shareholder-centric conceptions of the …

Redefining Roles And Duties Of The Transactional Lawyer: A Narrative Approach, Lori D. Johnson

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Today’s transactional lawyers perform myriad tasks for their clients, including structuring, drafting, conceptualizing, negotiating, and executing the complex, risky, and often cutting-edge transactions their clients bring to the table. On the other side of that table, often sits another team of sophisticated transactional lawyers. These opposing counsel are armed for battle over every nuance, every word, every representation, every deliverable, and every obligation their client is poised to undertake or agree to. Therefore, modern transactional lawyers must behave as advocates and explore new modes of persuasion. As a response, scholars have begun to propose that transactional lawyers employ methods of …

Distributed Governance, Carla L. Reyes, Nizan Geslevich Packin, Benjamin P. Edwards

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Distributed ledger technology disrupts traditional business organizations by introducing new business entities without the directors and officers of traditional corporate entities. Although these emerging entities offer intriguing possibilities, distributed entities may suffer significant collective action problems and expose investors to catastrophic regulatory and governance risks. Our Article examines key considerations for stakeholders and argues that distributed entities must be carefully structured to function effectively.

This Article breaks new ground by critically examining distributed entities. We argue that a distributed model is most appropriate when distributed ledger technology solves a unique corporate governance problem. We caution against ignoring the lessons painstakingly …

In Pursuit Of Good & Gold: Data Observations Of Employee Ownership & Impact Investment, Christopher Greczy, Jessica S. Jeffers, David K. Musto, Anne M. Tucker

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A startup’s path to self-sustaining profitability is risky and hard, and most do not make it. Venture capital (VC) investors try to improve these odds with contractual terms that focus and sharpen employees’ incentives to pursue gold. If the employees and investors expect the startup to balance the goal of profitability with another goal—the goal of good—the risks are likely to both grow and multiply. They grow to the extent that profits are threatened, and they multiply to the extent that balancing competing goals adds a dimension to the incentive problem. In this Article, we explore contracting terms specific to …

The Fiduciary Enterprise Of Corporate Law, Christopher Bruner

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No abstract provided.

A Rational Approach To Business Entity Choice, Eric H. Franklin

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This Article reinvigorates the entity rationalization movement and will ultimately argue that there are only three necessary entity options: corporations, partnerships, and nonprofit organizations. Part I defines the issue of entity proliferation and, along with the Appendix, presents a state-by-state analysis of the types of legal entities available, an endeavor that has not yet been conducted. The Appendix contains a chart that enumerates each legal entity available in each of the fifty states and the District of Columbia. Part II discusses the problems associated with entity proliferation from the perspective of the public, potential business owners, small business attorneys, and …

The Responsible Corporation: Its Historical Roots And Continuing Promise, Larry D. Thompson

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The article focuses on the on the history of American corporations from the colonization period and its impact on private corporations such as venture capitalism. Topics discussed include legal and sustainable approach to corporate responsibility, role of laws in shaping corporate duties and behavior and devastating effect of excessive dividend payments. It also discusses the cases in which courts refuse to interfere with management's long-term decision making.

Institutional Investing When Shareholders Are Not Supreme, Christopher Greczy, Jessica S. Jeffers, David K. Musto, Anne M. Tucker

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Institutional investors, with trillions of dollars in assets under management, hold increasingly important stakes in public companies and fund individual retirement for many Americans, making institutional investors' behaviors and preferences paramount determinants of capital allocation. In this paper, we examine high fiduciary duty institutions' (HFDIs') response to decreased profit maximization pressure as measured by the effect of constituency statutes on HFDI investment. We ask this question, in part, to anticipate HFDIs' response to alternative purpose firms, like benefit corporations. Only with access to institutional investors' capital can alternative purpose firms gain economic significance to rival the purely for-profit corporation. In …

Locked In: The Competitive Disadvantage Of Citizen Shareholders, Anne M. Tucker

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Indirect investors—especially mutual fund investors—are often low-dollar, low-incentive, rationally apathetic investors facing enormous information asymmetries and collective action problems. These traits raise difficult corporate governance questions about how indirect investors exercise or should exercise their right to vote in fund elections, obtain fund-related information, and pursue litigation against the fund. These questions are all the more important in light of how many indirect investors own mutual funds through employer-sponsored defined contribution retirement plans.

John Morley and Quinn Curtis’s 2010 article, Taking Exit Rights Seriously, offers a clear answer to this problem. They assert that the best solution for all mutual …