Business Organizations Law Commons^™

Endowment Effects Within Corporate Agency Relationships, Jennifer H. Arlen, Matthew L. Spitzer, Eric L. Talley

Faculty Scholarship

Behavioral economics is an increasingly prominent field within corporate law scholarship. A particularly noteworthy behavioral bias is the "endowment effect" – the observed differential between an individual's willingness to pay to obtain an entitlement and her willingness to accept to part with one. Should endowment effects pervade corporate contexts, they would significantly complicate much common wisdom within business law, such as the presumed optimality of ex ante agreements. Existing research, however, does not adequately address the extent to which people manifest endowment effects within agency relationships. This article presents an experimental test for endowment effects for subjects situated in an …

What Enron Means For The Management And Control Of The Modern Business Corporation: Some Initial Reflections, Jeffrey N. Gordon

Faculty Scholarship

The Enron case plays on many different dimensions, but its prominence is not merely part of popular culture's obsession with scandal du jour. Rather, the Enron situation challenges some of the core beliefs and practices that have underpinned the academic analysis of corporate law and governance, including mergers and acquisitions, since the 1980s. These amount to an interlocking set of institutions that constitute "shareholder capitalism," American-style, 2001, that we have been aggressively promoting throughout the world. We have come to rely on a particular set of assumptions about the connection between stock market prices and underlying economic realities; the reliability …

Understanding Enron: "It's About Gatekeepers, Stupid", John C. Coffee Jr.

Faculty Scholarship

What do we know after Enron's implosion that we did not know before it? The conventional wisdom is that the Enron debacle reveals basic weaknesses in our contemporary system of corporate governance. Perhaps, this is so, but where is the weakness located? Under what circumstances will critical systems fail? Major debacles of historical dimensions – and Enron is surely that – tend to produce an excess of explanations. In Enron's case, the firm's strange failure is becoming a virtual Rorschach test in which each commentator can see evidence confirming what he or she already believed.

Asserting Human Rights Against Multinational Corporations Under United States Law: Conceptual And Procedural Problems, Phillip Blumberg

Faculty Articles and Papers

No abstract provided.

Form And Substance In Cyberspace, A. Michael Froomkin

Articles

In this Response to the preceding article by Joe Sims and Cynthia Bauerly, A. Michael Froomkin defends his earlier critique of ICANN. This Response first summarizes the arguments in Wrong Turn In Cyberspace, which explained why ICANN lacks procedural and substantive legitimacy. This Response focuses on how the U.S. government continues to assert control over the domain name system, and how this control violates the APA, the nondelegation doctrine as articulated by the Supreme Court in Carter Coal, and public policy. Professor Froomkin then proposes that ICANN's role be more narrowly focused away from policy making towards true …

International Trade And Labor: Leveling Up Or Down, 35 J. Marshall L. Rev. 227 (2002), Don Turner, Willard A. Workman, Ira Arlook

UIC Law Review

No abstract provided.

Gaming Regulation And Mathematics: A Marriage Of Necessity, 35 J. Marshall L. Rev. 333 (2002), Anthony N. Cabot, Robert C. Hannum

UIC Law Review

No abstract provided.

Is Silence Golden When It Comes To Auditing?, 36 J. Marshall L. Rev. 57 (2002), Darin Bartholomew

UIC Law Review

No abstract provided.

Corporatization And Privatization: A Chinese Perspective, Yuwa Wei

Northwestern Journal of International Law & Business

Although the enterprise reform in China has its own causes, it conforms to the current movement of commercializing public enterprises in a global sense. Thus, over the course of its enterprise reform, China has the advantage of drawing lessons and gaining wisdom from the experience of other jurisdictions. Consequently, China may achieve two goals, commercializing its public sector and standardizing the practice of its corporatized enterprises, at the same time. Meanwhile, the Chinese enterprise reform will provide an interesting case for comparative study, since the country is pioneering a different path in the process of corporatizing and privatizing its public …

The Sec's Suspension And Bar Powers In Perspective, Jayne W. Barnard

Faculty Publications

Enron has brought about demands from many quarters to grant the Securities and Exchange Commission (SEC) new powers. Among the powers the SEC now seeks is the power to bar or suspend securities law violators from serving as an oflicer or director of any public company. Currently, the law assigns this power only to federal district courts. In this Essay, Professor Barnard traces the history of the current law; examining why Congress has expressly withheld suspension and bar powers from the SEC. She then argues that the courts have exercised their suspension and bar powers wisely, and that recent developments …

Rethinking Corporate Fiduciary Duties: The Inefficiency Of The Shareholder Primacy Norm, Gregory S. Crespi

SMU Law Review

Current judicial practice regards the fiduciary duties of corporate officials as running exclusively to the common shareholders, and not to the bondholders or preferred shareholders, or to the corporation as a whole. In this article, the author addresses the question of whether defining the corporation as a whole as the subject of these fiduciary duties would better promote economic efficiency. Ultimately, the author concludes that economic efficiency would be enhanced if the locus of corporate officials' fiduciary duties was redefined as running to the corporation, both for larger corporations with publicly-held securities and smaller corporations whose securities may be more …

The Globalization Of Corporate And Securities Law: An Introduction To A Symposium, And An Essay On The Need For A Little Humility When Exporting One's Corporate Law, Franklin A. Gevurtz

McGeorge School of Law Scholarly Articles

No abstract provided.

A Control-Based Approach To Shareholder Liability For Corporate Torts, Nina A. Mendelson

Articles

Some commentators defend limited shareholder liability for torts and statutory violations as efficient, even though it encourages corporations to overinvest in and to externalize the costs of risky activity. Others propose pro rata unlimited shareholder liability for corporate torts. Both approaches, however, fail to account fully for qualitative differences among shareholders. Controlling shareholders, in particular, may have lower information costs, greater influence over managerial decisionmaking, and greater ability to benefit from corporate activity. This Article develops a control-based approach to shareholder liability. It first explores several differences among shareholders. For example, a controlling shareholder can more easily curb managerial risk …

In Praise Of Procedure: An Economic And Behavioral Defense Of Smith V. Van Gorkom And The Business Judgment Rule, Lynn A. Stout

Cornell Law Faculty Publications

No abstract provided.

The Investor Confidence Game, Lynn A. Stout

Cornell Law Faculty Publications

Academic discussions of securities policy often assume that investors are hyperrational and distrustful actors who do not need the protections of the securities laws to avoid being defrauded. The time has come to recognize the limitations of this assumption and to consider as well the possibility and implications of investor trust. Experienced policymakers and businesspeople (and certainly experienced con artists) have long known that trust is a potent force in explaining and manipulating investor behavior. They are right. They are right to believe that investor confidence-meaning investor trust-is important to the market. They are right to think that trust has …

Financing Public Health Through Nonprofit Conversion Foundations, Christopher W. Frost

Law Faculty Scholarly Articles

Protection and promotion of the public's health are typically thought of as governmental responsibilities. Certainly, the core functions of responding to contagious diseases through quarantine, vector control, mandatory reporting, mandatory immunizations, and other coercive measures require governmental power. Historically, public health has been defined by governmental response to immediate threats to the health of the population.

As our view of the public's health expands to take into account broader measures, however, so too can we expand our view of the kinds of institutions that serve to promote the public's health. Most commentators agree that public health is a wide ranging …

Racial Discrimination And The Relationship Between The Directorial Duty Of Care And Corporate Disclosure, Cheryl L. Wade

Faculty Publications

(Excerpt)

Two corporate employers paid settlements of seismic proportions to minority employees alleging race discrimination in recent years. In 1996, Texaco settled a class action alleging race discrimination for $176 million, and in 2000, Coca-Cola settled race discrimination litigation for $192.5 million. The terms of both settlements required the insertion of outside auditors into typically internal and private corporate governance decisions, and the creation of governance processes designed to investigate and monitor compliance with laws prohibiting race discrimination. In this article I conclude that the settlements mandate managerial and directorial conduct that should have been undertaken when the charges of …

Federal Act Strengthens Successful Illinois Brownfields Program, James Michel

Public Interest Law Reporter

No abstract provided.

How The Corporation Conquered John Bull, A.W. Brian Simpson

Michigan Law Review

This is a study of the evolution of the forms of business organization during the industrial revolution. Historians never fully agree about anything at all, and often with good reason, but there is really no doubt that the period covered by this book is one that saw major changes in agricultural and industrial production, and in commercial practice and organization. It is convenient to refer broadly to the changes which took place in terms of a revolution, industrial, agricultural, or less commonly, commercial in nature. Long before the starting date for this study, which is the date of the Bubble …

The Practical Entry And Utility Of A Legal-Managerial Framework Without The Economic Analysis Of Law, James E. Holloway

Campbell Law Review

This article examines the practicality underlying the entry and utilization of a L-M analysis and legal information into the process of business decision-making by lawyers and managers who generally do not understand or use each others' methodology and thinking, such as business methods and legal analysis, in their professional works and practices.

Persuasion And Resistance: The Use Of Psychology By Anglo-American Corporate Governance Advocate In France, James A. Fanto

Faculty Scholarship

No abstract provided.

Form And Function In Business Organizations, Richard A. Booth Marbury Research Professor Of Law

Faculty Scholarship

In this piece, I argue that the recent proliferation of forms of business organizations in addition to the traditional partnership and corporation may have arisen from the implicit recognition that various organizations may serve needs of business people in different types of businesses, and that traditional theory of the firm explanations are too narrowly focused on market failure explanations for firm formation. I identify at least five different factors that may motivate people to form a business organization and discuss how these different factors may militate in favor of one business form rather than another. I conclude that the collections …

Regulation And Investors' Trust In The Securities Market, Tamar Frankel

Faculty Scholarship

The subject of investor confidence in the securities markets has received wide attention recently as details of fraud and avarice continue to emerge. Investors' trust in the securities markets is important for the reasons discussed in Professor Stout's marvelous paper.¹ This Comment focuses on the relationship between investors' trust and government regulation of the markets. By regulation I mean congressional legislation and actions by federal agencies. I exclude the courts mainly because their lawmaking is not primarily policy-based, and my aim is to sound the alarm for legislative and regulatory policy-directed actions. Many an economist and academic have argued …

Linking Progressive Corporate Law With Progressive Social Movements, Kellye Y. Testy

Articles

Professor Testy critically assesses what has been termed a "new" corporate social responsibility project After noting the hegemony of shareholder primacy in corporate law, she critiques four major counter-hegemonic discourses: team production theory, corporate social accountabiity, stakeholder theory, and corporate social responsibility (or progressive corporate law). Finding the first three ineffective foils for the problems of corporate power that have spurred calls for reform, she turns to an examination of the progressive corporate law project. That project, presently poised at a defining juncture as it attempts to use the "master's tools" to "dismantle the master's house," nonetheless holds promise for …

An Empirical Investigation Of The Relationship Between Audit Committee Effectiveness And Internal Auditors' Professional Objectivity, Sarjo Jah

Student Works (2000-2009)

The objective of this study is to empirically investigate the relationship between audit committees effectiveness and internal auditors' professional objectivity. The study attempts to determine whether or not audit committees effectiveness enhances the professional objectivity and independence of internal auditors. A mail questionnaire, which was used to collect data, was sent to internal auditors as well as audit committee chairmen. The data collected had been analysed using a parametric t-test. The findings of the study showed that there is a positive relationship between audit committee effectiveness and internal auditors professional objectivity. This study adds to existing local literature on audit …

An Empirical Investigation Of The Relationship Between Audit Committee Effectiveness And Internal Auditors' Professional Objectivity : A Focus On Financial Institutions In Malaysia, Panir Selvam Kannan

Student Works (2000-2009)

This study provides empirical evidence on the relationship between audit committee effectiveness and professional objectivity of internal auditors in the Malaysian banking industry. There was no prior study done on this relationship. Although many studies had been done on the audit committee effectiveness in Malaysia and on the internal auditor's objectivity in overseas, no study is yet to be done on the relationship between an effective audit committee and the professional objectivity of internal auditors. Therefore, this study fills such gap. Many official organizations and bodies internationally as well as in Malaysia have proposed an important role for audit committee …

Enron And The Dark Side Of Shareholder Value, William W. Bratton

Georgetown Law Faculty Publications and Other Works

This Article addresses the implications that the Enron collapse holds out for the self-regulatory system of corporate governance. The case shows that the incentive structure that motivates actors in the system generates much less powerful checks against abuse than many observers have believed. Even as academics have proclaimed rising governance standards, some standards have declined, particularly those addressed to the numerology of shareholder value. The Article's inquiry begins with Enron's business plan. The Article asserts that there may be more to Enron's "virtual firm" strategy than meets the eye beholding a firm in collapse. The Article restates the strategy as …

Venture Capital On The Downside: Preferred Stock And Corporate Control, William W. Bratton

Georgetown Law Faculty Publications and Other Works

This Article takes the occasion of the simultaneous collapse of the high technology stock market and the failure of the dot-coin startups, along with the subsequent retrenchment of the venture capital business, to examine the law and economics of downside arrangements in venture capital contracts. The subject matter implicates core concerns of legal and economic theory of the firm. Debates about the separation of ownership and control, relational investing, takeover policy, the law and economics of debt capitalization, and bankruptcy reform, all grapple with the downside problem of controlling and terminating unsuccessful managers for the benefit of outside debt and …

Why A Board? Group Decisionmaking In Corporate Governance, Stephen M. Bainbridge

Vanderbilt Law Review

This Article begins by briefly describing the role of the board both in law and in practice. Part II explores the distinction be- tween consensus and authority as modes of institutional decision- making. As hierarchical institutions, corporations rely far more heavily on authority than on consensus. Yet, at the apex of the hierarchy is a collegial body that functions mainly by consensus.

Part III is the core of the Article. In order to evaluate corporate law's preference for collective decisionmaking, we need to know whether group decisionmaking is superior to that of individuals. A wealth of experimental data suggests that …

When Lawyers And Law Firms Invest In Their Corporate Clients’ Stock, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

I will state my conclusion at the outset. I am not convinced that lawyers' investments in clients in lieu of fees are problematic enough from a conflicts standpoint that the rules of professional responsibility should treat them as presumptively inconsistent with the lawyer's fiduciary responsibility. Lawyers' investments in their clients do raise interesting and unsettling issues, but these issues are not qualitatively different from issues raised by many other norms or practices within the legal profession that also threaten lawyerly objectivity. Indeed, in contrast to some other practices, these fee arrangements can, in some respects, enhance objectivity, or at least …