Business Organizations Law Commons^™

Show Me The Money: The Thompson Memo, Stein, And An Employee's Right To The Advancement Of Legal Fees Under The Mcnulty Memo, John Power

Washington and Lee Law Review

No abstract provided.

The Economic Impact Of Backdating Of Executive Stock Options, M. P. Narayanan, Cindi A. Schipani, H. Nejat Seyhun

Michigan Law Review

This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about 7%. This translates to about $400 million per firm. By contrast, we estimate that the …

Rewarding Outside Directors, Assaf Hamdani, Reinier Kraakman

Michigan Law Review

While they often rely on the threat of penalties to produce deterrence, legal systems rarely use the promise of rewards. In this Article, we consider the use of rewards to motivate director vigilance. Measures to enhance director liability are commonly perceived to be too costly. We, however demonstrate that properly designed reward regimes could match the behavioral incentives offered by negligence-based liability regimes but with significantly lower costs. We further argue that the market itself cannot implement such a regime in the form of equity compensation for directors. We conclude by providing preliminary sketches of two alternative reward regimes. While …

The Corporate Monitor: The New Corporate Czar?, Vikramaditya Khanna, Timothy L. Dickinson

Michigan Law Review

Following the recent spate of corporate scandals, government enforcement authorities have increasingly relied upon corporate monitors to help ensure law compliance and reduce the number of future violations. These monitors also permit enforcement authorities, such as the Securities & Exchange Commission and others, to leverage their enforcement resources in overseeing corporate behavior. However there are few descriptive or normative analyses of the role and scope of corporate monitors. This paper provides such an analysis. After sketching out the historical development of corporate monitors, the paper examines the most common features of the current set of monitor appointments supplemented by interviews …

Sox And Whistleblowing, Terry Morehead Dworkin

Michigan Law Review

The language of the Sarbanes-Oxley Act ("SOX") leaves no doubt that Congress intended whistleblowing to be an integral part of its enforcement mechanisms. The Act attempts to encourage and protect whistleblowers in a variety of ways, including providing for anonymous whistleblowing, establishing criminal penalties for retaliation against whistleblowers, and clearly defining whistleblowing channels. Unfortunately, these provisions give the illusion of protection for whistleblowers without effectively providing it. There is increasing evidence that virtually no whistleblower who has suffered retaliation and pursued remedies under SOX has been successful. Additionally, social science research and studies of whistleblowing laws indicate that SOX is …

The Social Construction Of Sarbanes-Oxley, Donald C. Langevoort

Michigan Law Review

Part I will take a close look at the legitimacy of SOX by examining the two plausible stories of SOX's origins and considering the early post-SOX evidence on its costs and benefits. There is no clear-cut answer to the question of how much SOX benefits investors; both positive and critical positions are plausible. Costs have been far greater than expected, but more from SOX's implementation than from the legislative text. Before turning to how and why implementation has occurred that way-which to me is the central question of interpretation-Part II considers whether there is an alternative interpretation of SOX that …

Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey

Michigan Law Review

The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on "whistleblower information," that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized. Often, insider trading will be far more effective than whistleblowing at bringing fraud …

The Use Of Efficient Market Hypothesis: Beyond Sox, Dana M. Muir, Cindy A. Schipani

Michigan Law Review

This Article focuses on the regulatory use of finance theory, particularly the efficient market hypothesis ("EMH"), in two areas where securities pricing is at issue: shareholder appraisal cases and the use of employer stock in benefit plans. Regarding shareholder appraisal cases, the Article finds that the Delaware courts seem to implicitly respect the principles of EMH when ascertaining the fair value of stock, but recognize that markets cannot operate efficiently if information is withheld. Regarding employer stock in benefit plans, it concentrates on the explicit adoption of EMH by the Department of Labor to exempt directed trustees from traditional duties …

The Normative Foundations Of Trademark Law, Mark P. Mckenna

Journal Articles

This paper challenges the conventional wisdom that trademark law traditionally sought to protect consumers and enhance marketplace efficiency. Contrary to widespread contemporary understanding, early trademark cases were decidedly producer-centered. Trademark infringement claims, like all unfair competition claims, were intended to protect producers from illegitimate attempts to divert their trade. Consumer deception was relevant in these cases only to the extent it was the means by which a competitor diverted a producer's trade. Moreover, American courts from the very beginning protected a party against improperly diverted trade in part by recognizing a narrow form ofproperty rights in trademarks. Those rights were …

The Mythical Benefits Of Shareholder Control, Lynn A. Stout

Cornell Law Faculty Publications

In "The Myth of the Shareholder Franchise," Professor Lucian Bebchuk elegantly argues that the notion that shareholders in public corporations have the power to remove directors is a myth. Although a director facing a proxy contest might find this to be a bit of an overstatement, the core idea is sound. In a public company with widely dispersed share ownership, it is difficult and expensive for shareholders to overcome obstacles to collective action and wage a proxy battle to oust an incumbent board. Nor is success likely when directors can use corporate funds to solicit proxies to stay in place. …

Licensing The Word On The Street: The Sec's Role In Regulating Information, Onnig H. Dombalagian

Buffalo Law Review

No abstract provided.

Article 9'S Incorporation Strategy And Novel, New Markets For Collateral: A Theory Of Non-Adoption, Michael Korybut

Buffalo Law Review

No abstract provided.

On Financial Sector Reform In Emerging Markets: Enhancing Creditors' Rights And Securitizing Non-Performing Loans In The Indian Banking Sector—An Elephant's Tale, Anshu S. K. Pasricha

Buffalo Law Review

No abstract provided.

The Duty To Creditors In Near-Insolvent Firms: Eliminating The "Near-Insolvency" Distinction, Cory D. Kandestin

Vanderbilt Law Review

'Even at our best, we are only out for ourselves." It is human nature to act in one's own interest. Though ethicists and psychologists may disagree about the extent to which self-interest is a motivating factor behind human behavior, most accept that it plays some role. Assuming that human behavior is at least in part a function of self-interest, laws should be expected to reflect that behavior. Many already do: the law of agency imposes a duty on the agent to act with obedience towards his principal, and the ABA Model Rules of Professional Conduct prohibit a lawyer from representing …

Reverse Monitoring: On The Hidden Role Of Employee Stock-Based Compensation, Sharon Hannes

Michigan Law Review

This Article develops a new understanding of equity-based compensation schemes, such as employee stock option plans. Current literature views such schemes as a measure aimed at motivating the recipient employees to work harder for the firm. Under that view, this method of remuneration either complements or substitutes for other measures used to monitor the performance of the recipient employees. In contrast, this Article proposes that recipient employees be viewed as potential monitors of other employees and that stock options (or similar types of compensation) motivate them to fulfill this task. This view has many applications and can shed light on …

The European Commission's Action Plan To Modernize European Company Law: How Far Should The Sec Go In Exempting European Issuers From Complying With The Sarbanes-Oxley Act?, Kristina A. Sadlak

Brigham Young University International Law & Management Review

No abstract provided.

The Dialectical Regulation Of Rule 14a-8: Intersystemic Governance In Corporate Law, Robert B. Ahdieh

Faculty Scholarship

In recent years, Rule 14a-8 of the Securities Exchange Act - first adopted more than sixty years ago to increase shareholder participation in corporate governance - has been the subject of a flurry of litigation, scholarly analysis, and SEC rulemaking. Most recently, following several years of debate, the SEC issued a significant clarification of the rule, reversing the Second Circuit's hotly contested interpretation of it in AFSCME v. AIG. For the most part, the debates surrounding Rule 14a-8 - including in the latter case - have focused on the scope of the rule's exceptions. This paper, selected for reprinting in …

The Ethical Mine Field: Corporate Internal Investigations And Individual Assertions Of The Attorney-Client Privilege, Lawton P. Cummings

West Virginia Law Review

No abstract provided.

Managers’ Fiduciary Duties In Financially Distressed Corporations: Chaos In Delaware (And Elsewhere), Rutheford B. Campbell Jr., Christopher W. Frost

Law Faculty Scholarly Articles

The inherent conflict between creditors and shareholders has long occupied courts and commentators interested in corporate governance. Creditors holding fixed claims to the corporation's assets generally prefer corporate decision making that minimizes the risk of firm failure. Shareholders, in contrast, have a greater appetite for risk, because, as residual owners, they reap the rewards of firm success while sharing the risk of loss with creditors.

Traditionally, this conflict is mediated by a governance structure that imposes a fiduciary duty on the corporation's managers-its officers and directors-to maximize the value of the shareholders' interests in the firm. In this traditional view, …

Rethinking Criminal Corporate Liability, Andrew Weissmann, David Newman

Indiana Law Journal

Under current federal law, a corporation, no matter how large or small, is criminally liable if a member of the organization commits a crime within the scope of employment and at least in part with the intent to benefit the company. This Article challenges that doctrine and contends that where it seeks to charge a corporation criminally, the government should bear the burden of establishing as an additional criminal element that the corporation failed to have reasonable policies and procedures to prevent the employee 's conduct. Narrowing the scope of criminal corporate liability is supported by the reasoning of a …

The Mythical Benefits Of Shareholder Control, Lynn A. Stout

Cornell Law Faculty Publications

In a forthcoming Virginia Law Review article, Professor Lucian Bebchuk argues that the notion that shareholders in public corporations have the power to remove directors is a myth. This is perhaps an overstatement, but Bebchuk is correct to suggest that in a public company with widely dispersed share ownership, it is difficult and expensive for shareholders to overcome obstacles to collective action and wage a proxy battle to oust an incumbent board. Nor is success likely when directors can use corporate funds to solicit proxies to stay in place. The end result, as Adolf Berle and Gardiner Means famously observed …

Moving Toward A Federal Law Of Corporate Governance In Bankruptcy, Kelli A. Alces

Scholarly Publications

No abstract provided.

More Women On Corporate Boards? Not So Fast, Jayne W. Barnard

William & Mary Journal of Race, Gender, and Social Justice

No abstract provided.

The State Of Judiciary: A Corporate Perspective, Larry D. Thompson

Scholarly Works

The rule of law depends on highly talented, independent judges who conscientiously strive to ensure that the law is consistently applied in a principled and predictable manner This Essay addresses two potential threats to judicial independence and the rule of law that we believe warrant special attention at this time. First, inadequate judicial salaries pose a threat to the quality and independence of the judiciary. Judges' real pay has declined substantially over the past generation, even as the compensation of other callings within the legal profession has risen dramatically. This growing disparity in pay has prompted an increasing number of …

The State Of The Judiciary: A Corporate Perspective, Larry D. Thompson, Charles J. Cooper

Scholarly Works

The rule of law depends on highly talented, independent judges who conscientiously strive to ensure that the law is consistently applied in a principled and predictable manner. This Essay addresses two potential threats to judicial independence and the rule of law that we believe warrant special attention at this time. First, inadequate judicial salaries pose a threat to the quality and independence of the judiciary. Judges' real pay has declined substantially over the past generation, even as the compensation of other callings within the legal profession has risen dramatically. This growing disparity in pay has prompted an increasing number of …

Contractual Valuation Mechanisms And Corporate Law, Keith Sharfman

Faculty Publications

(Excerpt)

Legal valuation—the resolution of disputes over the value of legal entitlements—is an inevitable aspect of any legal system. Across time and place and doctrinal boundaries, the problem is the same: each side seeks to have a self-servingly high or low figure assigned to the entitlement in question, and a mechanism is needed to choose a conclusive value from a range of plausible outcomes. Usually the mechanism involves litigation of some sort, such as a trial before a judge, jury, or hearing officer. But not always.

This Article analyzes a transactional alternative to valuation litigation that has become increasingly popular: …

Market Definition, Merger Review, And Media Monopolization: Congressional Approval Of The Corporate Voice Through The Newspaper Preservation Act, Amy Kristin Sanders

Federal Communications Law Journal

In this Article, the Author examines the Newspaper Preservation Act, a federal antitrust exemption for newspapers, in light of the changing landscape of media ownership. After doing so, she argues that federal merger review for media companies should be revised to include a broader definition of 'geographic market' and a more restrictive definition of 'failing firm' to discourage the corporatization of the media.

The Holy Grail Of Corporate Governance Reform: Independence Or Democracy?, Elizabeth Cosenza

BYU Law Review

No abstract provided.

Pandora's Ballot Box, Or A Proxy With Moxie? The Majority Voting Amendment To Delaware Corporate Law, John Verret

ExpressO

The Delaware General Assembly has recently adopted an amendment to the Delaware General Corporation Law which provides that where shareholders have adopted a majority voting bylaw for corporate elections over the traditional plurality scheme, a corporation may not subsequently amend its bylaws to return to plurality voting without shareholder approval. I will compare this provision to other approaches and try to explain the reasons underlying its adoption. I will also briefly summarize the evolving shareholder empowerment debate and analyze the majority voting provision in the context of that discussion. I will describe some unique and unanticipated interactions between majority voting …

Controlling Family Shareholders In Developing Countries: Anchoring Relational Exchange, Ronald J. Gilson

ExpressO

The Law and Finance account of the ubiquity of controlling shareholders in developing markets is based on conditions in the capital market: poor shareholder protection law prevents controlling shareholders from parting with control out of fear of exploitation by a new controlling shareholder who acquires a controlling position in the market. This explanation, however, does not address why we observe any minority shareholders in such markets, or why controlling shareholders in developing markets are most often family-based. This paper looks at the impact of “bad law” on shareholder distribution in a very different way. Developing countries typically provide not only …