Business Organizations Law Commons^™

Shareholder Social Responsibility, David Millon

Seattle University Law Review

Amidst concerns about the negative effects on long-run value and competitiveness, one overlooked consequence of short-termism is its impediment to corporate social responsibility (CSR).In this Article, Part II examines the short-termism phenomenon, first from the point of view of investors and then from that of corporate managers, and summarizes widely held views about the social costs of short-termism. Part III then shifts the focus to the impact of shorttermism on CSR, a problem that has been largely overlooked, and develops two theories or models of CSR: the “ethical” and the “strategic.” Part III also explains how short-termism presents a significant …

The Financialization Of The U.S. Corporation: What Has Been Lost, And How It Can Be Regained, William Lazonick

Seattle University Law Review

As the U.S. economy struggles to recover from the Great Recession, the erosion of middle-class jobs and the explosion of income inequality have endured long enough to raise serious questions about whether the U.S. economy is beset by deep structural problems. My argument is that the employment problem that the United States now faces is largely structural. But the structural problem is not a labormarket mismatch between the skills that prospective employers want and the skills that potential workers have, as many economists have argued. Nor is the problem automation. Rather, the employment problem stems from changes in the ways …

The Modern Corporation Magnified: Managerial Accountability In Financial-Services Holding Companies, Anita K. Krug

Seattle University Law Review

This Article first recalls the primary contours of Adolf Berle and Gardiner Means’s acclaimed observations regarding the separation of ownership and control in the “modern corporation,” as well as their conclusions about the implications of those observations for the doctrine of shareholder primacy. Second, the Article describes how the activities of FSHCs generally differ from what we think corporations do and, certainly, from what Berle and Means conceived of as the purpose of corporations or, indeed, any business enterprise. Third, this Article articulates how those business activities render more acute the problem of the separation of ownership and control that …

Toward A More Resilient Financial System?, Joanna Gray

Seattle University Law Review

The concept of “resilience” in the context of financial systems calls for closer analysis, as most of the current efforts to reshape financial systems seek to render them more resilient. Resilience has become a necessary complement to the paradigm shift taking place in global financial regulation toward “macroprudential” regulation—a term used to describe a new viewing platform and decisionmaking plane for financial regulation. From this new perspective, regulators can address the state of the financial system as a whole, as well as its component parts. This Article seeks to illustrate how legal and regulatory measures that foster resilience have become …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

Seattle University Law Review

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

The Long Road Back: Business Roundtable And The Future Of Sec Rulemaking, Jill E. Fisch

Seattle University Law Review

The Securities and Exchange Commission (SEC or Commission) has faced a number of challenges in the last few years. Judge Rakoff’s decision in Citigroup, the Madoff scandal, and the Business Roundtable decision are just a few of the developments that have dealt lasting damage to the SEC’s reputation. Critics have scrutinized the agency’s decisionmaking on multiple fronts—from its enforcement policy to the quality of its rulemaking—and the SEC has largely come up short in the analysis. The once-revered top cop of the securities markets has taken a hit, and it is unclear whether it can recover. The Business Roundtable decision …

The Future Of Shareholder Democracy In The Shadow Of The Financial Crisis, Alan Dignam

Seattle University Law Review

This Article argues that the U.K. regulatory response to the financial crisis, in the form of “stewardship” and shareholder engagement, is an error built on a misunderstanding of the key active role shareholders played in the enormous corporate governance failure represented by the banking crisis. Shareholders’ passivity, rather than activity, has characterized the reform perception of the shareholder role in corporate governance. This characterization led to the conclusion that if only they were more active they would be more responsible “stewards” of the corporation. If, as this Article argues, shareholder activity was part of the problem in the banks, then …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Seattle University Law Review

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

The Market For Corporate Control: New Insights From The Financial Crisis In Ireland, Blanaid Clarke

Seattle University Law Review

In an ever-changing legal and economic environment, it is incumbent on us to subject all such premises to scrutiny in order to consider their continued application. This Article considers the effect of the MCC on the management of Irish credit institutions in the run-up to the financial crisis. Part II sets the background by explaining how the MCC has become an integral part of takeover regulation in Europe. The weaknesses in the efficient market hypothesis, which underlie the MCC and are summarized in Part III, appear not to have undermined the theory’s credibility in the minds of public policy makers …

Banking And Competition In Exceptional Times, Brett Christophers

Seattle University Law Review

This Article has two main aims: to provide a critical consideration of this contemporary antitrust “revival” from an explicitly political–economic perspective and to point toward some theoretical resources that might facilitate such an assessment.Part II looks backward at the evolution and application of competition law in the banking sector over the relatively longue durée. In this Part, I invoke the concept of “exception” to understand how antitrust policy has developed, and my chief interlocutors are the perhaps unlikely figures of Giorgio Agamben and Karl Marx. Part III looks forward and considers the central question around which the recent resurgence of …

Conceptions Of Corporate Purpose In Post-Crisis Financial Firms, Christopher M. Bruner

Seattle University Law Review

American “populism” has had a major impact on the development of U.S. corporate governance throughout its history. Specifically, appeals to the perceived interests of average working people have exerted enormous social and political influence over prevailing conceptions of corporate purpose—that is, the aims toward which society expects corporate decision-making to be directed. In this Article, I assess the impact of American populism upon prevailing conceptions of corporate purpose, contrasting its unique expression in the context of financial firms with that arising in other contexts. I then examine its impact upon corporate governance reforms enacted in the wake of the financial …

Shareholders And Social Welfare, William W. Bratton, Michael L. Wachter

Seattle University Law Review

This Article addresses the questions of whether and how shareholders matter for social welfare, finding that different and contrasting answers have prevailed during different periods of recent history. Observers in the mid-twentieth century believed that the socioeconomic characteristics of real-world shareholders were highly pertinent to social welfare inquiries. But those observers went on to conclude that there followed no justification for catering to shareholder interest, for shareholders occupied elite social strata. The answer changed during the twentieth century’s closing decades, when observers came to accord the shareholder interest a key structural role in the enhancement of economic efficiency even as …

Central Bank-Led Capitalism?, Andrew Bowman Et Al.

Seattle University Law Review

Since the first acute episode of financial crisis in autumn 2008, the world has manifestly changed in dramatic ways that reinforce skepticism and challenge the old assumptions of political economy. Hence this Article about central banks, whose pivotal role in post-crisis capitalism has not been adequately politically or theoretically addressed in any existing literature and can now be opened up by a conjunctural analysis that recognises uncertainty and mutability. There are several reasons why this is an intellectually and politically interesting task. Central banks have become an object of controversy and public attention after being pivotally involved in crisis management, …

Making Money: Leverage And Private Sector Money Creation, Margaret M. Blair

Seattle University Law Review

Contrary to the beliefs of most macroeconomists, the financial sector in the United States has grown too large in the last few decades as a consequence of financial innovation that has encouraged the use of too much “leverage” (financing with debt) by financial institutions (as well as by consumers and other borrowers). In Part II, I connect the dots between excessive leverage, risk, and financial market volatility. In Part III, I explore the role that the “shadow-banking sector” has had in driving leverage. In Part IV, I explain why leverage at the level of financial institutions matters for the macroeconomy. …

The Governance And Disclosure Of The Firm As An Enterprise Entity, Yuri Biondi

Seattle University Law Review

During recent decades, the rapid pace of financial markets involving new modes of management, governance, and regulation has framed business firms. This corporate drift toward financialization is summarized under the “shareholder value” label. What do financial markets do? Unequivocally, they organize trading on shares that are securities: tradable financial entitlements established by law, which formalize expectations, and claims of financial rents paid by the issuing company. Actually, how continued quotation on share exchanges came to be the barometer of economic or social welfare is a different matter. The latter adoption has required quite a great leap from “the euthanasia of …

Rationales And Designs To Implement An Institutional Big Bang In The Governance Of Global Finance, Emilios Avgouleas

Seattle University Law Review

The colossal challenges facing international finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC), a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes that would allow banks to fail more easily, and stricter frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to …

Framing Address: A Framework For Analyzing Financial Market Transformation, Steven L. Schwarcz

Seattle University Law Review

The title of this Symposium originally was “Rethinking Financial and Securities Markets.” It is, of course, somewhat presumptuous for scholars to try to rethink financial markets per se. Markets, including financial markets, are driven primarily by supply and demand. But scholars can and should try to influence the future of financial markets by rethinking their fundamental aspects. This Symposium presents work from leading scholars in the fields of law, economics, finance, and accounting. I will try to frame the discussion from the perspectives of these four disciplines. First, however, we need to identify what it is about financial markets that …

Inequities In Corporate And Securities Law: Disabling The Exploitative Chinese Corporation And Charting A Path To International Commercial Accountability, Jonathan P. Schmidt

San Diego International Law Journal

This article seeks to illuminate these issues and provide a roadmap for the U.S. federal and state legislatures to come together to protect the U.S. investor from the type of accounting fraud and stock misinformation that was the impetus behind enacting the Sarbanes-Oxley Act of 2002. First, this article will discuss the legal backdrop and legislative policy behind U.S. laws such as SOX and its enforcement mechanisms, and the ability for shareholders to bring securities class action derivative actions for financial fraud. This article will also discuss trade secrets laws, criminal extradition treaties, international enforcement of judgments, and elucidate the …

The Potential Cost And Value Of Erm, Michelle M. Harner

Faculty Scholarship

The concept of enterprise risk managment (ERM) as a holistic approach to managing a company's risk profile has tremendous appeal. However, companies are frequently skeptical about its value and whether the results will justify the cost, effort, and challenges of implementing a meaningful ERM process. This report considers some of those concerns and highlights the governance, compliance, and cultural value of ERM.

New Corporate Forms And Green Business, Antony Page

William & Mary Environmental Law and Policy Review

You want to start a business: not just an ordinary business, producing ordinary social benefit, but a dual-mission business that will both make a profit and benefit the environment. This green business, you expect, will sometimes face trade-offs between the missions, in the sense that sometimes owners’ wealth and profit will have to be sacrificed to pursue environmental benefits. You’re optimistic, in that you hope the business will find outside investors and will scale up easily. Moreover, you don’t want to lie or even dissemble about your motives or about the business’s actions. You want to be both authentic and …

Methods For Multicountry Studies Of Corporate Governance (And Evidence From The Brikt Countries), Bernard S. Black, Antonio Gledson De Carvalho, Vikramaditya Khanna, Woochan Kim, B. Burcin Yurtoglu

Law & Economics Working Papers

We discuss the perils in multicountry studies of corporate governance (CG), focusing on emerging markets. The existing studies are massively multicountry studies, which cover many firms across many countries, but rely on the same limited governance elements in each countries, have few firm-level control variables, and use pure-cross-sectional data. This paper discusses the severe data and construct validity issues in these studies, proposes methods to respond to those issues, and applies those methods through a study of five major emerging markets (Brazil, India, Korea, Russia, and Turkey). We develop unique time-series datasets on governance in each country. We address construct …

Level Up: Employing The Commerce Clause To Federalize The Sale Of Goods, Jennifer Camero

San Diego Law Review

This Article argues that rather than wait until the defects become insurmountable, we should act now to address the defects in the law of sales and enact a federal sales act to supplant Article 2 using congressional power under the Commerce Clause. Part II details the defects of Article 2 that are in need of repair, which include creating inconsistent results across the states, failing to adapt to changing trends in our modern commercial environment, and utilizing a private drafting process that fails to balance the competing interests of businesses and consumers. Part II then demonstrates that the current uniform …

Legal Entities As Transferable Bundles Of Contracts, Kenneth Ayotte, Henry Hansmann

Michigan Law Review

The large, modern business corporation is frequently organized as a complex cluster of hundreds of corporate subsidiaries under the common control of a single corporate parent. Our Article provides new theory and supportive evidence to help explain this structure. We focus, in particular on the advantages of subsidiary entities in providing the option to transfer some or all of the firm's contractual rights and obligations in the future. The theory not only sheds light on corporate subsidiaries but also illuminates a basic function of all types of legal entities, from partnerships to nonprofit corporations. We show that when, as is …

Stop Being Evil: A Proposal For Unbiased Google Search, Joshua G. Hazan

Michigan Law Review

Since its inception in the late 1990s, Google has done as much as anyone to create an "open internet." Thanks to Google's unparalleled search algorithms, anyone's ideas can be heard, and all kinds of information are easier than ever to find. As Google has extended its ambition beyond its core function, however it has conducted itself in a manner that now threatens the openness and diversity of the same internet ecosystem that it once championed. By promoting its own content and vertical search services above all others, Google places a significant obstacle in the path of its competitors. This handicap …

The End Of Shareholder Litigation? Allowing Shareholders To Customize Enforcement Through Arbitration Provisions In Charters And Bylaws, Paul Weitzel

BYU Law Review

Shareholder litigation has been heavily criticized for its inability to compensate harmed shareholders or deter managerial misconduct. While some have suggested abolishing shareholder litigation altogether, this Article takes a more moderate approach. I propose allowing shareholders to enforce charter and bylaw provisions that require arbitration of certain disputes. For example, an acquisitive company may require arbitration of merger-related suits while allowing non-merger suits to proceed in court. Likewise, a company in an industry known for volatile stock prices could require a price drop of three or four standard deviations before the suit could be brought in court, rather than arbitration. …

Nonmarket Values In Family Businesses, Benjamin Means

William & Mary Law Review

Despite the economic importance of family businesses, legal scholarship has often overlooked their distinctive character. Instead, scholars focus on the chosen form of business organization— partnership, corporation, LLC—and assume that the participants are economically rational actors who seek to maximize their individual preferences. This Article contends that family businesses are extensions of family relationships and that nonmarket values affect their goals and governance choices.

Just as family law scholars have shown that contract principles can be applied to regulate intimate relationships, corporate law scholars should recognize that the intimacy of family life often substitutes for arm’s length bargaining in family …

A Reconsideration Of The Shareholder's Remedy For Oppression In Singapore, Pearlie Koh

Research Collection Yong Pung How School Of Law

The statutory remedy for oppression plays an important role in minority shareholder protection in Singapore. Both the scope of its application and the court's jurisdiction to make remedial orders must necessarily be wide in order for the remedy to be effective. Nevertheless, the remedy is not without limits. Indeed, it is crucial that the boundaries of the remedy be made clear so that legitimate rule of the majority is not too often, and erroneously, equated with tyranny by the majority. This paper considers a number of issues as to the scope of the oppression remedy in Singapore through a careful …

First Bank Of Boston V. Bellottii, Corporations Right To Political Speech, Paul J. Zwier

Pepperdine Law Review

No abstract provided.

Should The Us Dictate World Tax Policy? Reflections On Ppl, Reuven S. Avi-Yonah

Articles

The U.S. Supreme Court’s decision to grant certiorari in PPL offers it a unique opportunity to change the law regarding foreign tax credits that has significantly impeded the ability of other countries to engage in meaningful tax reform. In 1938 the Court said in dicta that to qualify for the FTC a tax had to be an income or excess profits tax (or a tax imposed in lieu thereof) under U.S. tax principles. This statement has led to an elaborate set of regulations defining what is an income tax, which has significantly hampered the ability of foreign countries to adopt …

Executive Compensation And Income Inequality, Daniel J. Morrissey

William & Mary Business Law Review

This Article explores the connection between exorbitant executive compensation and the growing income inequality in our country. It discusses the traditional legal attempts to rein in corporate remuneration as well as the more recent “Say-on-Pay” right given to shareholders in the Dodd-Frank Wall Street Reform Act of 2010. The Article concludes that negative stockholder votes can be evidence that directors have breached their fiduciary duties by granting overly generous pay hikes to their top officials.