Business Organizations Law Commons^™

A Model Company Act And A Model Company Court, Ronald J. Gilson

Faculty Scholarship

This paper is a contribution to a symposium on the European Model Company Act ("EMCA ") in which I argue that a model company court powerfully complements the EMCA. A particular characteristic of company law complicates the intermediating role of a model act in a federal system. Because complex corporate transactions inevitably are associated with significant uncertainty, especially when they present conflicts of interest, transaction designers and legislative drafters tend to frame applicable contractual and legal rules as standards, such as fairness and equal treatment, rather than as rules. In turn, the effectiveness of a standard in the face of …

Corporate Governance Changes As A Signal: Contextualizing The Performance Link, Merritt B. Fox, Ronald J. Gilson, Darius Palia

Faculty Scholarship

Promoting “good” corporate governance has become an important concern. One result has been the creation of indexes that purport to measure the quality of a firm’s corporate governance structure. Prior scholarship reports a positive relationship between firms with good corporate governance index ratings and stock-price-based measures of a firm’s ability to create share value, such as Tobin’s Q. Little work, however, explores why we observe this relationship.

We hypothesize one reason for the relationship is that a rating-altering change in corporate governance structure can be a signal concerning the quality of a firm’s management. Changes in governance structures that result …

The New Business Rule And Compensation For Lost Profits, Victor P. Goldberg

Faculty Scholarship

For many years most American jurisdictions applied the “new business” rule, denying recovery of lost profits for new businesses. The majority position today rejects the per se rule, treating the issue as a rule of evidence — lost profits must be proved with “reasonable certainty.” This paper argues that the new business rule ought not be viewed as merely a matter of whether the evidence is sufficient to surmount the “reasonable certainty” hurdle. The confusion arises because courts have lumped together a number of different problems. By breaking these out, a more nuanced picture emerges. For one category, in particular, …

Preserving The Corporate Superego In A Time Of Activism: An Essay On Ethics And Economics, John C. Coffee Jr.

Faculty Scholarship

This essay focuses on the impact of recent changes in corporate governance on ethical behavior within the public corporation. It argues that a style of corporate behavior – one characterized by a risk tolerant, even reckless, pursuit of short-term profits and a disregard for the interests of non-shareholder constituencies – is attributable in significant part to recent changes in corporate governance, including the rise of hedge fund activism, greater use of incentive compensation, and the appearance of blockholder directors. It then surveys feasible responses intended to strengthen the role of the boards as the corporation’s conscience and superego. Given the …

A Machine Learning Classifier For Corporate Opportunity Waivers, Gabriel V. Rauterberg, Eric L. Talley

Faculty Scholarship

Rauterberg & Talley (2017) develop a data set of “corporate opportunity waivers” (COWs) – significant contractual modifications of fiduciary duties – sampled from SEC filings. Part of their analysis utilizes a machine learning (ML) classifier to extend their data set beyond the hand-coded sample. Because the ML approach is likely unfamiliar to some readers, and in the light of its great potential across other areas of law and finance research, this note explains the basic components using a simple example, and it demonstrates strategies for calibrating and evaluating the classifier.

Bringing International Tax Policy Into The 21st Century, Michael J. Graetz

Faculty Scholarship

Michael J. Graetz delivered the following remarks at the Tax Policy Center's "A Corporate Tax for the 21st Century" conference on July 14 in Washington. These remarks are substantially taken from his April 2015 Ross Parsons Lecture at the University of Sydney Law School.

Integration Of Corporate And Shareholder Taxes, Michael J. Graetz, Alvin C. Warren

Faculty Scholarship

Integration of the corporate and individual income taxes can be achieved by providing shareholders a credit for corporate taxes paid with respect to corporate earnings distributed as dividends. When such integration was previously considered in the U.S., proponents emphasized that it could reduce or eliminate many of the familiar distortions of a classical corporate income tax. Integration would also provide a framework for addressing current concerns for tax incentives for U.S. companies to shift income to foreign affiliates in lower-taxed countries or to expatriate in "inversion" transactions. A recent Congressional proposal for a corporate dividend deduction coupled with withholding on …

Impact Investing As A Form Of Lobbying And Its Corporate-Governance Effects, Andrzej Rapaczynski

Faculty Scholarship

Impact investment is attractive to many because it seems to combine support for progressive causes with an apparent commitment to the principles of a market economy. In fact, however, a rational impact investor is not simply creating demand for certain types of corporate actions; he/she is attempting to use corporate governance mechanisms to influence fiduciary decisions of the management. The cost of this tactic for the health of the capitalist economy is potentially very considerable. The American capitalist system relies heavily on a relatively fragile corporate governance arrangement in which the agency problems of a modern corporation are minimized by …

The Underground Rulification Of The Ordinary Business Operations Exclusion, Reilly S. Steel

Faculty Scholarship

In its landmark Cracker Barrel no-action letter, the SEC staff an­nounced a bright-line rule permitting exclusion of any shareholder pro­posal pertaining to a company’s management of its general workforce, even if focused on a significant social policy issue such as employment discrimination, under the “ordinary business operations” exclusion. The SEC reversed Cracker Barrel in 1998, returning to a case-specific approach to determining whether proposals fall under the exclusion. This Note examines 250 no-action letters from the 2015 proxy season and finds evidence indicating that the staff has, contrary to official SEC policy, returned to a rule-like approach to the ordinary …

The Corporation's Place In Society, Gabriel Rauterberg

Faculty Scholarship

The vast majority of economic activity is now organized through corporations. The public corporation is usurping the state’s role as the most important institution of wealthy capitalist societies. Across the developed world, there is increasing convergence on the shareholder-owned corporation as the primary vehicle for creating wealth. Yet nothing like this degree of convergence has occurred in answering the fundamental questions of corporate capitalism: What role do corporations serve? What is the goal of corporate law? What should corporate managers do? Discussion of these questions is as old as the institutions involved.

On Maximizing Deterrence Per Dollar: Thoughts Inspired By Peter Reilly, Andrew B. Spalding

Law Faculty Publications

Professor Peter Reilly addresses concerns that practitioners in this space have privately and publicly debated for years. What exactly is cooperation credit? Can we quantify it? The government promises that self-reporting is in our self-interest, but the government’s interest in saying so is obvious enough. What evidence can the government provide?

The difficulty of measuring this credit is somewhat ironic, given the government’s dependence on cooperation. As this essay will show, our modern enforcement regime, which has four components—the internal or independent investigation, voluntary disclosure, cooperation credit, and a negotiated settlement—is the government’s method of maximizing general deterrence with finite …

The New Public, Sarah Seo

Faculty Scholarship

By exploring the intertwined histories of the automobile, policing, criminal procedure, and the administrative state in the twentieth-century United States, this Essay argues that the growth of the police’s discretionary authority had its roots in the governance of an automotive society. To tell this history and the proliferation of procedural rights that developed as a solution to abuses of police discretion, this Essay examines the life and oeuvre of Charles Reich, an administrative-law expert in the 1960s who wrote about his own encounters with the police, particularly in his car. The Essay concludes that, in light of this regulatory history …

Provisions Denying A Deduction For Illegal Expenses And Expenses Of An Illegal Business Should Be Repealed, Douglas A. Kahn, Howard Bromberg

Articles

Currently, the tax law denies a deduction for business expenses that violate a federal or state law (but only if the state law is generally enforced). In addition, losses, including business losses, cannot be deducted if they arise out of an illegal activity. For example, medical expenses are denied a deduction if they are illegal. Kickbacks, bribes, and rebates given in connection with the Medicaid or Medicare program are nondeductible. Any expenses, legal or not, incurred in connection with the conduct of a business of selling a controlled substance that is prohibited by federal law (or by the law of …

The Role Of Corporate Governance In Curbing Foreign Corrupt Business Practices, Poonam Puri, Andrew Nichol

Osgoode Legal Studies Research Paper Series

The role of corporate and securities laws in addressing foreign corrupt business practices has, to date, received limited consideration. Departing from the substantial literature on the criminal and public law response to international corruption, the authors analyze Canada’s Corruption of Foreign Public Officials Act in comparison with British and American legislation and conclude that the Canadian regime relies too heavily on the use of criminal sanctions and fails to contemplate the role of behaviour modification in its legislative structure. Recognizing that multinational corporations are well placed to identify, expose and prevent corrupt business practices, the authors propose a private law …

The Duty Of Corporate Directors To Tie Executive Compensation To The Long-Term Sustainability Of The Firm, Alberto Salazar, Muthana Mohamed

Osgoode Legal Studies Research Paper Series

Executive compensation is said to be for performance and, in liberal market economies, the board of directors along with compensation committees have largely been in charge of safeguarding pay for performance. This executive compensation system is legally protected by the business judgment rule (a strong judicial deference) and has recently been supplemented with shareholders’ ‘say on pay’. Further legal or government intervention has been deemed unnecessary. However, such system has resulted in extremely excessive executive compensation, outrageous pay disparities between executives and workers, poor or short-term performance, recurrent corporate failures and economic recession. This paper explores the need for a …

Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner

Indiana Law Journal

Corporate directors committed to a failed business strategy or unduly influenced by the company’s debtholders need a dissenting voice—they need shareholder nominees on the board. This Article examines the biases, conflicts, and external factors that impact board decisions, particularly when a company faces financial distress. It challenges the conventional wisdom that debt disciplines management, and it sug-gests that, in certain circumstances, the company would benefit from having the shareholders’ perspective more actively represented on the board. To that end, the Article proposes a bylaw that would give shareholders the ability to nominate direc-tors upon the occurrence of predefined events. Such …

The Enduring Ambiguities Of Antitrust Liability For Worker Collective Action, Sanjukta M. Paul

Law Faculty Research Publications

No abstract provided.

Llcs And The Private Ordering Of Dispute Resolution, Peter Molk, Verity Winship

UF Law Faculty Publications

An emerging question in U.S. business law is how the organizational documents of a business entity set the rules for resolving internal disputes. This practice is routine in commercial contracts, which may specify where or how disputes must be resolved. Recent use of litigation provisions in corporation charters and bylaws have sparked controversy, ultimately leading to legislative action to preserve shareholder suits from contractual waiver. Yet despite accounting for the majority of business organizations and sharing features with corporations, non-corporate business entities and their internal dispute resolution process have been largely ignored. How do these non-corporate entities set ex ante …

Panel Introduction

American University Business Law Review

No abstract provided.

Welcome To The Space Jam: How United States Regulators Should Govern Google And Facebook's New Internet Providing High Altitude Platforms, George V. John

American University Business Law Review

No abstract provided.

Fathoming Potential In China—How Ship Lease Financing Arrangements And Free Trade Zones May Open Markets To Non-Bank Investent, Rick Beaumont

American University Business Law Review

No abstract provided.

Business, Human Rights And The Iba Climate Justice Report, Sara Seck, Michael Slattery

Articles, Book Chapters, & Popular Press

The 2014 Climate Justice Report by the International Bar Association (IBA) makes many recommendations designed to contribute to the fight against climate change. One important step forward is its explicit recognition of the responsibility of business to respect human rights affected by climate change. This commentary explores the extent to which the IBA’s approach to this issue aligns with the business responsibility to respect human rights as described in the 2011 United Nations Guiding Principles on Business and Human Rights. The commentary also considers other international standards that incorporate business responsibilities for human rights in order to determine whether sufficient …

The Wolf At The Door: The Impact Of Hedge Fund Activism On Corporate Governance, John C. Coffee Jr., Darius Palia

Faculty Scholarship

Hedge fund activism has recently spiked, almost hyperbolically. No one disputes this, and most view it as a significant change. But, their reasons differ. Some see activist hedge funds as the natural champions of dispersed and diversified shareholders, who are less capable of collective action in their own interest. A key fact about activist hedge funds is that they are undiversified and typically hold significant stakes in the companies that comprise their portfolios. Given their larger stakes and focused holdings, they are less subject to the “rational apathy” that characterizes more diversified and even indexed investors, such as pension and …

Back To 1913?: The Ryan Blueprint And Its Problems, Reuven S. Avi-Yonah

Articles

From the Revolutionary War to the late 19th century, the federal government was financed primarily through regressive tariffs on imported goods. The exception was the income tax enacted during the national emergency of the Civil War, which was allowed to expire in 1872. The rise of an industrial economy in the post- Civil War era led to significant increases in inequality, which the tariffs exacerbated by falling primarily on the working class. ‘‘Robber barons’’ like J.P. Morgan, Andrew Carnegie, and John D. Rockefeller did not consume most of their income, and their intangible wealth avoided state-level personal property taxes as …

Full Circle? The Single Tax Principle, Beps, And The New Us Model, Reuven S. Avi-Yonah

Articles

This paper will argue that while there is some innovation in BEPS, it is in fact more of a continuation that a sharp break with the past. Like Alexis de Tocqueville’s French Revolution, BEPS represents both continuity and change. In particular, the single tax principle has formed the theoretical basis of much of the international tax regime from the beginning. And it is in fact this continuity rather than any sharp change that gives the final BEPS package its promise to, as Secretary General Gurria also promised, “put an end to double non-taxation.”

"Special," Vestigial, Or Visionary? What Bank Regulation Tells Us About The Corporation - And Vice Versa, Robert C. Hockett, Saule T. Omarova

Cornell Law Faculty Publications

A remarkable yet seldom noted set of parallels exists between modern U.S. bank regulation, on the one hand, and what used to be garden-variety American corporate law, on the other hand. For example, just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in limited, enumerated activities even to- day, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all corporations not long ago.

In …

Wealth Inequality And Family Businesses, Benjamin Means

Faculty Publications

Wealth inequality endangers democratic values and calls for a public response. This Article contends that family businesses merit special scrutiny because they control vast amounts of private wealth and combine two of society's most important economic institutions: family and business. Accordingly, family businesses implicate concerns regarding both inherited wealth and the concentration of economic power made possible by the corporate form.

Despite their economic significance, little has been done to investigate whether family businesses contribute to wealth inequality. This Article offers the first legal, and one of the only academic, treatments of the topic and shows that family businesses play …

Shareholder Political Primacy, Jay B. Kesten

Scholarly Publications

Corporate political activity raises an important and difficult question of corporate law: who decides when the corporation should speak and what it should say? In several cases, the Supreme Court has provided a clear answer: shareholders, acting through the procedures of corporate democracy. While this holding has attracted substantial academic and public criticism, there has been no sustained evaluation (beyond identifying the potential agency costs of corporate political activity) of the possibility that the Supreme Court's appeal to the fraught concept of "corporate democracy," though woefully under-theorized, might be the best allocation of power in the limited context of corporate …

Startups And Unmet Legal Needs, Alice Armitage, Evan Frondorf, Christopher Williams, Robin Feldman

Utah Law Review

Our survey results demonstrate that startup companies are exposed to a wide variety of legal needs from an early stage: when attorneys associated with the Startup Legal Garage were asked to handle a company’s most pressing legal needs, the average startup received assistance with over three distinct legal matters over the course of a thirteen-week academic semester. These issues often spanned multiple categories. Although matters frequently touched on a variety of topics within companies, strong similarities emerged in the types of issues faced by all startups in our sample. Almost 90% of the legal matters addressed by Startup Legal Garage …

Altering Rules, Cumulative Voting, And Venture Capital, John F. Coyle

Utah Law Review

Legal scholars have long debated the proper balance betweenmandatory and default rules in corporate law. One group — the contractarians — maintain that corporatelaw should function as an off-the-rack set of default rules that approximate, as much as possible,the rules that the transacting parties would have agreed to if bargaining were costless. The contractarians are generally skeptical of mandatory rules because they interfere with the ability of the parties to decide for themselves how to organize their economic relationships. Another group of scholars—the anti - contractarians — have argued that corporate law should seek to achieve certain regulatory objectives separate …