Business Organizations Law Commons^™

A Mission Statement For Mutual Funds In Shareholder Litigation, Sean J. Griffith, Dorothy S. Lund

Faculty Scholarship

This Article analyzes the conduct of mutual funds in shareholder litigation. We begin by reviewing the basic forms of shareholder litigation and the benefits such claims might offer mutual fund investors. We then investigate, through an in-depth docket review, whether and how the ten largest mutual funds participate in shareholder litigation. We find that although shareholder suits offer potential benefits, the largest mutual funds have essentially forfeited their use of litigation. This finding is particularly striking given that index funds and other long-term oriented mutual funds generally cannot sell their shares when they are dissatisfied with company performance, leaving them …

The Essential Roles Of Agency Law, Gabriel Rauterberg

Faculty Scholarship

This Article suggests a fundamental shift in how we think about agency The essential function of agency law lies not only in enabling the delegation of authority, as is widely suggested, but as significantly in its effect on creditors’ rights through asset partitioning There is an increasing temptation in legal scholarship to treat agency law as a sideshow confined to the first day of corporations class This is because much of what agency law does in commerce could simply be accomplished through standard-form contracts that provide default terms for the relationships among firms, their managers, and third parties Even agency’s …

Long-Term Bias, Eric L. Talley, Michal Barzuza

Faculty Scholarship

An emerging consensus in certain legal, business, and scholarly communities maintains that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects. The forces inducing managerial myopia are easy to spot, typically embodied by activist hedge funds and Wall Street gadflies with outsized appetites for next quarter’s earnings. Warnings about the dangers of “short termism” have become so well established, in fact, that they are now driving changes to mainstream practice, as courts, regulators and practitioners fashion legal and transactional constraints designed to insulate firms and managers from the influence of investor short-termism. This …

Taking Compliance Seriously, John Armour, Jeffrey N. Gordon, Geeyoung Min

Faculty Scholarship

How can we ensure corporations play by the “rules of the game” – that is, laws encouraging firms to avoid socially harmful conduct? Corporate compliance programs play a central role in society’s current response. Prosecutors give firms incentives – through discounts to penalties – to implement compliance programs that guide and monitor employees’ behavior. However, focusing on the incentives of firms overlooks the perspective of managers, who decide how much firms invest in compliance.

We show that stock-based pay, ubiquitous for corporate executives, creates systematic incentives to short-change compliance. Compliance is a long-term investment for firms, whereas managers’ time horizon …

Picking The Low-Hanging Fruit: A Short Essay For Michael Klausner, Ronald J. Gilson

Faculty Scholarship

The articles that comprise this issue of the Journal of Corporation Law were first presented at a conference held at the Wharton School and co-sponsored by Wharton together with Columbia and Stanford Law Schools. The event was organized by my friend Peter Conti-Brown, to whom I am grateful for both the thought and the effort. Standing alone, the thought that the conference was warranted would have been extremely generous. However, anyone who has organized a conference knows that the idea for such events can be exciting, but what follows is an amount of work that had it been anticipated would …

Innovation Versus Encrustation: Agency Costs In Contract Reproduction, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

This article studies the impact of exogenous legal change on whether and how lawyers across four different deal types revise their contracts’ governing law clauses in order to solve the problem that the legal change created. The governing law clause is present in practically every contract across a wide range of industries and, in particular, it appears in deals as disparate as private equity M&A transactions and sovereign bond issuances. Properly drafted, the clause increases the ex ante economic value of the contract to both parties by reducing uncertainty and litigation risk. We posit that different levels of agency costs …

Enhancing Efficiency At Nonprofits With Analysis And Disclosure, David M. Schizer

Faculty Scholarship

The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature.

First, this Article …

The Limited Effect Of “Maximum Effect”, Daniel S. Kleinberger, Douglas K. Moll

Faculty Scholarship

No abstract provided.

The Proceduralist Inversion–A Response To Skeel, Edward Janger, Adam J. Levitin

Faculty Scholarship

No abstract provided.

The Information Shortfalls Of Prosecuting Irresponsible Executives, Miriam H. Baer

Faculty Scholarship

No abstract provided.

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

Faculty Scholarship

No abstract provided.

Prosecuting Foreign Bribery In National Projects: A Multi-Phased Approach To Reduce Corruption, Julia E. Johnson

American University Business Law Review

The gradual establishment of an international mechanism to review and prosecute allegations of corruption could help to deter fraudulent conduct. Fraudulent conduct often reduces the economic benefits associated with large-scale development or investment projects. These projects are generally awarded through contract bidding; the bidding outcome may be dictated by bribery and other corrupt behaviors by local officials overseeing the project. The money earmarked for the project may in turn be siphoned off to the bribe recipients for private gain, leaving citizens unable to appreciate the fruits of any such project. For this reason, reducing corruption should remain a key priority. …

Doubling Down On A Billion Dollar Blind Spot: Women Business Owners And Tax Reform, Caroline Bruckner

American University Business Law Review

No abstract provided.

The United Postal Service—The One Word That Makes All The Difference, Jena Martin, Matthew Titolo

Law Faculty Scholarship

In recent months, the United States Postal Service (USPS) has taken center stage on a number of intersecting issues in our society: the pandemic; the upcoming election (through mail-in voting) and the controversy surrounding the appointment of Louis DeJoy to the position of Postmaster General. President Donald Trump has frequently made derogatory remarks regarding the Postal Service, calling it a “joke,” and has made repeated statements encouraging its privatization. However, President Trump’s rhetoric (as well as the rhetoric of others before him) obfuscates the critical mission of the USPS – to provide service to every American in the country; not …

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

Faculty Publications By Year

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 …

Leaders Are Not Fiduciaries, Kelli Alces Williams

Scholarly Publications

Leaders have long been described as fiduciaries because they are entrusted with the power to make decisions that significantly affect the lives and welfare of others. While trustworthiness is an admirable and necessary quality in a leader, fiduciary doctrine describes neither the bounds of a leader's behavior nor the protections enjoyed by the governed Fiduciary doctrine does not occupy the field of trusting relationships. Leaders sell both the goals and priorities thy will pursue in their positions and their own trustworthiness - that is, the combination of ability, integrity, and benevolence they bring to the task. In order to win …

The Race To The Middle, William Magnuson

Faculty Scholarship

How does federalism affect the quality of law? It is one of the fundamental questions of our constitutional system. Scholars of federalism generally fall into one of two camps on the question. One camp argues that regulatory competition between states leads to a “race to the bottom,” in which states adopt progressively worse laws in order to pander to powerful constituencies. The other camp, conversely, argues that regulatory competition leads to a “race to the top,” incentivizing states to adopt progressively better laws in the search for more desirable outcomes for their constituencies. Despite their apparent differences, however, both the …

A Relational Analysis Of Enterprise Obligations And Carbon Majors For Climate Justice, Sara L. Seck

Articles, Book Chapters, & Popular Press

A coherent theory of climate justice must answer the question of “who owes what to whom, and why?” In this paper I consider this question with a focus on the contribution of business enterprises, in particular the ‘carbon majors’, to climate injustice. I will first introduce a relational approach to legal analysis, drawing upon the work of feminist and vulnerability theorists, Indigenous feminist theorists, and feminist corporate and international law theorists. This relational approach confronts the dominant yet unacknowledged prevalence of the bounded autonomous individual of liberal thought in diverse areas of law and policy, and offers a method not …

The Theorized Relationship Between Organizational (Non)Compliance With The United Nations Guiding Principles On Human Rights And Desired Employee Workplace Outcomes, Magda B. L. Donia, Salvador Herencia Carrasco, Sara L. Seck, Robert Mccorquodale, Sigalit Ronen

Articles, Book Chapters, & Popular Press

Despite the presence of guiding legislation such as the United Nations Guiding Principles, respect for human rights is subject to the conscience of organizational actors. Given that some transnational corporations are more powerful than nation states, they play an important role in the economies in which they operate, often with far-reaching impact on the labor conditions and human rights protections within these countries. In the current global context, respect for human rights may be undermined when organizational decision-makers are tempted to ignore unethical practices due to considerations such as competition and short-term financial incentives. We propose that the higher standards …

Bankruptcy’S Role In The Covid-19 Crisis, Edward R. Morrison, Andrea C. Saavedra

Faculty Scholarship

Policymakers have minimized the role of bankruptcy law in mitigating the financial fallout from COVID-19. Scholars too are unsure about the merits of bankruptcy, especially Chapter 11, in resolving business distress. We argue that Chapter 11 complements current stimulus policies for large corporations, such as the airlines, and that Treasury should consider making it a precondition for receiving government-backed financing. Chapter 11 offers a flexible, speedy, and crisis-tested tool for preserving businesses, financing them with government funds (if necessary), and ensuring that the costs of distress are borne primarily by investors, not taxpayers. Chapter 11 saves businesses and employment, not …

Nascent Competitors, C. Scott Hemphill, Tim Wu

Faculty Scholarship

A nascent competitor is a firm whose prospective innovation represents a serious threat to an incumbent. Protecting such competition is a critical mission for antitrust law, given the outsized role of unproven outsiders as innovators and the uniquely potent threat they often pose to powerful entrenched firms. In this Article, we identify nascent competition as a distinct analytical category and outline a program of antitrust enforcement to protect it. We make the case for enforcement even where the ultimate competitive significance of the target is uncertain, and explain why a contrary view is mistaken as a matter of policy and …

The Curse Of Bigness: New Deal Supplement, Tim Wu

Faculty Scholarship

This is a supplement to the book, The Curse of Bigness: Antitrust in the New Gilded Age. It covers the years between 1920 - 1945, with a focus on the New Deal, and represents material left out of the original book.

It is meant to be read together with the larger volume, but can also be read separately.

For Coöperation And The Abolition Of Capital, Or, How To Get Beyond Our Extractive Punitive Society And Achieve A Just Society, Bernard E. Harcourt

Faculty Scholarship

In hindsight, the term "capitalism" was always a misnomer, coined paradoxically by its critics in the nineteenth century. The term misleadingly suggests that the existence of capital produces a unique economic system or that capital itself is governed by economic laws. But that's an illusion. In truth, we do not live today in a system in which capital dictates our economic circumstances. Instead, we live under the tyranny of what I would call "tournament dirigisme": a type of state-directed gladiator sport where our political leaders bestow spoils on the wealthy, privileged elite.

We need to displace this tournament dirigisme with …

Board Compliance, John Armour, Brandon L. Garrett, Jeffrey N. Gordon, Geeyoung Min

Faculty Scholarship

What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulations. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic problems. Both case law on boards’ fiduciary duties and guidance from prosecutors suggest that the board should have a continuing role in overseeing compliance activity. Yet very little is actually known about the role of boards in compliance. This paper offers the first empirical account of public companies’ engagement with compliance …

Notice Risk And Registered Agency, Andrew K. Jennings

Faculty Articles

To sue a firm is to sue an artificial person, making the most reliable service method—physically handing papers to the defendant—unusable. This problem illustrates notice risk: if a plaintiff’s service obligations are loose, it is advantaged (because the defendant may never receive notice), whereas if they are strict, the defendant is advantaged (because the plaintiff may struggle to effect service). For litigation involving corporate defendants, civil procedure and corporate law mitigate this problem through a technology for managing notice risk: registered agency. A firm using this technology, because it cannot be served directly, appoints an agent who will accept papers …

The Fallacy Of Director Independence, Yaron Nili

Faculty Scholarship

Director independence has become a key cornerstone of the contemporary corporate governance landscape. Over the past few decades, the composition of public firms’ boards of directors in the United States has changed dramatically, shifting towards an increased reliance on directors labeled as “independent.” Courts, regulators, and investors have come to increasingly rely on these independent directors and have made their presence on boards a priority.

However, despite the increased attention, the current system of selecting, anointing, and ensuring director independence is laden with gaps. This Essay highlights three key issues with the current independence framework. First, the current designation and …

Horizontal Directors, Yaron Nili

Faculty Scholarship

Directors wield increasing influence in corporate America, making pivotal decisions regarding corporate affairs and management. A robust literature recognizes directors’ important role and examines their incentives and performance. In particular, scholars have worried that “busy directors”—those who serve on multiple corporate boards—may face time constraints that affect their performance. Little attention, however, has been paid to directors who sit on the boards of multiple companies within the same industry. This Article terms them “horizontal directors” and spotlights, for the first time, the legal and policy issues they raise. The “horizontal” feature of directorships, a term often used in the antitrust …

Soft Law As Governing Law, Steven L. Schwarcz

Faculty Scholarship

International business transactions increasingly are being conducted under “soft law”—a term referring to non-state rules that may be aspirational or reflect best practices but are not yet legally enforceable. In part, this shift reflects a decline in cross-border treaty-making, which needs widespread consensus and is subject to lengthy negotiations. Soft law’s lack of enforceability, however, is creating uncertainty and undermining predictability. To increase predictability, this Article argues for an innovative use of soft law: as a set of rules to choose as the governing “law” of business contracts. This use of soft law would be transformational, making the soft law …

Investigating Intersections Of Corporate Governance & Compliance, Veronica Root Martinez

Faculty Scholarship

In April 2019, Notre Dame Law in London hosted a conference entitled “Investigating Intersections of Corporate Governance & Compliance” with scholars from the United States, United Kingdom, and Ireland participating. The goal of the conference was to facilitate dialogue within and amongst legal scholarly disciplines regarding the ways in which governance and compliance intersect. The effort was a resounding success, and The University of Chicago Law Review Online graciously agreed to publish the six papers presented at the conference. This is the introduction to the symposium.

Golden Parachutes And The Limits Of Shareholder Voting, Albert H. Choi, Andrew C.W. Lund, Robert Schonlau

Articles

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, Congress attempted to constrain change-in-control payments (also known as “golden parachutes”) by giving shareholders the right to approve or disapprove such payments on an advisory basis. This Essay is the first to empirically examine the experience with the Say-on-Golden-Parachute (“SOGP”) vote. We find that unlike shareholder votes on proposed mergers, there is a significant amount of variation with respect to votes on golden parachutes. Notwithstanding the variation, however, the SOGP voting regime is likely ineffective in controlling golden parachute (“GP”) compensation. First, proxy advisors seem …