Business Organizations Law Commons^™

Vice Capital, Andrew K. Jennings, Kimberly D. Krawiec

Faculty Articles

Academic and market interest in environmental, social, and governance (ESG) investing has grown markedly in recent years. Although less prominent, a substantial literature also explores whether “sin pays” in the public capital markets. This literature’s underlying theory is that social norms discourage the funding of businesses that promote vice. According to this theory, some investors—particularly institutions sensitive to social norms, such as pension funds and foundations—will shun vice investments. A consequence of this aversion is a “vice premium” for those investors who will invest in such companies. Largely unexplored, however, is what industries or business models qualify as “vice,” how …

Criminal Investors, Andrew K. Jennings

Faculty Articles

This Article reassesses the culpability of those who invest in law-breaking firms. Prosecutors currently treat investors as victims of corporate wrongdoing rather than as actors who might bear responsibility for it. This Article observes, though, that investment can facilitate, and even cause, illicit corporate activity. When investors intentionally contribute to those effects, substantive criminal law imposes liability on them just the same as it does on accomplices, conspirators, or principals in other contexts. Despite this formal parity, however, investor criminal liability is more a theoretical proposition than a practical reality.

This Article questions that status quo by asking whether and …

Interlocking Directorates In The United States, Yaron Nili

Faculty Scholarship

In corporate America, directors wield increasing influence across multiple companies, often within the same industry (“horizontal directors”), which creates tension between antitrust laws and corporate governance. Horizontal directors are well-positioned to bring industry expertise and potentially increase higher profits, benefiting shareholders but also possibly enabling potential collusion. This chapter provides an overview of the prevalence of horizontal directors, the regulatory grey space in which they exist and the connection to some recently debated issues, including that of common ownership by institutional investors. To inform this debate, this chapter provides a thorough overview of horizontal directors from corporate and antitrust perspectives …

Labor Law, Ownership, And The Firm, Sanjukta Paul

Articles

In shaping economic coordination within and across both firms and markets, one significant action of law is to allocate privileges or rights between people or groups of people. These include the right to coordinate with other people or groups of people in particular ways regarding core economic decisions-a type of activity that is not always or in all circumstances legally permissible. An area that makes this more general action of law especially concrete is antitrust or competition law, with its collection of "exemptions." Antitrust's formal and informal exemptions quite directly allocate economic coordination rights, for particular kinds of activity, and …

Business Law In The Ring: Nevada's Rebel Rules Versus Delaware's Corporate Crown, Kalin Sokell, Collin Weires

Nevada Law Journal Forum

This White Paper will begin with an analysis of specialized courts, starting with the Delaware Court of Chancery. It will then compare Delaware’s courts with the business courts in Texas and Nevada and will provide a detailed implementation plan for a specialized business court in Nevada. Next, this White Paper will address the differences between the corporate laws in Nevada and Delaware, including the benefits of incorporating in Nevada versus Delaware. The White Paper will then briefly discuss the proposed general jurisdiction bill in Nevada, and why it ultimately failed. Finally, this White Paper will end with remarks on where …

Alternatives To Delaware? Evaluating Corporate Law In Nevada, Texas, And Wyoming, Joseph Landau, Bailey Swartz, Anthony Rickey, Robert Ragazzo, Benjamin Edwards, George A. Mocsary

Fordham Journal of Corporate & Financial Law

No abstract provided.

The Political Commitment Of The Supreme Court Of Texas To Protecting Controlling Equity Owners, Val Ricks

Fordham Journal of Corporate & Financial Law

The Supreme Court of Texas has revealed a political commitment to protecting controlling equity owners—e.g., shareholders, LLC members, limited partners—from liability related to their equity ownership. The Court does not say this, of course. The commitment the Court intends to reveal is a legal one. The political commitment must be teased out of what the Court does. The purpose of this article is to tease. Its method is to examine how the Supreme Court of Texas, in cases involving controlling or significant equity owners, extends the reasoning of its opinions out beyond law, and sometimes in conflict with it. When …

Reviving Shareholder Voice By Redefining Pre-Suit Demand, Wendy Gerwick Couture

Fordham Journal of Corporate & Financial Law

This Article diagnoses, and seeks to cure, an undertheorized dynamic relationship between two levers of shareholder influence in the modern public corporation: suit and voice. This Article demonstrates that, under current Delaware law, a shareholder must stifle its voice in order to retain the ability to pursue a viable derivative claim, thus inhibiting the shareholder’s monitoring and information-sharing roles. In particular, the onerous “demand made” litigation pathway disincentivizes pre-suit demand, and the expansive definition of pre-suit demand captures shareholder communications to the board seeking corrective action other than litigation. To avoid this collision between suit and voice, this Article proposes …

Networking Among The Human Capitalists: The Organizational Dynamics Of Change And Power In The Large Corporate Law Firm, Alan James Klugel

Law Faculty Scholarly Articles

Law firms are unique creatures. They are subject to market pressures as well as ethical obligations and professional norms. They are in direct competition with other organizations for both clients and the lawyers necessary to perform work for those clients. They are comprised of lawyers who are simultaneously cooperative and competitive with one another. They are neither hierarchy nor anarchy, neither a collection of independent actors nor an entity under which its employees are subsumed. Instead, they are organizations shaped and reshaped by their members; organized around shared goals, internal contestations and external constraints; and defined by the ties between …

Cleaning Our Hands Of Climate Washing: Promoting Corporate Responsibility With The European Union’S Corporate Sustainability Due Diligence Directive, Parker M. Jacobs

University of San Francisco Law Review

No abstract provided.

From The Court To The Courtroom: A Stanley Lens To Potential Equal Pay Act Claims For Women’S Collegiate Athletes, Katrina L.G. Murphy

University of San Francisco Law Review

No abstract provided.

Assessing The Post-Purdue Landscape Of Consensual Third-Party Releases Through Contract Law, Kaori Nagase

American University Law Review

In Harrington v. Purdue Pharma L.P., the Supreme Court invalidated non-consensual third-party releases in Chapter 11 bankruptcy plans. In doing so, however, the Court left open the question of what constitutes valid consent to a release. This Comment argues that lower courts must now require a higher threshold of affirmative consent—particularly in mass-tort bankruptcies involving highly culpable non-debtors. In light of Purdue’s implication that third-party releases are anchored in contract law principles, this Comment suggests that courts should evaluate what constitutes adequate consideration for a release.

Diligent Influence, Carrie Stanton

Washington and Lee Law Review

Social media influencers wield astonishing marketing power. While influencing may be innocuous in some respects, scholars have argued that influencer marketing—which is uniquely high-touch, individualized, and intimate—raises novel consumer safety concerns. These concerns, in turn, beg crucial questions of risk allocation. In her excellent Note, Under the Influence: Duties, Deception, Disclosures, and Due Diligence of Social Media Influencers, Arianna Kiaei describes the psychological and economic impacts of social media influencing and makes a compelling case for influencer accountability. Kiaei argues that current regulations focus too narrowly on the companies promoting their products through influencers; instead, Kiaei suggests that the robust …

Fixing Mfw: Fairness And Vision In Controller Self-Dealing, Zohar Goshen, Assaf Hamdani, Dorothy S. Lund

Faculty Scholarship

The legal regime governing controlling shareholders relies on the ability of Delaware courts to police conflicted transactions under the stringent "entire fairness" standard of review. This review involves both implicit valuation – evaluating the transaction process, and explicit valuation – assessing the fairness of the transaction's financial terms. This Article reveals a critical flaw in this regime: courts cannot reliably engage in valuation when the transaction involves an entrepreneur's idiosyncratic vision for the company. As a result, there is a gaping hole in Delaware's framework for policing the fairness of controller transactions.

Delaware courts have developed guardrails to avoid judicial …

The Small Business Dilemma, Rachel G. Ngo Ntomp

Washington and Lee Law Review

Small businesses face a unique and challenging dilemma in today’s business landscape. On the one hand, they are typically and rightfully considered the more powerful party in their contractual relations with consumers, thus prompting a need to protect consumers against unfair contractual terms. On the other hand, when engaging with larger businesses, small businesses typically find themselves in the position of the weaker, more vulnerable party, possibly in need of greater protection themselves from unfair terms. This Article addresses the inherent dilemma faced by small businesses and argues that the prevailing perception of businesses as sophisticated and experienced, based exclusively …

The Sound Of Silence In Corporate Director Resignations, Asaf Eckstein, Ziv Granov

Washington and Lee Law Review

This Article seeks to provide an in-depth theoretical, empirical, and policy analysis of an underdeveloped topic in corporate law: director departure. We argue that outspoken director resignations are an integral aspect of effective corporate governance. Disgruntled corporate directors who disagree with the firm’s policies or practices alert shareholders to internal misconduct, encouraging market reactions that pressure the company to make necessary changes. Disclosure of conflict is particularly important in mitigating information asymmetry between shareholders and management, allowing investors to promptly react to relevant events within the firm.

Despite the governance benefits of resignations in protest, we show that outspoken director …

Social Purpose Reit, Evan Absher

Faculty Works

The United States grapples with a severe housing affordability crisis, often attributed to restrictive zoning laws, speculative private equity investment, and policy deficiencies. Each of these factors contributes to the housing shortage, but addressing any single factor in isolation is insufficient to resolve the underlying issue. A holistic solution requires increasing housing availability across the entire affordability spectrum through both the production of new units and the preservation of existing affordable housing.

This article argues the misalignment of interests among key local stakeholders—residents, community organizations, and investors is the fundamental cause of the housing crisis. Realignment requires a transformation of …

Unequal Ownership, Ofer Eldar, Rory Van Loo

Faculty Scholarship

Market concentration and weak competition do not just lead to lower efficiency but also result in corporate profits flowing primarily to wealthy households that own a disproportionate share of public corporations. We demonstrate that this is a growing distributional problem not only due to familiar reasons in the literature, most notably shifts in market power, but also due to changes in the socio-economic makeup of ownership. Over the past twenty years, households in the bottom 90 percent of wealth have seen their share of stock ownership decline by half. That is, the ownership of corporations has become increasingly concentrated among …

Menguak Status Dan Legalitas Rupiah Digital Sebagai Legal Tender (Perspektif Teori Keadilan Bermartabat), Sylvia Setjoatmadja, Jeferson Kameo

Jurnal Hukum & Pembangunan

Digital technology and modern telecommunications have been and will continue to be key factors in the emergence of various innovative products. One such innovative product is digital currency, specifically Central Bank Digital Currency (CBDC). In Indonesia, advancements in digital technology and telecommunications have encouraged the government to issue a CBDC, which will be named Digital Rupiah. The initiative to issue Digital Rupiah also responds to global trends and the public's need for secure, efficient, and sustainable payment instruments.

However, the plan to issue Digital Rupiah is not without challenges, particularly regarding the clarity of its legal status as a lawful …

Special-Purpose Governments, Conor Clarke, Henry Hansmann

Scholarship@WashULaw

When one thinks of government, what comes to mind are familiar general-purpose entities like states, counties, and cities. But more than half of the 90,000 governments in the United States are strikingly different: They are “special-purpose” governments that do one thing, such as supply water, fight fire, or pick up the trash. These entities have expanded far more rapidly than any other form of government. Yet they remain understudied, and they present at least two puzzles. First, special-purpose governments are difficult to distinguish from entities that are typically regarded as business organizations—such as consumer cooperatives—and thus underscore the nebulous border …

The Other Delaware Effect, Jens Frankenreiter

Scholarship@WashULaw

This paper examines the effects of Delaware’s 2015 ban on fee-shifting provisions in corporate charters and bylaws, a significant legislative intervention in corporate law aimed at curbing managerial powers. The Delaware Supreme Court had approved these provisions just one year earlier as part of a series of measures aimed at curbing shareholder litigation. Because of their perceived substantial potential to reduce wasteful litigation, the Delaware legislature’s ban led many to predict an exodus of corporations from Delaware and the continued spread of fee-shifting provisions in other states.

Contrary to these predictions, this study finds that the ban did not trigger …

Delaware Supreme Court Rules That Officer Exculpation Amendments Do Not Require Separate Class Vote Of Non-Voting Shares, Robert S. Reder, Ricky Bayon-Barrera

Vanderbilt Law School Faculty Publications

Before 2022, Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") permitted corporations, via amendments to their corporate charters, to exculpate corporate directors from personal liability for breaches of their duty of care ("& 102(b)(7)"). Delaware amended & 102(b)(7) in 2022 to allow corporations to extend exculpation to officers (the "2022 Amendment").

The Legitimation Of Shareholder Primacy, Ann Lipton

Publications

We are living in a polarized era, and corporate governance is no exception. With controversies raging over "environmental, social, governance," (ESG) investing, diversity, equity and inclusion initiatives, climate change as an investment concern, and even Elon Musk's pay package at Tesla, it seems as though corporate governance has never been so starkly divided along partisan lines.

The divisions have threatened to spill over to Delaware, the preferred jurisdiction for incorporation in the United States. Several high profile cases—including those involving Elon Musk—have called Delaware's neutrality into question. Commenters have argued that Delaware's newly politicized approach threatens to splinter the corporate …

The Problem Of Purpose In Corporate Law, Grant M. Hayden, Matthew T. Bodie

Faculty Journal Articles and Book Chapters

For the last half century, shareholder primacy has reigned as the dominant definition of corporate purpose, as to both the purpose of individual companies and corporate law more generally. Recently, however, the Business Roundtable, the American Law Institute’s Restatement of the Law: Corporate Governance, and many business and legal academics have developed new answers to explain why we have corporations, and the ends to which their massive economic powers should be directed. This Essay endeavors to reframe the focus of the debate beyond purpose itself into the realm of actual governing power. In order to be meaningful, purpose needs governance. …

A Democratic Participation Model For Corporate Governance, Grant M. Hayden, Matthew T. Bodie

Faculty Journal Articles and Book Chapters

Corporate law is in the grip of a fundamental conundrum: whether corporations should seek only to serve shareholders or instead attend to the interests of all stakeholders. The doctrine of shareholder primacy, which focuses the corporation’s attention on the goal of maximizing shareholder wealth, has been startingly successful, capturing the theory and practice of corporate governance for roughly fifty years. But recently the costs of this monomaniacal focus on the financial interests of one set of corporate participants have become clearer. At a time when the original reasons for restricting the corporate franchise to shareholders have been shown to rest …

The Contractarian Joint Venture, Carla L. Reyes, Christine Hurt

Faculty Journal Articles and Book Chapters

In 2015, a group of entrepreneurs pooled their money together for the purpose of investing in other businesses. The entrepreneurs could have undertaken this activity through a traditional venture capital firm, but they wanted to cut out the middle-man, reduce fees, and retain more control over their capital, so they chose to undertake their investing on their own. The group of entrepreneurs chose not to form an entity. Instead, they attempted to limit their business and liability risk by conducting their activity entirely via software. Unfortunately, the software contained a bug, and an insider siphoned off millions of dollars belonging …

Rebalancing Retirement: How 401(K) Plans Exacerbate Inequality And What We Can Do About It, Quinn Curtis, Leo E. Strine, David H. Webber

Faculty Scholarship

Incentives for individuals to save for retirement currently total 1.5% of US GDP. For that substantial investment, we get a system that actually deepens wealth inequality. The top 10% of earners capture 60% of the associated tax benefits, and employer matching contributions disproportionately favor the highest earners. Although defined contribution plans have long been subject to non-discrimination requirements aimed at ensuring that benefits do not accrue predominantly to the wealthiest participants, these rules have little bite. In an irony, we estimate that the entire 401(k) system would fail the non-discrimination test that every employer offering such a plan is expected …

Anticompetitive Directors, Lane Miles, Mark A. Lemley, Rory Van Loo

Faculty Scholarship

Antitrust scholars have virtually ignored the question of who controls corporations by sitting on their boards of directors. We show that the problem of who sits on boards of directors is considerably greater than previously believed. Drawing on a new dataset spanning both public and private companies across multiple industries, we find evidence that individual board members sit simultaneously on boards of competitors throughout the economy, despite such “interlocking directorates” being illegal under antitrust law. Many of these individuals are senior directors at private equity, venture capital, and other firms investing in the competing firms on whose boards they sit. …

Reputation Reconsidered, James Gibson

Law Faculty Publications

Reputation has a great reputation. We know this because the law values, venerates, and subsidizes reputation in many ways. Contract law relies on it as a means of disciplining the market without the need for intrusive regulation. Defamation law lets individuals and businesses seek relief when their reputations are sullied. Trademark law grants exclusive rights in order to encourage rightsholders to invest in their reputations. In these fields and others, the law views reputation as an important, socially positive good.

This faith in the integrity and value of reputation is unwarranted. Our impression of any given business is subject to …

Beyond Wall Street: Inside The Legal Battles Of Private Companies, Jessica M. Erickson

Law Faculty Publications

Boardroom battles on Wall Street command national attention. Yet the vast majority of business disputes in the United States do not take place on Wall Street and do not involve public companies. Nearly all American companies are privately held, and the disputes between the owners of these Main Street businesses seldom make headlines. Nor do they receive much attention in legal scholarship. While scholars have examined these disputes from a theoretical perspective, there have been no empirical studies analyzing lawsuits between the owners of private companies. As a result, we do not know why these business relationships fail or the …