Business Organizations Law Commons^™

The Case Against Passive Shareholder Voting, Dorothy S. Lund

Faculty Scholarship

American investors have begun to embrace the reality that academics have been championing for decades — that a broad-based, passive indexing strategy is superior to picking individual stocks or investing in actively managed funds. But there are several reasons to believe that the rise of passive investing will have harmful consequences for firm governance, shareholders, and the economy. First, because passive funds seek only to match the performance of an index — not outperform it — they lack a financial incentive to ensure that each of the companies in their very large portfolios are well-run. Second, passive funds face an …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

Corporate Governance, Capital Markets, And Securities Law, Adam C. Pritchard

Book Chapters

This chapter explores the dividing line between corporate governance and securities law from both historical and institutional perspectives. Section 2 examines the origins of the dividing line between securities law and corporate governance in the United States, as well as the efforts of the SEC to push against that boundary. That history sets the stage for section 3, which broadens the inquiry by examining the institutional connections between capital markets and corporate governance. Are there practical limits to the connection between securities law and corporate governance? The US again illustrates the point, as Congress has increasingly crossed the traditional boundary …

20/20 Vision In The Long & Short-Termism Debate, Anne M. Tucker

Scholarly Works

What is an optimal investment time horizon—for institutions, individual shareholders and corporations? This question can evoke emotional, ideological, and theoretical responses. The answers usually deeply entrenched debates over the fundamental roles of markets versus regulation and between the appropriate loci of corporate power: the board of directors versus the shareholders. Too long-term and it is myopia; too near-term and is it short-termism. Neither label is inconsequential, so the debates are not tepid, academic, or marginal.

Distributed Ledgers, Traceable Shares, And The Division Of Power In Corporate Law, Christopher M. Bruner

Scholarly Works

Review of Traceable Shares and Corporate Law, 113 Nw. U. L. Rev. __ by George S. Geis (forthcoming 2018)

From Corporate Law To Corporate Governance, Ronald J. Gilson

Faculty Scholarship

In the 1960s and 1970s, corporate law and finance scholars gave up on their traditional approaches. Corporate law had become “towering skyscrapers of rusted girders, internally welded together and containing nothing but wind.” In finance, the theory of the firm was recognized as an “empty box.” This essay tracks how corporate law was reborn as corporate governance through three examples of how we have usefully complicated the inquiry into corporate behavior. Part I frames the first complication, defining governance broadly as the company’s operating system, a braided framework of legal and non-legal elements. Part II adds a second complication by …

Greater Expectations: Strategies For Effective Board Meeting Preparation, Jonathan Kim, Marcel Bucsescu

Ira M. Millstein Center for Global Markets and Corporate Ownership

Directors face an increasingly complex environment in which their businesses operate. That complexity can present opportunities for corporations that adapt, and also places new pressures on boards to respond effectively. One strategy for directors to consider is to adapt their approaches to preparing for board meetings by focusing not just on company specific reporting and decisions, but also by acting as the “eyes and ears” for management on key issues for the company. This article makes practical suggestions for directors to consider as they approach their board meeting preparation with this broader view in mind.

The Changing Landscape Of The Capital Markets, Barbara Krumsiek

Ira M. Millstein Center for Global Markets and Corporate Ownership

Much has been made of the rise of activist hedge funds over the past five years. But the shifts in the makeup of the investor community run much deeper than that, impacting both capital formation and capital deployment.

From the proliferation of hedge funds and the emergence of SRI and other new investment strategies, to the massive shift of funds to passive investors, the intermediation of the investment chain, and the concentration of ownership in the largest institutional investors, understanding the trend lines in the capital markets is integral to understanding where governance and the performance of public corporations goes …

Environmental And Social Sustainability In The Boardroom, Jon Lukomnik

Ira M. Millstein Center for Global Markets and Corporate Ownership

The last 10 years has seen a remarkable shift in the attention and importance of social and environmental issues for public corporations. This has meant an increased focus by boards on these important matters.

Climate change, human rights, corporate political influence, and inequality are just some of the issues that are being raised by shareholders and other stakeholders. As calls for corporate transparency grow, how boards incorporate these issues into their decision making processes, disclose them, and address them from a risk perspective will continue to garner attention.

The Cambridge Handbook Of Social Enterprise Law, Lloyd Histoshi Mayer

Books

Book Chapters

Lloyd Hitoshi Mayer, Creating a Tax Space for Social Enterprise, in The Cambridge Handbook of Social Enterprise Law 157 (Benjamin Means & Joseph W. Yockey eds., 2018)

While still relatively few in number compared to traditional nonprofit and for-profit organizations, the rise of social enterprises represents a possible disruption of not only existing models of doing business but also areas of law that in many respects have seen little fundamental change for decades. One such area is domestic tax law, where social enterprises currently find themselves subject to the rules of for-profit activities and entities. Here, both scholars …

Delaware's Retreat: Exploring Developing Fissures And Tectonic Shifts In Delaware Corporate Law, James D. Cox, Randall S. Thomas

Faculty Scholarship

No abstract provided.

Individual Autonomy In Corporate Law, Elisabeth De Fontenay

Faculty Scholarship

The field of corporate law is riven with competing visions of the corporation. This Article seeks to identify points of broad agreement by negative implication. It examines two developments in corporate law that have drawn widespread criticism from corporate law scholars: the Supreme Court's recognition of corporate religious rights in Burwell v. Hobby Lobby and the Nevada legislature's decision to eliminate mandatory fiduciary duties for corporate directors and officers. Despite their fundamental differences, both resulted in expanding individual rights or autonomy within the corporation-for shareholders and managers, respectively.

The visceral critiques aimed at these two developments suggest a broadly shared …

The Crisis In Corporate Governance: 2002 Style, Robert W. Hamilton

Maine Law Review

The period from November 1, 2001 to October 1, 2002 has been an astonishing period for corporate governance in many respects. It began with the completely unexpected collapse of Enron Corporation on November 1, 2001, followed almost immediately thereafter by widely publicized downward profit restatements and bankruptcy filings by a significant number of telecommunication companies. Since November 1, 2001, there have been numerous public reports of fraud, misconduct, and scandals by directors of other well-known corporations such as Lucent Technologies, Kmart, Merck & Co., and Rite Aid Corporation. There also have been disclosures of many instances in which corporate officers …

Piling On? An Empirical Study Of Parallel Derivative Suits, Stephen J. Choi, Jessica Erickson, Adam C. Pritchard

Articles

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and, …

China's 'Corporatization Without Privatization' And The Late 19th Century Roots Of A Stubborn Path Dependency, Nicholas Howson

Articles

This Article analyzes the contemporary program of “corporatization without privatization” in the People's Republic of China (PRC) directed at China's traditional state-owned enterprises (SOEs) through a consideration of long ago precursor enterprise establishments--starting from the last Chinese imperial dynasty's creation of “government-promoted/-supervised, merchant-financed/-operated” (guandu shangban) firms in the latter part of the nineteenth century. While analysts are tempted to see the PRC corporations with listings on international exchanges that dominate the global economy and capital markets as expressions of “convergence,” this Article argues that such firms in fact show deeply embedded aspects of path dependency unique to the Chinese context …

Private Enforcement Of Company Law And Securities Regulation In Korea, Hwa-Jin Kim

Book Chapters

This chapter offers a brief overview of the private enforcement of corporate law and securities regulation in Korea, with particular reference to the current legislative efforts in the Korean National Assembly and recent court cases. This chapter also talks about Korea’s ill-fated and misguided adoption of the fraud-on-the-market theory in securities fraud litigation.

Human Rights And Cybersecurity Due Diligence: A Comparative Study, Scott J. Shackelford

University of Michigan Journal of Law Reform

No company, just like no nation, is an island in cyberspace; the actions of actors from hacktivists to nation-states have the potential to impact the bottom line, along with the human rights of consumers and the public writ large. To help meet the multifaceted challenges replete in a rapidly globalizing world—and owing to the relative lack of binding international law to regulate both cybersecurity and the impact of business on human rights—companies are reconceptualizing what constitutes “due diligence.” This Article takes lessons from both the cybersecurity and human rights due diligence contexts to determine areas for cross-pollination in an effort …

Independent Directors In Singapore: Puzzling Compliance Requiring Explanation, Dan W. Puchniak, Luh Luh Lan

Research Collection Yong Pung How School Of Law

At first blush, the rise of independent directors in Singapore provides a straightforward example of a successful legal transplant from the West to Asia. In 2001, Singapore implemented a U.K.-inspired Code of Corporate Governance, which required the adoption of American-style independent directors on a "comply or explain" basis. Shortly thereafter, an overwhelming 98% of Singapore-listed companies reported full compliance. This, combined with Singapore's world-leading economic success, ostensibly confirmed the Anglo-American-cum- global conventional wisdom that American-style independent directors are required for good corporate governance.Using hand-collected data from 245 codes of corporate governance from eighty-seven jurisdictions, this Article reveals, however, that Singapore's …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

Corporate Governance As Moral Psychology, Alan R. Palmiter

Washington and Lee Law Review

No abstract provided.

Ceo Side Payments In Mergers And Acquisitions, Brian J. Broughman

Articles by Maurer Faculty

In addition to golden parachutes, CEOs often negotiate for personal side-payments in connection with the sale of their firm. Side-payments differ from golden parachutes in that they are negotiated ex post in connection with a specific acquisition proposal, whereas golden parachutes are part of the executive’s employment agreement negotiated when she is hired. While side-payments may benefit shareholders by countering managerial resistance to an efficient sale, they can also be used to redistribute merger proceeds to management. The current article highlights an overlooked distinction between pre-merger golden parachutes and merger side-payments. Similar to a legislative rider attached to a popular …

The Role Of Social Enterprise And Hybrid Organizations, Ofer Eldar

Faculty Scholarship

Recent years have brought remarkable growth in hybrid organizations that combine profit-seeking and social missions. Despite popular enthusiasm for such organizations, legal reforms to facilitate their formation and growth—particularly, legal forms for hybrid firms—have largely been ineffective. This shortcoming stems in large part from the lack of a theory that identifies the structural and functional elements that make some types of hybrid organizations more effective than others. In pursuit of such a theory, this Article focuses on a large class of hybrid organizations that has been effective in addressing development problems, such as increasing access to capital and improving employment …

Law And Corporate Governance, Robert P. Bartlett, Eric L. Talley

Faculty Scholarship

Pragmatic and effective research on corporate governance often turns critically on appreciating the legal institutions surrounding corporate entities – yet such nuances are often unfamiliar or poorly specified to economists and other social scientists without legal training. This chapter organizes and discusses key legal concepts of corporate governance, including statutes, regulations, and jurisprudential doctrines that “govern governance” in private and public companies, with concentration on the for-profit corporation. We review the literature concerning the nature and purpose of the corporation, the objects of fiduciary obligations, the means for decision making within the firm, as well as the overlay of state …

Corporate Political Spending And The Size Effect, Reilly S. Steel

Faculty Scholarship

In the years since Citizens United v. FEC, corporate-political-spending disclosure has become an increasingly heated public policy issue. The portion of the Court’s opinion that championed shareholder rights to make decisions about corporate political speech generated a substantial, interdisciplinary literature, and shareholders responded by demanding political-spending disclosure through a bevy of shareholder proposals. However, many commentators have argued that shareholder activists’ efforts to bring about disclosure on their own are bound to be inade­quate, and in 2011, a group of law professors petitioned the Securities and Exchange Commission (SEC) for rules that would mandate disclo­sure by public companies — a …

Proxy Access And Optimal Standardization In Corporate Governance: An Empirical Analysis, Reilly S. Steel

Faculty Scholarship

According to the conventional wisdom, “one size does not fit all” in corporate governance. Firms are heterogeneous with respect to their governance needs, implying that the optimal corporate governance structure must also vary from firm to firm. This one-size-does-not-fit-all axiom has featured prominently in arguments against numerous corporate law regulatory initiatives, including the SEC’s failed Rule 14a-11 — an attempt to impose mandatory, uniform “proxy access” on all public companies — which the D.C. Circuit struck down for inadequate cost-benefit analysis.

This Article presents an alternative theory as to the role of standardization in corporate governance — in which investors …

To Thine Own Ceo Be True: Tailoring Ceo Compensation To Individual Personality And Circumstances, William O. Fisher

Law Faculty Publications

Eight-figure compensation. Cash. Restricted stock. Options. Performance shares. And more. Companies shower their CEOs with pay in large amounts, delivered in multiple ways, and dependent on complex and intricate formulae. It is all intended to motivate the top officers to make decisions that will best benefit their companies. Common sense tells us that the value of a complicated, multifaceted pay package- and hence its ability to motivate- will depend on the psychological characteristics and financial circumstances of the particular executive being paid. Economic theory and empirical studies confirm this intuition. Yet, companies generally ignore these vital factors. Substantive and disclosure …

Short-Termism, Douglas Chia

Ira M. Millstein Center for Global Markets and Corporate Ownership

Perhaps no topic in corporate governance has garnered more and stronger reactions than the debate over whether shorttermism is an issue for public corporations, the public markets, or the economy.

From the explosion in recent years of buybacks and dividends, to the declines in investment in research and development and capital expenditures, and unprecedented corporate profits and cash holdings, some argue that capitalism has focused in on the wrong outcomes, or worse, been coopted by the few at the expense of the many.

This essay will lay out the data and arguments over short-termism and what structural changes may be …

Fiduciary Duties Of Corporate Directors In Uncertain Times, Ellen J. Odoner, Stephen A. Radin, Lyuba A. Goltser, Andrew E. Blumberg

Ira M. Millstein Center for Global Markets and Corporate Ownership

Directors addressing new political uncertainties, a host of heightened challenges and asserted “best practices” from many sources may understandably ask whether their fiduciary duties have changed as well. This paper synthesizes the latest decisions of the Delaware courts on the standards of conduct for directors and the standards by which their conduct is reviewed. While directors should expect uncertainty to be a fact of corporate life for the foreseeable future, this paper emphasizes that neither the fiduciary duties of directors nor the protections afforded them have changed. Disinterested and independent directors acting in good faith continue to have broad protections …

Board Excellence And Fiduciary Duties Of Corporate Directors, E. Norman Veasey, Ira M. Millstein

Ira M. Millstein Center for Global Markets and Corporate Ownership

This article is intended for corporate directors and explores the key issues that directors should understand with respect to their fiduciary duties. An accompanying paper authored by Ellen Odoner, Stephen Radin, Lyuba Goltser, and Andrew Blumberg of Weil, Gotshal & Manges LLP provides a detailed analysis of the concepts discussed in this article and is recommended to general counsel, as they advise their corporate boards with respect to their fiduciary duties, as well as directors who wish to have a better understanding of their own fiduciary duties.

Adapting Global Standards To A Changing World, Serdar Çelik, Mats Isaksson

Ira M. Millstein Center for Global Markets and Corporate Ownership

In 1996, Ira Millstein received a phone call from Paris. It came from the Organization for Economic Co-operation and Development (OECD) asking him to head a small international group of distinguished businesspeople, including Sir Adrian Cadbury. Their assignment would be to provide economists and policy makers with advice for future work in the area of corporate governance. At the time, the topic was little understood among policy makers and its wider economic implications were rarely discussed. But OECD, already well known for its analysis of both macroeconomics and structural policies, wanted to change that. They looked at corporate governance as …