Business Organizations Law Commons^™

Queers, Closets, And Corporate Governance, Darren Rosenblum

Faculty Publications

The past few years have seen several corporate diversity initiatives that include Lesbian, Gay, Bisexual, Transgender, Queer (LGBTQ+) people. In 2020, Nasdaq, the world’s second-largest stock exchange, and California, the largest state, both adopted rules to encourage board diversity for underrepresented groups, including LGBTQ+ people. Since that time, the Los Angeles Superior Court struck down California’s law, the Fifth Circuit invalidated Nasdaq’s rule, and the Trump administration initiated a slew of anti-Diversity Equity and Inclusion (DEI) and anti-LGBTQ+ measures. In the context of this sharp ideological turn, this Article attempts to step back and tackle a larger question: how can …

Continuing Education For Directors Of Public Companies, Jennifer O'Hare

Faculty Publications

Directors of public companies are responsible for overseeing complex organizations in a rapidly changing business environment, but they are not required to engage in continuing education. This creates a danger that directors will not have the knowledge they need to meet the significant demands of overseeing public companies. To address this, public companies should adopt mandatory continuing education policies for their boards, and the Securities and Exchange Commission should require public companies to disclose basic information about their continuing education programs in their proxy statements.

This is the first scholarly article to address the issue of mandatory continuing education for …

Giant Asset Managers, The Big Three, And Index Investing, Dorothy S. Lund, Adriana Z. Robertson

Faculty Scholarship

A robust literature describes the incentives and stewardship practices of the “Big Three” asset managers (BlackRock, Vanguard, and State Street Global Advisors), often referring to these asset managers as “passive.” This is so common that the “Big Three,” “index fund,” and “passive manager” are used almost interchangeably by both academics and practitioners. This shorthand emerged in the foundational scholarship in this area, and while it may remain useful in certain contexts, its casual use obscures important features of the market and contributes to misperceptions. In this chapter, we demonstrate that it is a mistake to equate passive investing with index …

Racial Targets, Atinuke O. Adediran

Northwestern University Law Review

It is common scholarly and popular wisdom that racial quotas are illegal. However, the reality is that since 2020’s racial reckoning, many of the largest companies have been touting specific, albeit voluntary, goals to hire or promote people of color, which this Article refers to as “racial targets.” The Article addresses this phenomenon and shows that companies can defend racial targets as distinct from racial quotas, which involve a rigid number or proportion of opportunities reserved exclusively for minority groups. The political implications of the legal defensibility of racial targets are significant in this moment in American history, where race …

The Impossibility Of Corporate Political Ideology: Upholding Sec Climate Disclosures Against Compelled Commercial Speech Challenges, Erin Murphy

Northwestern University Law Review

To address the increasingly dire climate crisis, the SEC will require public companies to reveal their business’s environmental impact to the market through climate disclosures. Businesses and states challenged the required disclosures as compelled, politically motivated speech that risks putting First Amendment doctrine into further jeopardy. In the past five years, the U.S. Supreme Court has demonstrated an increased propensity to hear compelled speech cases and rule in favor of litigants claiming First Amendment protection from disclosing information that they disagree with or believe to be a politically charged topic. Dissenting liberal Justices have decried these practices as “weaponizing the …

Taxation And Corporate Governance, Reuven S. Avi-Yonah, Ariel Siman

Law & Economics Working Papers

In recent years, legal and economic research has shown a growing interest in the interaction between corporate governance and taxation. Some specific aspects have drawn more interest, particularly the tax rules related to the remuneration of directors, measures taken by management in the context of market for corporate control, and the double taxation of inter-corporate dividends. However, there is still little legal literature on many other aspects of the interplay between the two systems, and several authors have identified this gap in the literature and the dire need for further study in this “fertile area of research.” The aim of …

How A “Superstar” Ceo Exposes The Necessity For Third Party D&O Insurance, Angela N. Aneiros, Karen Woody

Scholarly Articles

he influence that “superstar” CEOs have over a company’s board of directors can be alarming. Among other things, Elon’s ability to skirt personal liability for seemingly obvious breaches of duty has raised concerns within the realm of corporate governance and corporate regulation. While much has been written on Elon’s influence on Tesla’s board of directors, one area of the law that often gets overlooked that has exacerbated Elon’s corporate governance issues, is that of directors and officers (D&O) liability insurance. While personally insuring board members seems like a very "Elon" move, it could have broader implications beyond Elon. Are “superstar” …

Corporate Governance & International Law, Kishanthi Parella

Scholarly Articles

Stakeholder activism by nongovernmental organizations (NGOs), consumers, employees, and others can incentivize corporate managers to comply with international law on climate change, armed conflict, human rights, and access to medicine, among other issues. As such, stakeholder enforcement of international law has two distinct audiences: the corporation that is persuaded to change and fellow stakeholders who are persuaded to act. But familiar difficulties with collective action impede the success of stakeholder enforcement of international law. These challenges can compromise the ability of shareholders to monitor corporations; these same problems similarly jeopardize the ability of stakeholders to monitor corporate compliance with international …

A Catholic Defense Of Corporate Law And Practice, Julian Velasco

Journal Articles

In this essay, I provide a defense of corporate law and of pursuing a career therein from the perspective of Catholic teaching. I argue that Catholicism is not incompatible with the pursuit of wealth as such, but rather insists upon the appropriate use of wealth. I also argue that it is appropriate for corporate actors to pursue the interests of shareholders, provided that they do not break the law or otherwise sin in doing so. I also explain why I found transaction practice personally fulfilling.

Esg As A Test Case For The Convergence Thesis In Corporate Law: Notes From India, Rudresh Mandal

LL.M. Essays & Theses

This paper uses four concepts key to the ESG agenda – investor stewardship codes, corporate purpose, independent directors and ESG disclosures – to examine which way the corporate convergence pendulum is swinging in India. It finds that none of the aforesaid concepts are examples of perfect convergence or perfect divergence. Instead, they lie somewhere in the convergence-divergence matrix – India’s investor stewardship codes and framework on independent directors are examples of formal convergence but functional divergence, and her corporate law provisions on corporate purpose and ESG disclosure are functionally convergent, but formally divergent. The dichotomies in the analysis are explained …

Public Primacy In Corporate Law, Dorothy S. Lund

Faculty Scholarship

This Article explores the malleability of agency theory by showing that it could be used to justify a “public primacy” standard for corporate law that would direct fiduciaries to promote the value of the corporation for the benefit of the public. Employing agency theory to describe the relationship between corporate management and the broader public sheds light on aspects of firm behavior, as well as the nature of state contracting with corporations. It also provides a lodestar for a possible future evolution of corporate law and governance: minimize the agency costs created by the divergence of interests between management and …

"Don't Go Chasing Waterfalls": Fiduciary Duties In Venture Capital Backed Startups, Sarath Sanga, Eric L. Talley

Faculty Scholarship

We develop a model of venture capital contracting and use it to evaluate an emergent set of judicial precedents in corporate law, which we label the Trados doctrine. In our model, founders hold common stock, while venture capital investors hold convertible preferred stock. We show that preferred shareholders have inefficient incentives to liquidate low-valued firms and to continue high-valued firms, while common shareholders inefficiently favor the opposite. The extent of incentive misalignment depends on the firm’s intrinsic and outside valuations, and it is most severe around preferred shareholders’ liquidation preference and conversion point. Although legal liability rules can rectify these …

Fifa's One Association - One Vote Rule: Does Democratic Governance Ensure Its "Corporate" Integrity?, Ilias Bantekas

American University Business Law Review

This article suggests that in the absence of any requirement in favor of democratic governance of corporations and non-profit entities in national law, as well as in light of a general practice of bifurcated systems (oscillating between de jure equality and power-based governance) in respect of intergovernmental organizations, a nondemocratic governance structure in international sports federations would not deviate from the general rule. What is clearly at stake in complex organizations is effectiveness in achieving the aims of the organization, irrespective if all members are satisfied. The deceptively democratic nature of sporting federations such as FIFA is very much the …

Of Convergence And Contingency: Some Thoughts On Public Firm Fiduciary Duties, Jay B. Kesten

Scholarly Publications

No abstract provided.

Corporate Governance Through Social Media, Christina M. Sautter

Faculty Journal Articles and Book Chapters

Retail investors and other stakeholders are vigorously and loudly taking positions regarding corporate governance issues on social media. They are gathering on social media to discuss which stocks to invest in and to debate and collectively act on corporate governance-related matters. Propelled by new technologies and social media, retail investor engagement has shifted away from traditional venues like corporate voting and shareholder proposals. Retail investors have opened tens of millions of new brokerage accounts since 2020. These new retail investors, primarily Millennials and GenZ’ers, are adept at using technology and naturally gather and obtain information on social media. A co-author …

Leveraging Information Forcing In Good Faith, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

Leveraging Information Forcing in Good Faith, a chapter in Research Handbook on Law and Time, argues that the information-forcing-substance theory has a significant role to play both in how courts decide duty of good faith and oversight matters and in how active and engaged directors can add value in the boardroom. As explored in the chapter, by deploying the theory in corporate-law matters, the courts can reveal the information gaps between officers and directors and create pressure for better processes and discourse within the corporation. In turn, this can impact both the way in which fiduciaries interact with …

Specialist Directors, Yaron Nili, Roy Shapira

Faculty Scholarship

What determines the effectiveness of corporate boards? Corporate legal scholars usually approach this question by focusing on directors’ incentives, such as counting how many directors are independent or whether the roles of the CEO and Chair are separated. Yet on the ground, the focus has been shifting to directors’ skill sets and experience. Investors, regulators, and courts are now pressuring companies to appoint directors with specific types of expertise. In response, more and more companies are adding what we term “specialist directors”: a DEI director, a climate director, a cyber director, and so on. These changes in board composition could …

Outsourcing Voting To Ai: Can Chatgpt Advise Index Funds On Proxy Voting Decisions?, Chen Wang

Fordham Journal of Corporate & Financial Law

Released in November 2022, Chat Generative Pre-training Transformer (“ChatGPT”), has risen rapidly to prominence, and its versatile capabilities have already been shown in a variety of fields. Due to ChatGPT’s advanced features, such as extensive pre-training on diverse data, strong generalization ability, fine-tuning capabilities, and improved reasoning, the use of AI in the legal industry could experience a significant transformation. Since small passive funds with low-cost business models generally lack the financial resources to make informed proxy voting decisions that align with their shareholders’ interests, this Article considers the use of ChatGPT to assist small investment funds, particularly small passive …

The Public’S Companies, Andrew K. Jennings

Fordham Journal of Corporate & Financial Law

This Essay uses a series of survey studies to consider how public understandings of public and private companies map into urgent debates over the role of the corporation in American society. Does a social-media company, for example, owe it to its users to follow the free-speech principles embodied in the First Amendment? May corporate managers pursue environmental, social, and governance (“ESG”) policies that could reduce short-term or long-term profits? How should companies respond to political pushback against their approaches to free expression or ESG?

The studies’ results are consistent with understandings that both public and private companies have greater public …

Expanding Mfw: Delaware Law Should Offer A Business Judgment Rule Safe Harbor For All Conflicted Controller Transactions, Alex Lindsey

Fordham Journal of Corporate & Financial Law

While courts usually defer to a board’s business decisions under the business judgment rule, courts will apply a much less deferential standard of review due to loyalty concerns if a conflicted controller is involved in a business decision such as a merger. However, in Kahn v. M & F Worldwide (“MFW”) when a squeeze out merger was challenged by a minority stockholder, the Delaware Supreme Court reviewed the transaction under the deferential business judgment rule standard because the Court found that the structure of the transaction neutralized the controller loyalty concerns. Building on this reasoning, the Court developed a checklist …

The Problem With The “Non-Class” Class: An Urgent Call For Improved Gatekeepers In Merger Objection Litigation, Josh Molder

Fordham Journal of Corporate & Financial Law

Until recently, class actions dominated merger objection litigation. However, plaintiff’s lawyers have constructed a “non-class” class where an individual suit can benefit from the leverage of a certified class without ever meeting the stringent class certification requirements of Federal Rules of Civil Procedure 23. This new development has initiated a shift in merger objection litigation where plaintiffs are increasingly filing individual suits instead of class actions. However, this shift has left shareholders vulnerable to collusive settlements because plaintiff’s attorneys have significant control over these suits and a strong incentive to settle quickly for a substantial fee. Additionally, corporate defendants are …

Rethinking Acting In Concert: Activist Esg Stewardship Is Shareholder Democracy, Dan W. Puchniak, Umakanth Varottil

Research Collection Yong Pung How School Of Law

In May 2021, Engine No. 1, an investment fund, was lauded by the responsible investment community for successfully placing three dissident independent directors on ExxonMobil’s board. It achieved this by being a catalyst for institutional investors to become backers of environmental shareholder activism. The unprecedented success of Engine No. 1’s campaign has spurred calls for a new, more sustained, activist engagement model by institutional investors, now known as “activist stewardship”.However, there is a significant legal hurdle that has been almost entirely overlooked by those calling for this new approach for institutional investors to become activist stewards: acting in concert rules. …

Wireless Investors & Apathy Obsolescence, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

This Article discusses how a subgenre of retail investors makes investors’ apathy obsolete. In prior work, we dub retail investors who rely on technology and online communications in their investing and corporate governance endeavors “wireless investors.” By applying game theory, this Article discusses how wireless investors’ global-scale online interactions allow them to circulate information and coordinate, obliterating collective action problems.

Raising The Floor From The Back Door: Shareholder Proposals As A Mechanism For Raising Minimum Wage, Laura Carrier

Washington and Lee Law Review

When adjusted to reflect inflation, the federal minimum wage is almost 40 percent lower than it was in 1970. The Biden Administration tried and failed to legislatively raise the minimum wage, and political deadlock will continue to kill legislative change. The shareholder proposal, a nonbinding recommendation to management that shareholders can submit for a vote at a public corporation’s annual meeting, presents a path for improving the wages of many workers in the absence of federal legislation. This Note analyzes the best approach to crafting a shareholder proposal on minimum wage that will prompt an effective increase in the minimum …

Initiation Payments, Scott Hirst

Faculty Scholarship

Many of the central discussions in corporate governance, including those regarding proxy contests, shareholder proposals, and other activism or stewardship, can be understood as a single question: Is there under-initiation of corporate changes that investors would collectively prefer?

This Article sheds light on this question in three ways. First, the Article proposes a theory of investor initiation, which explains the hypothesis that there is under-initiation of collectively-preferred corporate change by investors. Even though investors collectively prefer that certain corporate changes take place, the costs to any individual investor from initiating such changes through high-cost proxy contests, or even low-cost shareholder …

Corporate Governance And The Audit Function In Jordan And The Uk: A Comparative Perspective, Bashar Malkawi

Global Business Law Review

Superior corporate governance forms the bedrock of a prosperous economy. An integral component of outstanding corporate governance is the role of transparent, accurate and freely available information with respect to a company’s books and records. Numerous stakeholders including current and potential investors, business partners, employees, regulators and the public, rely on the integrity of the financial reporting. The law on external auditors in Jordan has undergone significant improvement, yet substantial gaps exist between current law and best practices. The Article focuses on the role of the auditor in ensuring superior corporate governance. The goal of this Article is to assess …

Toward An Enhanced Level Of Corporate Governance: Tech Committees As A Game Changer For The Board Of Directors, Maria Lillà Montagnani, Maria Lucia Passador

The Journal of Business, Entrepreneurship & the Law

Although tech committees are increasingly being included in the functioning of the board of directors, a gap exists in the current literature on board committees, as it tends to focus on traditional board committees, such as nominating, auditing or remuneration ones. Therefore, this article performs an empirical analysis of tech committees adopted by North American and European listed companies in 2019 in terms of their composition, characteristics and functions. The aim of the study is to understand what “technology” really stands for in the “tech committees” label within the board, or – to phrase it differently – to ascertain what …

Is Corporate Law Nonpartisan?, Ofer Eldar, Gabriel Rauterberg

Faculty Scholarship

Only rarely does the United States Supreme Court hear a case with fundamental implications for corporate law. In Carney v. Adams, however, the Supreme Court had the opportunity to address whether the State of Delaware’s requirement of partisan balance for its judiciary violates the First Amendment. Although the Court disposed of the case on other grounds, Justice Sotomayor acknowledged that the issue “will likely be raised again.” The stakes are high because most large businesses are incorporated in Delaware and thus are governed by its corporate law. Former Delaware governors and chief justices lined up to defend the state’s …

Startup Biases, Jennifer S. Fan

Articles

This Article provides an original descriptive account of bias in the startup context and explains why litigation is eschewed and what happens when it is used as a mechanism to combat bias in the venture capital ecosystem. Further, this Article identifies two particular phenomena in the startup context that exacerbate gender and racial bias. First, homophily—the idea that like attracts like—abounds and has been part of the DNA of venture capital since its inception. The thick networks that developed as venture capital made its way from the East Coast to the West Coast were limited to an elite group that …

The Millennial Corporation: Strong Stakeholders, Weak Managers, Michal Barzuza, Quinn Curtis, David H. Webber

Faculty Scholarship

In a prior paper, Shareholder Value(s): Index Fund ESG Activism and The New Millennial Corporate Governance, we argued that the index funds’ sudden shift towards socially-responsible investment, after decades of ignoring or opposing it, was driven by the competition to manage growing Millennial wealth. In our view, the main contribution of that paper was identifying sharp differences between Millennials and prior generations over investment, consumption, and employment. It has now become clear that this contribution has implications far beyond index-fund environmental, social and governance (“ESG”) activism and is in fact completely transforming the corporate world, marking a fundamental shift in …