Business Organizations Law Commons^™

Patients As Stakeholders, Isaac D. Buck

William & Mary Law Review

Once a provider of public support and charity, the American hospital is now a source of dividends for private actors. Profit interests have encroached on, and increasingly replaced, the publicly minded heroism of the American hospital, the central hub of a complex and disordered health care system. This new profit-first posture creates ill effects for the people who rely on health care delivery: those who work within it, those who are treated within it, and those who pay for it. When hospitals need to deliver for their corporate shareholders, legitimate questions arise about how much they are delivering for patients …

Purpose-Driven Compliance, Veronica Root Martinez

Faculty Scholarship

Whether it is a small brokerage firm in Ann Arbor, Michigan, a private university in Cambridge, Massachusetts, or a multinational conglomerate head-quartered in New York City, organizations understand that they are required to fulfill a range of compliance obligations. Compliance programs today tend to have two important characteristics in common. First, the notion that perfect compliance is an impossible goal is a key component of the understandings and expectations of many firms’ compliance programs. Second, organizations have almost uniformly adopted compliance programs in areas where enforcement activity has been significant—like in the areas of antibribery and anticorruption, anti-money laundering, antitrust, …

Toward Digital Corporate Law: Revisiting Corporate Law's Responses To Technology, Chen Wang, Ke Xu

William & Mary Business Law Review

This Article examines the dynamic relationship between emerging technologies and corporate law, raising fundamental questions about whether these technological advancements require reshaping traditional legal doctrines. It investigates key aspects of corporate law—including corporate formation, governance, and finance—through a comparative analysis of Chinese and U.S. legal frameworks. This Article critically assesses the ability of contemporary corporate law to respond effectively to technological challenges posed by artificial intelligence (AI), particularly in relation to evolving fiduciary duties of corporate agents and shifts in the balance of power between shareholders and management. Furthermore, this Article proposes innovative strategies for future corporate law development, advocating …

Performance Leads Governance: A Comment On Professor Tallarita’S Dual-Class Analysis, David J. Berger, Pierluigi Matera

Faculty Scholarship

The rise of dual-class stock structures in corporate governance has sparked intense academic, legal, and regulatory debate. In his recent contribution, Dual-Class Contracting, Professor Tallarita persuasively challenges some contemporary interpretations of contractarian theories by showing that dual-class structures do not reflect bespoke bargaining or firm-specific negotiation, but rather result from lawyer-driven standardization, social norms, and path dependency.

Drawing on Tallarita’s empirical findings, we argue that the reality of dual-class structures extends beyond governance formality. Specifically, we contend that investor behavior is driven not by structural governance ideals, but by corporate performance and mission alignment. Companies increasingly design governance structures based …

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 …

Unflexed Muscle: Sec Enforcement And Officer Sox 302 Certifications, Marc I. Steinberg, A.B. Steinberg

Faculty Journal Articles and Book Chapters

This article represents the first work to analyze the Securities and Exchange Commission’s neglect in its enforcement of the chief executive officer (CEO) and chief financial officer (CFO) Sarbanes-Oxley certification requirement. The article addresses the appropriate construction of the statute’s reach, the enforcement proceedings instituted by the SEC under this provision, and the Commission’s failure to fulfill its legislative directive to enforce this statute and Rule 13a-14 promulgated thereunder. In its implementation of the CEO and CFO certification requirement, the SEC has brought relatively few enforcement actions during over a two-decade period. Its enforcement with respect to CEOs and CFOs …

Government Ownership Of Stock In A Corporation, Harrison Sullivan

Tennessee Journal of Law and Policy

No abstract provided.

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 …

The Irrelevance Of Delaware Corporate Law, Robert J. Rhee

UF Law Faculty Publications

Delaware corporation law is dominant in America. If the effects of efficient rules are incorporated as information by an efficient capital market, the preferred choice of Delaware could evince the deliberate selection of better laws. Superior law as a product of state competition is the central argument for corporate law federalism. Despite the spirited debate on the race to the bottom or the top, a recognition of a “Delaware premium” to firm value is scant. This article conducts a longitudinal study of valuations. It analyzes the market values and stock prices of public Fortune 500 companies over the five-year period …

Public Reporting Of Monitorship Outcomes, Veronica Root Martinez

Faculty Scholarship

When a corporation engages in misconduct that is widespread or pervasive, courts, regulators, or prosecutors often insist that the firm obtain assistance from an independent third party — a monitor — to oversee the firm’s remediation effort. The largest firms in the world — from Deutsche Bank, to Volkswagen, to Carnival Cruise Lines — have found themselves having to retain a monitor for corporate misconduct, despite attempts to avoid a monitorship entirely. Traditionally, monitors, or their special master forebearers, were utilized by courts to assist in overseeing compliance with court orders, and their work was both accessible and transparent. As …

Is Corporate Law Nonpartisan?, Ofer Eldar, Gabriel V. Rauterberg

Faculty Scholarship

Only rarely does the United States Supreme Court hear a case with fundamental implications for corporate law. In Camey 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 "nonpartisan" …

Independence Reconceived, Claire Hill, Yaron Nili

Faculty Scholarship

What makes a director independent? Scholars, regulators, and investors have grappled for decades with the fleeting notion of director independence. Originally conceived as guardians of shareholder interests that could safeguard a corporate board’s ability to check management’s power, independent directors have become a marquee feature of modern corporate governance. But do the corporate actions of directors that are considered “independent” under current standards comport with what we think independence requires? In many cases, the answer would seem to be “no.” From a lack of observable financial impact to the unabated flow of corporate scandals, independent directors seem to keep failing …

Reconciling Corporate Interests With Broader Social Interests - Pursuit Of Corporate Interests Beyond Shareholder Primacy, Yong-Shik Lee

William & Mary Business Law Review

A seminal case in corporate law, Dodge v. Ford Motor Co., set the cardinal principle that corporations must serve the interests of shareholders rather than the interests of employees, customers, or the community. This principle, referred to as “shareholder primacy,” has been considered a tenet of the fiduciary duty owed by corporate directors. Scholars have disagreed on the current legal status of shareholder primacy. This Article examines the controversy in light of the current state legislation and case law. Regardless of its current legal status, shareholder primacy has influenced corporate behavior and encouraged short-term profit-seeking behavior with significant social …

Enabling Esg Accountability: Focusing On The Corporate Enterprise, Rachel Brewster

Faculty Scholarship

Environmental, social, and governance accountability for companies has become an important topic in popular and academic debate in modern society. The idea that corporations should have ESG goals has been embraced by major investment companies, employees, and many corporations themselves. Yet, less attention has been focused on how corporate enterprise law—which governs how corporations structure their relationships between parent corporations and their subsidiaries—creates or contributes to the ESG concerns that the public has with corporations in the first place. Modern enterprise law allows corporations, particularly those operating across national borders, to use their subsidiaries to avoid responsibility for their public …

The Corporate Governance Gap, Kobi Kastiel, Yaron Nili

Faculty Scholarship

A reliable system of corporate governance is considered an important requirement for the long-term success of public companies and for the good of society at large. After decades of research and policy advocacy, there is a growing sense that corporations are finally nearing the promised land: boards of public corporations seem more diverse, large investors seem more engaged, and directors seem more accountable than ever. But is this perception accurate? While many large, high-profile companies tend to serve as role models of desirable governance practices, the picture of corporate governance—as this Article reveals—is considerably different in the far corners of …

Corporatizing Administrative Law For Economic Constitutionalism In Ghana: An African Legal Study, Rowland Atta-Kesson

Maurer Theses and Dissertations

As the Government of Ghana partners the private sector to promote district industrialization in Ghana under what is locally called “one-district-one factory” (1D1F), this study argues that it is important to foster economic constitutionalism with legal and institutional innovations. One such innovation is this study’s emergent or grounded theory of corporatized administrative law. The study is unique because it contributes to the so-called new administrative law theory with fresh evidence from Ghana on the interface between the public and private sectors under the district industrialization program. The key problem is the challenge that democratic policy discontinuity poses to business protection …

Whistleblowers: Implications For Corporate Governance, Deborah A. Demott

Faculty Scholarship

Often overlooked in academic accounts of corporate governance and the actors who populate governance structures, whistleblowers are no more visible in formal governance frameworks. Within a corporation, whistleblowers may be lower-rank employees, not directors or officers; they may report perceptions of wrongdoing to others within the corporation or inform governmental or other actors who are externally situated. Nonetheless, it is striking how often retrospective accounts of corporate scandals involve episodes of internal whistleblowing associated with governance and compliance failures. This paper argues that incorporating whistleblowers into formal governance structures could spur more proactive involvement by directors in monitoring compliance with …

A Revised Monitoring Model Confronts Today's Movement Toward Managerialism, James D. Cox, Randall S. Thomas

Faculty Scholarship

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand, and economic, social, and political changes on the other hand. Aberrations, however, do arise but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments …

The Sec's Shareholder Proposal Rule: Creating A Corporate Public Square, James D. Cox, Randall S. Thomas

Faculty Scholarship

In this Article, we take advantage of this Symposium’s goals to think broadly about the future of Rule 14a-8 of the Securities Exchange Act of 1934, the shareholder proposal rule. We set forth a vision for the rule to address boardroom insularity by likening the shareholder proposal rule as the public square for shareholders. The existence of such a forum would redound to the benefit of investors, officers, and boards of directors as a fount of current and useful information about their investors’ and stakeholders’ concerns.

The New Public/Private Equilibrium And The Regulation Of Public Companies, Elisabeth De Fontenay, Gabriel Rauterberg

Faculty Scholarship

This Symposium Article examines how the public/private divide works today and maps out some of the potential implications for major issues in securities law. Classic debates in securities law were often predicated on the idea that public companies are a coherent class of firms that differ markedly from private companies. For more than fifty years after the adoption of the federal securities laws, this view was justified. During that period, the vast majority of successful and growing private firms eventually accepted the regulatory obligations of being public in order to access a wider and deeper pool of capital, among other …

Cleaning Corporate Governance, Jens Frankenreiter, Cathy Hwang, Yaron Nili, Eric L. Talley

Faculty Scholarship

Although empirical scholarship dominates the field of law and finance, much of it shares a common vulnerability: an abiding faith in the accuracy and integrity of a small, specialized collection of corporate governance data. In this paper, we unveil a novel collection of three decades’ worth of corporate charters for thousands of public companies, which shows that this faith is misplaced.

We make three principal contributions to the literature. First, we label our corpus for a variety of firm- and state-level governance features. Doing so reveals significant infirmities within the most well-known corporate governance datasets, including an error rate exceeding …

The Giant Shadow Of Corporate Gadflies, Kobi Kastiel, Yaron Nili

Faculty Scholarship

Modern-day shareholders influence corporate America more than ever before. From demanding greater accountability of executives to lobbying for a variety of social and environmental policies, shareholders today have the power to alter how American companies are run. Amazingly, a small group of individual shareholders wields unprecedented power to set corporate agendas and stands at the epicenter of our contemporary corporate governance ecosystem. In fact, the power of these individuals, known as “corporate gadflies,” continues to rise.

Corporate gadflies present a puzzling reality. Although public corporations in the United States are increasingly owned by large institutional investors, much of their corporate …

Corporate Law And The Myth Of Efficient Market Control, William W. Bratton, Simone M. Sepe

Cornell Law Review

In recent times, there has been an unprecedented shift in power from managers to shareholders, a shift that realizes the long-held theoretical aspiration of market control of the corporation. This Article subjects the market control paradigm to comprehensive economic examination and finds it wanting.

The market control paradigm relies on a narrow economic model that focuses on one problem only: management agency costs. With the rise of shareholder power, we need a wider lens that also takes in market prices, investor incentives, and information asymmetries. General equilibrium (GE) theory provides that lens. Several lessons follow from reference to this higher-order …

Complex Compliance Investigations, Veronica Root Martinez

Faculty Scholarship

Whether it is a financial institution like Wells Fargo, an automotive company like General Motors, a transportation company like Uber, or a religious organization like the Catholic Church, failing to properly prevent, detect, investigate, and remediate misconduct within an organization’s ranks can have devastating results. The importance of the compliance function is accepted within corporations, but the reality is that all types of organizations—private or public—must ensure their members com­ply with legal and regulatory mandates, industry standards, and internal norms and expectations. They must police thousands of members’ compli­ance with hundreds of laws. And when compliance failures occur at these …

Shareholder-Driven Stakeholderism, Cathy Hwang, Yaron Nili

Faculty Scholarship

For last two decades, scholars, judges, and corporations have embraced the idea that corporations should maximize benefit for shareholders. But on a lazy summer day in August of 2019, that changed. The CEOs of nearly 200 major U.S. companies released a statement embracing stakeholder theory—the idea that corporations should look after the needs of not only shareholders, but also those of employees, suppliers, community members, and others. Many applauded this as a progressive step: a way for corporations to take control back from the outsized, greedy influence of profit-driven shareholders. This Essay takes a different view, arguing that shareholders have …

Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar

Faculty Scholarship

A key question at the intersection of state and federal law is whether corporations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Securities Act of 1933 (“1933 Act”). The decision held that the internal affairs doctrine, which is the bedrock of U.S. corporate law, does not permit charter and bylaw provisions …

Chancery’S Greatest Decision: Historical Insights On Civil Rights And The Future Of Shareholder Activism, Omari Scott Simmons

Washington and Lee Law Review

This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.

Shareholder activism—using an equity stake in a corporation to influence management—has become a popular tool to effectuate social change in the twenty-first century. Increasingly, activists are looking beyond financial performance to demand better corporate performance in such areas as economic inequality, civil rights, human rights, discrimination, and diversity. These efforts take many forms: publicity campaigns, litigation, proxy battles, shareholder resolutions, and negotiations with corporate management. However, a consensus on …

Functional Corporate Knowledge, Mihailis Diamantis

William & Mary Law Review

The line between guilt and innocence often turns on what a defendant knew. Although the law’s approach to knowledge may be relatively straightforward for individuals, its doctrines for corporate defendants are fraught with ambiguity and opportunities for gamesmanship. Corporations can spread information thinly across employees so that it is never “known.” And prosecutors can exploit legal uncertainties to bring knowledge-based charges where corporations were merely negligent in how they handled information. Whereas knowledge as a mens rea has unique practical and normative properties that vary with a corporation’s size and industry, corporate law treats knowledge just like any other mental …

Successor Ceos, Yaron Nili

Faculty Scholarship

Recent years have seen a push towards separating the roles of CEO and chairperson of the board. While many companies still maintain a combined CEO-chair role, investors consistently express their concern that the dual CEO-chair position jeopardizes the independence and effectiveness of the board. Yet, while investors and academic research have focused on one channel for achieving such separation—through the appointment of an independent director as chair—a second has been left relatively unexplored. In fact, in many cases, as this Article documents, the separation of CEO-chair has occurred through the second channel: the current CEO-chair steps down as CEO while …

Activist Directors And Agency Costs: What Happens When An Activist Director Goes On The Board?, John C. Coffee Jr., Robert J. Jackson Jr., Joshua R. Mitts, Robert E. Bishop

Faculty Scholarship

We develop and apply a new and more rigorous methodology by which to measure and understand both informed trading and the agency costs of hedge fund activism. We use quantitative data to show a systematic relationship between the appointment of a hedge fund-nominated director to a corporate board and an increase in informed trading in that corporation’s stock (with the relationship being most pronounced when the fund’s slate of directors includes a hedge fund employee). This finding is important from two different perspectives. First, from a governance perspective, activist hedge funds represent a new and potent force in corporate governance. …