Business Organizations Law Commons^™

Lawyers In The Moral Maze , Mark A. Sargent

Working Paper Series

This article overviews the various forms of lawyer complicity in illegal or immoral behavior by corporate managers in the corporate scandals of the last three years, but focuses primarily on the question of why lawyers so often seemed willing to engage in or ignore behavior that presumably violated their own personal moral codes (whether religious or secular) as well as their professional role morality. The article draws on Robert Jackall's Moral Mazes (1988) for an answer derived from the sociology of corporate bureaucracies. Jackall's case studies of corporate managers found that managers adhered to the moral "rules-in-use" developed in their …

The Dividend Divide In Anglo-American Corporate Taxation, Steven Bank

ExpressO

Why did the U.S. and U.K. -- two countries with similarly developed economies and corporate cultures -- originally diverge in their approaches to corporate income taxation and why have they continued to vacillate on this issue over time? This Article concludes that it is a result of a divergence in firm dividend policies in the two countries. While firms in both countries maintained liberal dividend policies during the nineteenth century, U.S. firms began to retain more earnings after the turn-of-the-century and this necessitated a change in the method of taxing corporate income. In subsequent years, both countries have undergone major …

The Maximands Of Corporate Governance: A Theory Of Values And Cognitive Style, Amir N. Licht

ExpressO

This paper considers the raison d’être of corporations as it is reflected in the maximands of corporate governance. The debate over stockholders’ versus stakeholders’ interests as such maximands has been raging for decades. Advances in economic theory have not only failed to resolve this debate but have established that the problem is graver than what many may have estimated. This paper turns this debate on its head: Instead of asking What or Whose interests should corporations maximize, the real question is Why is this debate taking place at all? Aiming to extend current economic analyses of the maximands issue, this …

Comparisons Among Firms: (When) Do They Justify Mandatory Disclosure?, Sharon Hannes

ExpressO

Comparisons among firms play a major role in securities analysis. This essay asks if this fact justifies the mandatory nature of securities regulation. Once a firm approaches the public securities markets, federal securities regulations compel it to disclose financial information to the public. A seminal theory argues that firms would not otherwise commit to maintain optimal disclosure levels, since a disclosing firm bears all disclosure costs but does not gain all disclosure benefits.

This paper examines the robustness of this argument in relation to disclosure benefits which arise from comparisons among firms. Financial data of peer firms allows shareholders to …

Investing In The Close Corporation: What The Minority Shareholder Needs To Know Before Giving Up Money And Power, Shawn Diedtrich

ExpressO

Much of the focus in business planning and choice of entity is spent on tax considerations, startup financing, and liability issues owed to the world outside of the entity. Little attention, if any, is given to fiduciary duties between the owners. Even if a discussion occurs, it is likely to focus on the duties of majority owners and/or managers. The surprise comes when a minority owner finds out it may owe a fiduciary duty to the majority—a non-intuitive result. This article attempts to serve as an aid to a minority investor before committing to the investment in a startup close …

Achieving The Double Bottom Line: A Framework For Corporations Seeking To Deliver Profits And Public Services, Lisa M. Fairfax

Faculty Scholarship

Achieving the Double Bottom Line: A Framework for Corporations Seeking to Deliver Profits and Public Services argues that many people who object to for-profit corporations that deliver public services, such as kindergarten through 12th grade education or foster care, have greatly exaggerated the extent to which the for-profit regime will compel such corporations to subordinate the delivery of those services to financial considerations. Because of this over-exaggeration, these opponents have not focused on designing a framework that would assist these entities in meeting their double bottom line—achieving profit for their shareholders while also delivering a high quality public service. The …

The Role Of Trade & Foreign Direct Investment In Development, Kevin A. Hassett

Michigan Journal of International Law

Foreign direct investment (FDI) has been a key component of trade for decades, and has been the focus of a tidal wave of academic research as well. Conceptually, FDI must have an important role in providing welfare gains associated with trade. One of the key differences between countries, after all, is the relative quantity of capital available to its citizens. In these remarks, the author intends to provide a bird's eye view of the literature on FDI with a focus on the developing country's perspective.

Freeze-Out Transactions The Pure Way: Reconciling Judicial Asymmetry Between Tender Offers And Negotiated Mergers, Ely R. Levy

West Virginia Law Review

No abstract provided.

Should Issuers Be On The Hook For Laddering? An Empirical Analysis Of The Ipo Market Manipulation Litigation, Adam C. Pritchard, Stephen J. Choi

Articles

On December 6, 2000, the Wall Street Journal ran a front-page story exposing abuses in the market for initial public offerings (IPOs). The story revealed "tie-in" agreements between investment banks and initial investors seeking to participate in "hot" offerings. Under those agreements, initial investors would commit to buy additional shares of the offering company's stock in secondary market trading in return for allocations of shares in the IPO. As the Wall Street Journal related, those "[c]ommitments to buy in the after-market lock in demand for additional stock at levels above the IPO price. As such, they provide the rocket fuel …

Exchanges Of Multiple Stocks And Securities In Corporate Divisions Or Acquisitive Reorganizations, Douglas A. Kahn, Jeffrey S. Lehman

Articles

If specified conditions are satisfied, the Internal Revenue Code provides nonrecognition for gain or loss realized when stocks and securities of one corporation are exchanged for stocks and securities of another corporation. When the exchange is made as part of a corporate division (a split-off or a split-up), the principal nonrecognition provision is section 355; and when the exchange is made as part of an acquisitive reorganization, the principal nonrecognition provision is section 354. Complete nonrecognition is provided only when stock is exchanged solely for stock and securities are exchanged solely for securities of no greater principal amount. If, in …

Seeking Truth For Power: Informational Strategy And Regulatory Policymaking, Cary Coglianese, Richard Zeckhauser, Edward A. Parson

Articles

Information is the lifeblood of regulatory policy. The effective use of governmental power depends on information about conditions in the world, strategies for improving those conditions, and the consequences associated with deploying different strategies. Indeed, this need for information has led legislatures to create specialized committee structures, delegate policy authority to expert agencies, and develop administrative procedures that encourage analysis. Although legal scholars have extensively debated procedures and reforms designed to improve the analytic and scientific basis of regulatory policymaking, they have paid relatively little attention to how regulators gain the information they need for making and implementing regulatory policy. …

Tender Offers By Controlling Shareholders: The Specter Of Coercion And Fair Price, Adam C. Pritchard

Articles

Taking your company private has never been so appealing. The collapse of the tech bubble has left many companies whose stock prices bordered on the stratospheric now trading at small fractions of their historical highs. The spate of accounting scandals that followed the bursting of the bubble has taken some of the shine off the aura of being a public company-the glare of the spotlight from stock analysts and the business press looks much less inviting, notwithstanding the monitoring benefits that the spotlight purports to confer. Moreover, the regulatory backlash against those accounting scandals has made the costs of being …

Tax Competition: Harmful To Whom?, Michael Littlewood

Michigan Journal of International Law

The aim of this paper is to examine the theory that it is both desirable and feasible to prevent less-developed countries from operating preferential tax regimes (that is, offering tax incentives) as a means of attracting foreign investment.

Rules, Principles, And The Accounting Crisis In The United States, William W. Bratton

Georgetown Law Faculty Publications and Other Works

The Sarbanes-Oxley Act and the Securities Exchange Commission move too quickly when they prod the Financial Accounting Standards Board, the standard setter for US GAAP, to move immediately to a principles-based system. Priorities respecting reform of corporate reporting in the US need to be ordered more carefully. Incentive problems impairing audit performance should be solved first through institutional reform insulating the audit from the negative impact of rent-seeking and solving adverse selection problems otherwise affecting audit practice. So long as auditor independence and management incentives respecting accounting treatments remain suspect, the US reporting system holds out no actor plausibly positioned …

Some Thoughts On Proposed Revisions To The Organizational Guidelines, Julie R. O'Sullivan

Georgetown Law Faculty Publications and Other Works

In this article, Professor O'Sullivan, who served as the reporter for the U.S. Sentencing Commission's Ad Hoc Advisory Group for Organizational Sentencing Guidelines, reflects on that Group's work. She concludes that the potential impact of many of the policy fixes within the power of the Sentencing Commission is dwarfed by decisions that lie solely within the power of the Department of Justice or Congress. Specifically, Department of Justice decisions regarding what constitutes organizational "cooperation" may have a determinative impact on organizational incentives regarding compliance efforts and decisions to investigate, self-report, and cooperate in the remediation of organizational wrongdoing. Professor O'Sullivan …

Politics And The Business Corporation, Robert H. Sitkoff

Law & Economics Working Papers Archive: 2003-2009

This essay explores the policy bases for, and the political economy of, the law's long-standing regulation of corporate political speech. The essay has three parts. First, it contends that the conventional justifications for regulating corporate interventions in politics -- that corporate donations unnaturally skew the political discourse (bad politics) and that corporate political donations harm shareholders (agency costs) -- assume irrational investors and substantial capital market inefficiency. Drawing on public choice theory, the essay also explores the aim of retarding rent-seeking as an alternative justification for regulating corporate interventions in politics. Second, the essay reexamines the history of the regulation …

Valuation Averaging: A New Procedure For Resolving Valuation Disputes, Keith Sharfman

Rutgers Law School (Newark) Faculty Papers

In this Article, Professor Sharfman addresses the problem of "discretionary valuation": that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of "valuation averaging," a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the …

Trust Law, Corporate Law, And Capital Market Efficiency, Robert H. Sitkoff

Law & Economics Working Papers Archive: 2003-2009

In both the publicly-traded corporation and the private donative trust a crucial task is to minimize the agency costs that arise from the separation of risk-bearing and management. But where the law of corporate governance evolved in the shadow of capital-market checks on agency costs, trust governance did not. Thus, even more than that of close corporations, the law and study of private trusts offers an illuminating counterfactual -- a control, as it were -­ for a playful thought experiment about the importance of capital market efficiency to the law and study of public corporations. The animating idea for this …

Lawyers In The Perfect Storm, Mark A. Sargent

Working Paper Series

The multiple corporate collapses and scandals of recent years, for which "Enron" is a convenient shorthand, resulted from a perfect storm in which regulatory oversight, the law of fiduciary duty, gatekeepers, market discipline, and contractual incentives all failed to prevent gross self-dealing, conflicts of interest, and deception, or themselves produced perverse consequences. The story of this simultaneous failure of the structures in place since the New Deal and before, has received considerable attention in both the popular and scholarly literature, but is summarized here to provide a context for consideration of the contributions that lawyers made to the perfect storm. …

A Broader View Of Corporate Inversions: The Interplay Of Tax, Corporate And Economic Implications, Orsolya Kun

ExpressO

Multinational corporations have, in substantial numbers, moved their corporate residence from the U.S. to Bermuda, for the purpuse of minimizing U.S. taxation on their worldwide income. This study reviews the forms of these "corporate inversion transactions," and explores their tax implications, as well as their corporate governance implications and motivations. It is the first scholarly study to examine the corporate governance implications of inversions, and it concludes that previously unexplored aspects of the change of corporate domicile result in substantial reduction of accountability of directors and officers and significant impediments to enforcement of shareholder rights.

The Rational Exuberance Of Structuring Venture Capital Startups, Victor Fleischer

ExpressO

This Article takes the bursting of the dot com bubble as an opportunity to reevaluate the tax structure of venture capital startups. By organizing startups as corporations rather than as partnerships, investors and entrepreneurs seem to leave money on the table by failing to fully use tax losses -- especially since the vast majority of startups fail. Conventional wisdom attributes the lack of attention paid to losses to a "gambler's mentality" or optimism bias. I argue here that the use of the corporate form is, in fact, rational, or at least that there is a method to the madness.

I …

The Trajectory Of (Corporate Law) Scholarship, Brian R. Cheffins

ExpressO

While considerable attention is devoted to legal scholarship, little has been written on the process by which academic writing on law evolves. This paper departs from the existing pattern and examines five potential trajectories for legal scholarship. One is based on the idea that knowledge “accumulates” as part of “progress” towards a better understanding of the matters under study. The second is the concept of the “paradigm”, derived from work done on the history and sociology of science. The third focuses on the idea that academic endeavor concerning law yields useful ideas since market forces are at work. The fourth …

Corporate Governance After Enron And Global Crossing: Comparative Lessons For Cross-National Improvement, Edward S. Adams

Indiana Law Journal

No abstract provided.

Racial Stereotypes, Broadcast Corporations, And The Business Judgment Rule, Leonard M. Baynes

University of Richmond Law Review

No abstract provided.

Corporate Governance In The Emerging Markets Of The Global Village: Latin And South America, Rhoda Karpatkin

Richmond Journal of Global Law & Business

Corporate governance scandals in America have focused public attention once again on global governance issues. Issues that are not solely corporate or business concerns, they have become public, political, and ethical concerns. They have become economic concerns, particularly due to the erosion of public confidence in the integrity of corporate leadership and the institutions that are charged with their oversight.

Beyond The Business Judgment Rule: Protecting Bidder Firm Shareholders From Value-Reducing Acquisitions, Ryan Houseal

University of Michigan Journal of Law Reform

During the takeover transactions of the 1980s, bidder firms paid target firm shareholders average premiums of approximately 50% for their shares. Did the sizable premiums paid to target firm shareholders during the 1980s reflect post-takeover improvement in the target's performance? Or were the premiums a result of the mismanagement of the bidder firms' assets?

The answer will help determine whether additional legal mechanisms should be established to protect bidder firm shareholders from the threat of management's consummation of value reducing acquisitions. Accordingly, this Note examines various studies which attempt to identify the source of the premiums paid to target firm …

Should Congress Repeal Securities Class Action Reform?, Adam C. Pritchard

Other Publications

The Private Securities Litigation Reform Act of 1995 was designed to curtail class action lawsuits by the plaintiffs’ bar. In particular, the high-technology industry, accountants, and investment bankers thought that they had been unjustly victimized by class action lawsuits based on little more than declines in a company’s stock price. Prior to 1995, the plaintiffs’ bar had free rein to use the discovery process to troll for evidence to support its claims. Moreover, the high costs of litigation were a powerful weapon with which to coerce companies to settle claims. The plaintiffs’ bar and its allies in Congress have called …

Competition, Corporate Responsibility, And The China Question, Jospeh Vining

Other Publications

"Corporate responsibility" is not a peripheral matter. It is at the core of all decision-making on behalf of business corporations under American law. This paper examines the effort to add an exemption for "business" in corporate form to the exemptions from ordinary responsibility that are seen in other areas of activity - e.g., for the military, for lawyers in adversarial litigation, or for investigators in scientific research. It looks at a number of well known cases and points to the often neglected relevance of both the criminal law applicable to corporations as such, and the evolving professional responsibility of corporate …

Protection Against Unwarranted Searches And Seizures Of Corporate Premises Under Article 8 Of The European Convention On Human Rights: The Colas Est Sa V. France Approach, Marius Emberland

Michigan Journal of International Law

In this Article, the author considers the judgment delivered April 16, 2002, by the European Court of Human Rights in the case of Colas Est SA v. France. The judgment concerned the interpretation of Article 8 of the European Convention on Human Rights (ECHR), which provides: (1) Everyone has the right to respect for his private and family life, his home and his correspondence. (2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests …

Questions To Ask Before You Join A Club, Laura N. Beny, Paul S. Bird, Franci J. Blassberg, Michael P. Harrell

Articles

Despite the recent flurry of large transactions in which a consortium of private equity firms have teamed up to make joint bids and acquisitions, “club deals” themselves are not breaking news. In fact, they have been a staple of small- and middle-sized private equity M&A transactions for years. Recently, however, there has been a growing trend toward large club deals with enterprise values over $1 billion.1 Due to their size, complexity and, often, international dimension, these transactions have generated considerable attention in the business press and have prompted much discussion among private equity professionals and the limited partners whose money …