Business Organizations Law Commons^™

Why Corporate Purpose Will Always Matter, Lyman P.Q. Johnson

Scholarly Articles

Business persons and lawyers (and law professors) perennially struggle over the question whether a business corporation does or should have a purpose other than advancing the interests of shareholders. After briefly setting the stage by describing the dispute over what the positive law of corporate purpose really is and the normative argument over what corporate purpose should be, this short article takes a different turn. It addresses why, in a dynamic, democratic, pluralist society, the foundational issue of corporate purpose remains so important and will not (and should not) go away. However adamantly divergent descriptive and prescriptive positions are held, …

Shareholder Appraisal Rights: Delaware’S Flawed Market-Out Exception, Lin (Lynn) Bai, William A. Murphy

Faculty Articles and Other Publications

State statutes give dissenting shareholders an appraisal right in some, but not all corporate mergers. A widely adopted market-out exception denies appraisal if the shares are publicly traded. The rationale for market-out is that the public market offers a reliable valuation of the stocks and a convenient exit to dissenting shareholders. A major criticism of market-out is that market prices may not reflect the full value of the shares due to information asymmetry in mergers involving conflicts of interests. Delaware’s market-out approach is drastically different from that adopted by the Model Business Corporation Act (MBCA), but both have a significant …

Teaching Theranos, Priya Baskaran

Tennessee Law Review

The story of Theranos and disgraced CEO Elizabeth Holmes highlights numerous missed opportunities for effective intervention by corporate counsel. In particular, the lawyers at Theranos served as weak gate-keepers who were easily steamrolled by a power-drunk entrepreneur. The dominant business law pedagogy contributes to this problem by emphasizing litigation mitigation as the primary function of corporate lawyers. This framing improperly minimizes the role and influence of transactional attorneys to the detriment of all involved. Law Professors can change this narrative through much needed pedagogical innovation. Currently, any innovation in business law courses centers on the incorporation of drafting and other …

Anonymous Companies, William J. Moon

Faculty Scholarship

Hardly a day goes by without hearing about nefarious activities facilitated by anonymous “shell” companies. Often described as menaces to the financial system, the creation of business entities with no real operations in sun-drenched offshore jurisdictions offering “zero percent” tax rates remains in vogue among business titans, pop stars, multimillionaires, and royals. The trending headlines and academic accounts, however, have paid insufficient attention to the legal uses of anonymous companies that are both ubiquitous and almost infinite in their variations.

This Article identifies privacy as a functional feature of modern business entities by documenting the hidden virtues of anonymous companies—business …

Sustainability Verification, Paul Rose

American University Law Review

From the earliest stages of the sustainable finance market and of green, social, and sustainable debt as an asset class, sustainability verifiers have been essential to the market’s function. Sustainability verifiers—professional service providers who provide an external review of an issuer’s alignment with established green bond frameworks—play a crucial role in reducing information asymmetries between sustainable finance instrument issuers and investors and serve as reputational intermediaries that assure buyers of the seller’s green, social, and sustainability-centered commitments. Yet, despite their essential function in facilitating the investment of trillions of dollars in green, social, and sustainable finance investments, the role and …

Racial Capitalism: Complexities With Enforcing Corporate Commitments To End Racial Injustice, 55 Uic L. Rev. 519 (2022), Natè Simmons

UIC Law Review

No abstract provided.

The “Corporation Revolution” And The Professional Ethics Of Giving Advice On Executive Protection Issues, Sarah Helene Duggin, Shannon "A.J." Singleton, James D. Wing

Scholarly Articles

In today's law enforcement environment, business entities facing criminal investigations and possible indictment have little practical choice but to cooperate with authorities. Cooperation offers the opportunity to avoid a costly trial and attendant adverse reputational, financial, and morale impacts. Resolution of potential criminal charges, however, almost always requires entities to cooperate with law enforcement efforts to impose criminal liability on individual business executives.

While businesses and their executives once generally perceived their interests as closely aligned, the “Cooperation Revolution” of the last few decades has forced corporate boards and business executives to reassess their individual obligations and risks. In so …

Combatting Wage Theft In Global Supply Chains: A Proposal For Transnational Wage Lien Laws, Nabila N. Khan

LL.M. Essays & Theses

When the world went into lockdown due to the COVID-19 pandemic, major fashion brands attempted to protect their profits by refusing to pay overseas suppliers for over $16 billion USD of goods between April and June 2020. These decisions had a devastating impact on garment workers who toil at the bottom of the supply chain; thousands of garment workers and their families faced wage theft, dealing with months of unpaid wages, benefits and/or severance pay. In the absence of a regulatory framework to hold corporations responsible, workers, unions, and NGOs resorted to naming and shaming brands into taking action. However, …

The Complex Dualisms Of Corporations And Democracy, Franklin A. Gevurtz

McGeorge School of Law Scholarly Articles

These are perilous times for American democracy. Among the threats, many point to the power of corporations. This article examines that threat by considering a series of dualisms characterizing the relationship between corporations and democracy. This begins with a look at the anti- as well as the pro-democratic impacts of the earliest corporations and the paradoxes with respect to democracy created during the evolution of corporate law. The article then looks at internal corporate governance (so-called “corporate” or “shareholder democracy”) to show how, on the one hand, it contains features addressing some of the greatest current threats to American democracy, …

Legal And Market Initiatives To Increase Diversity In Corporations—A Cross-Jurisdictional Analysis, Akshaya Kamalnath

Seattle University Law Review

This Article will critically examine various legal and market initiatives to increase diversity in corporations, with the aim of assessing their effectiveness. The initiatives explored in this Article include quota laws in Europe (including recent amendments in France and Germany which introduce quotas for executive director positions) and California; disclosure laws in the U.S., Nasdaq, and U.K.; and initiatives by institutional investors. The main argument this Article makes is that both quotas and quantitative disclosures do not provide the right incentives for corporations to make genuine efforts to improve diversity. The alternative this Article proposes is not to simply leave …

The Implications Of Corporate Political Donations, Benjamin P. Edwards

Scholarly Works

No abstract provided.

The Landscape Of Startup Corporate Governance In The Founder-Friendly Era, Jennifer S. Fan

Articles

In corporate governance scholarship, there is an important debate about the nature and roles of the members of the board of directors in venture capital-backed private companies. The impact of a newly emerged, founder-centric model has been underappreciated, while the role of the independent director as tiebreaker or swing vote is vastly overstated. The reality is that corporate governance in these companies is a norm-driven, consensus-building process that rarely spills out into open conflict.

This is the first empirical study of startup corporate governance post-Great Recession and during the pandemic. Using survey and interview methodologies, this Article makes four primary …

Toward A Fair And Sustainable Corporate Governance System: Reflections On Leo Strine, Jr.'S Writing On Institutional Investors, Dorothy S. Lund

Faculty Scholarship

It is a privilege to contribute to this Festschrift for my friend, mentor, and co-author, Leo Strine, Jr. It is also a pleasure to revisit his vast body of work and to re-experience the breadth and depth of his scholarship, as well as reflect on his unparalleled influence on the development of corporate law that he brought about while presiding over its most influential courts for twenty-one years.

In thinking about this essay, I recalled a conversation that I had with “CJS” when I was serving as his law clerk. In this conversation, he decried (with James Taylor blasting in …

Crime And The Corporation: Making The Punishment Fit The Corporation, John C. Coffee Jr.

Faculty Scholarship

The debate over corporate criminal liability has long involved a fight between proponents who argue that corporate liability is necessary for effective deterrence and opponents who claim that it “punishes the innocent.” This Article agrees and disagrees with both sides. Corporate criminal liability could play a critical role in establishing an effective deterrent to organizational misconduct, but today it largely fails. Currently, we have a system that combines Deferred Prosecution Agreements, Non-Prosecution Agreements, and extraordinarily generous sentencing credits for compliance plans that have failed, and the result is a system that is more carrots than sticks. The evidence seems clear …

Agents Of Inequality: Common Ownership And The Decline Of The American Worker, Zohar Goshen, Doron Levit

Faculty Scholarship

The last forty years have seen two major economic trends: wages have stalled despite rising productivity, and institutional investors have replaced retail shareholders as the predominant owners of the U.S. equity markets. A few powerful institutional investors — dubbed common owners — now hold large stakes in most U.S. corporations. And in no coincidence, when U.S. workers acquired this new set of bosses, their wages stopped growing while shareholder returns increased. This Article explains how common owners shift wealth from labor to capital, thereby exacerbating income inequality.

Powerful institutional investors pushing public corporations en masse to adopt strong corporate governance …

The Future Of Board Time And Priorities, Janet Foutty, Eric L. Talley, Carey Oven, Erica Mitnick Klein, Maureen Bujno, Katherine Waldock, Molly Calkins, Lyssa Bantleon Little, Caroline Schoenecker

Faculty Scholarship

“Houston, we’ve had a problem.”

Popularized by the 1995 film Apollo 13, this one line signals a dramatic turning point in the story of the 1970 mission to land three people on the surface of the moon.

It recounts the pivotal moment when carefully laid plans for a 33-hour stay on the moon are about to go awry. The very purpose of the mission — two space walks, a series of geological surveys, and the placement of scientific instruments that would send data back to Earth for long after — is in jeopardy.

It is the moment when the playbook …

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 …

Systemic Stewardship, Jeffrey N. Gordon

Faculty Scholarship

This Article frames a normative theory of stewardship engagement by large institutional investors and asset managers that is congruent with their theory of investment management — “Modern Portfolio Theory” — which describes investors as attentive to both systematic risk as well as expected returns. Because investors want to maximize risk-adjusted returns, it will serve their interests for asset managers to support and sometimes advance shareholder initiatives that will reduce systematic risk. “Systematic stewardship” provides an approach to “ESG” matters that serves both investor welfare and social welfare and fits the business model of large, diversified funds, especially index funds. The …

Salt, Smurthwaite, And Smith: The Origins Of The Modern Legal Identity Of The Church Of Jesus Christ Of Latter-Day Saints, Nathan B. Oman

Faculty Publications

In 2019 there existed a legal entity known as The Church of Jesus Christ of Latter-day Saints. This fact will likely strike most readers as unexceptional. More interesting, however, prior to 2019 there had been no such legal entity as the Church of Jesus Christ of Latter-day Saints for over 150 years, the last of that name likely having been disincorporated in 1862. Even more strangely, although there were millions of people around the globe who identified themselves as Latter-day Saints, in 2019 the only member of the legal entity known as The Church of Jesus Christ of Latter-day Saints …

Problems Of The Use Of Registered Trademark In The Case Of Fair Use, Nantarat Munsrijan

Chulalongkorn University Theses and Dissertations (Chula ETD)

According to Section 44 of the Trademark Act B.E. 2534, once the trademark has been registered, the trademark owner will have the exclusive right to authorize or prohibit others from using the mark. For this reason, if a person uses a trademark that is same to or similar to that registered trademark on registered goods of that class without permission from the registered trademark owner under the law and causes damage to the trademark owner who is the registrant, it would be considered an infringement of the right to use the trademark under this Section 44. However, in Thailand determines …

Caremark's Butterfly Effect, Angela N. Aneiros, Karen E. Woody

American University Law Review

In 1996, the Delaware Court of Chancery detailed the minimum standard for corporate boards of directors (“board”) with regard to corporate compliance programs and monitoring protocols. The landmark Caremark decision held that directors would not face liability for a breach of fiduciary duties unless they failed to implement a system of controls and compliance, or knowingly failed to monitor that system. In order to bring a successful Caremark claim, plaintiffs must prove that the board operated in bad faith by failing to exercise oversight in a sustained or systemic way. The Delaware Court of Chancery opinion noted that the theory …

Acquisitions Entrepreneurship: One Solution To The Looming Business Succession Crisis, David Nows

Indiana Law Journal

In the coming years, there will be a growing supply of small businesses held by aging owners that need to execute a succession plan, transitioning the business to a new owner that can carry the business forward in future years. Unfortunately, very few of these Baby Boomer-led businesses have a plan for who will take over for the primary business owner when the time comes, creating an emerging leadership crisis. However, there is an underutilized acquisition strategy that allows for a motivated and skilled entrepreneur to team with a small group of investors to search for (and ultimately to purchase) …

Mandating Board Diversity, Sung Eun (Summer) Kim

Indiana Law Journal

California’s Assembly Bill 979 (AB-979) requires companies that are based in California to have a specified minimum number of directors from underrepresented communities. A “director from an underrepresented community” is defined as an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who selfidentifies as gay, lesbian, bisexual, or transgender. AB-979 received much attention for being the first law to mandate greater diversity on corporate boards in terms of race and sexual orientation. Senate Bill 826 (SB-826), which was introduced two years prior, was the first U.S. legislative effort …

Illusory Privacy, Thomas Haley

Indiana Law Journal

For decades, regulators, consumer advocates, and privacy theorists have grappled with one of privacy’s most important questions: how to protect private information that consumers unwittingly give away with the click of an “I accept” button. Reform efforts remain mired in a morass of text, focusing on the increasing volume and complexity of firms’ terms of service and privacy policies. This Article moves beyond such existing approaches. By analyzing terms of service and privacy policies from hundreds of top websites—which this Article calls “platform terms”—this Article demonstrates that the prevailing “notice and consent” paradigm of privacy regulation cannot provide meaningful protection. …

Taking Misappropriation Seriously: State Common Law Disgorgement Actions For Insider Trading, Jeanne L. Schroeder

American University Business Law Review

This article examines the restitutionary remedy of disgorgement and connects it to the specific context of insider trading. It argues that disgorgement can and should be sought in private rights of actions brought under state common law rather than by the SEC under the federal securities laws.

The Ab5 Experiment — Should States Adopt California’S Worker Classification Law?, Samantha Prince

American University Business Law Review

A worker's classification as either independent contractor or employee drives whether a worker is entitled to minimum wage, overtime, worker's compensation, unemployment compensation, anti-discrimination protection, National Labor Relations Act protections, and many other safety-net protections. During the COVID-19 pandemic, unemployment protections were extended to independent contractors, but this is not the norm and is not slated to continue post-pandemic. Classifying certain workers, particularly those who work in the app- based economy, is challenging, so states are looking for an answer - either through their own innovation or through that of other states. California's answer was AB5. AB5's goals were to …

Delaware Law For Non-Corporate Entities: A Commentary, Peter Molk

UF Law Faculty Publications

Robert Rhee’s Article, The Irrelevance of Delaware Corporate Law, poses provocative questions about why Delaware dominates the market for corporate law given the apparent irrelevance of state incorporation choice for companies’ market valuations. He shows, first, that publicly traded companies incorporated in Delaware have similar valuations to companies incorporated in other states over time, and second, that market actors do not exhibit a preference to reincorporate existing firms in Delaware.

Rhee analyzes exclusively the realm of publicly traded corporations, which is understandable given that his analysis is necessarily limited to publicly available data. Publicly traded corporations are undeniably economically …

Hidden Agendas In Shareholder Voting, Scott Hirst, Adriana Z. Robertson

Faculty Scholarship

Nothing in either corporate or securities law requires companies to notify investors what they will be voting on before the record date for a shareholder meeting. We show that, overwhelmingly, they do not. The result is “hidden agendas”: for 88% of shareholder votes, investors cannot find out what they will be voting on before the record date. This poses an especially serious problem for investors who engage in securities lending: they must decide whether the expected benefit of voting exceeds the expected benefit of continuing to lend their shares (or making them available for lending) without knowing what they will …

Moonshots, Matthew Wansley

Articles

In the last half-century, technological progress has stagnated. Rapid advances in information technology disguise the slow pace of productivity growth in other fields. Reigniting technological progress may require firms to invest in moonshots—long-term projects to commercialize innovations. Yet all but a few giant tech firms shy away from moonshots, even when the expected returns would justify the investment. The root of the problem is corporate structure. The process of developing a novel technology does not generate the kind of interim feedback that shareholders need to monitor managers and managers need to motivate employees. Managers who anticipate these agency problems invest …

The Direct-Derivative Distinction, The Special Litigation Committee, And The Uniform Act: A Response To Professor Weidner, Daniel S. Kleinberger

Faculty Scholarship

The Unfortunate Role of Special Litigation Committees in LLCs has a deeply pejorative view of the Uniform Law Commission “second generation” limited liability company act, and that view extends far deeper than the target suggested by the article’s title. The article’s fundamental attack is on the distinction between direct and derivative claims; the criticisms of ULLCA’s provisions on special litigation committees depend on that attack. In support of its wide-ranging attack, The Unfortunate Role seeks to marshal history, policy, logic, and a research study pertaining to the outcome of derivative claims. Unfortunately, however, the article (i) misapprehends the drafting history …