Commercial Law Commons^™

Validating Valuation: How Statistical Learning Can Cabin Expert Discretion In Valuation Disputes, Andrew C. Baker, Jonah B. Gelbach, Eric L. Talley

Faculty Scholarship

This article challenges conventional methods used in financial valuation across transactional and litigation domains. We show that conventional valuation methods allow for considerable discretion, making it possible for each side’s experts to submit dramatically varying valuations simply by choosing among facially reasonable values of parameters that must be selected to carry out conventional valuations. We use large-scale empirical simulations powered by real-world data to demonstrate the scope of such discretion. We next consider several alternatives based on data-driven machine learning approaches, and show that they offer both approximately unbiased estimates of valuation and substantially reduced variability in valuation results. Consequently, …

Disproportionate Influence: Rethinking Control In American Corporate Governance, Dhruv Aggarwal, Ofer Eldar

Northwestern University Law Review

Corporate law has undergone a gradual transformation. Founding chief executive officers (“founder-CEOs”) and activist hedge funds increasingly dominate leading American corporations despite owning well short of a majority of shares. Founder-CEOs, through personal brands or dual-class voting structures, control firms despite having minority stakes; activist hedge funds, with single-digit holdings, press for major governance changes. We argue that these two types of shareholders, often treated as opposites, both dominate corporations through disproportionate influence rather than majority ownership. We describe these investors who dictate corporate policy through disproportionate influence as high-influence shareholders.

Delaware’s doctrinal response to high-influence shareholders has been inconsistent, …

The Arbitration Web Ensnaring Every Consumer: The Next Evolution In Corporate Strategy To Compel Arbitration, Michael Conklin

Maine Law Review

This first-of-its-kind Article uses a novel hypothetical to explore the expanding role of compelled arbitration. The hypothetical involves numerous large corporations agreeing to cross-reference each other in their arbitration agreements, thus attempting to create a massive arbitration web ensnaring nearly every American and allowing corporations to compel arbitration against parties with whom they never interacted. This Article presents the case that courts might enforce such a scheme based on the judicial trend toward ever-expanding compelled arbitration jurisprudence, the docket-clearing incentives faced by judges, existing case law allowing some non-signatories to enforce arbitration agreements, the strong assumption in favor of arbitration, …

Texas, Delaware, And The New Controller Primacy, Christine Hurt

Faculty Journal Articles and Book Chapters

In January 2024, Elon Musk, CEO of Tesla, Inc., initiated the process of moving Tesla’s state of incorporation from Delaware to Texas, citing concerns over Delaware corporate law. The move sparked discussions about the dominance of Delaware corporate law and its recent rulings, with critics accusing Court of Chancery judges of favoring shareholder interests over controller innovation and managerial discretion.

The shift away from Delaware is set against a backdrop of increasing judicial scrutiny in the Delaware Court of Chancery, where plaintiffs have recently seen successes in litigation against controlling shareholders, corporate directors, and officers. Concerns over Delaware’s evolving legal …

A "Profoundly Contractarian Predisposition": Delaware Courts Decide Recent Drafting Disputes By Limiting Their Review To Four Corners Of Contracts, Robert S. Reder, Kathleen E. Sharkey

Vanderbilt Law School Faculty Publications

In the decisions discussed herein, both the Delaware Supreme Court ("Supreme Court") and the Delaware Court of Chancery ("Chancery Court") reaffirmed the Delaware judiciary's commitment to honoring contract language, whenever possible, to settle contractual disputes. Absent irreconcilable ambiguity, no coloring outside the lines will be considered. The goal generally is to reflect the intent of the parties while avoiding absurd or illogical results. Ironically, in each of these cases, better drafting could have ensured the parties were on the same page: " In Arwood v. AW Site Services, Vice Chancellor Slights, confirming Delaware's status as "'more contractarian' than most states," …

Thoughts On Corporate Law And The Problem Of Human Capital, Margaret Blair

Vanderbilt Law School Faculty Publications

The theme of this Symposium takes me back more than thirty years to work I did on corporations and human capital at the Brookings Institution in the 1990s. Although I have been on the faculty of law schools since 2000, I am not a lawyer, and in fact, never went to law school. I did my Ph.D. in economics, and I wrote my dissertation on merger waves-in particular, I developed a macroeconomic theory to explain the wave of corporate mergers and takeo- vers that happened in the 1980s. The most prominent and popular idea about takeovers at the time was …

The Structure Of Corporate Law Revolutions, William Savitt

Seattle University Law Review

Since, call it 1970, corporate law has operated under a dominant conception of governance that identifies profit-maximization for stockholder benefit as the purpose of the corporation. Milton Friedman’s essay The Social Responsibility of Business is to Increase Its Profits, published in September of that year, provides a handy, if admittedly imprecise, marker for the coronation of the shareholder-primacy paradigm. In the decades that followed, corporate law scholars pursued an ever-narrowing research agenda with the purpose and effect of confirming the shareholder-primacy paradigm. Corporate jurisprudence followed a similar path, slowly at first and later accelerating, to discover in the precedents and …

A History Of Corporate Law Federalism In The Twentieth Century, William W. Bratton

Seattle University Law Review

This Article describes the emergence of corporate law federalism across a long twentieth century. The period begins with New Jersey’s successful initiation of charter competition in 1888 and ends with the enactment of the Sarbanes-Oxley Act in 2002. The federalism in question describes the interrelation of state and federal regulation of corporate internal affairs. This Article takes a positive approach, pursuing no normative bottom line. It makes six observations: (1) the federalism describes a division of subject matter, with internal affairs regulated by the states and securities issuance and trading regulated by the federal government; (2) the federalism is an …

Divide, "Two-Step," And Conquer: How Johnson & Johnson Spurred The Bankruptcy System, Patrick Maney

University of Cincinnati Law Review

No abstract provided.

A Theory Of Substantive Standards Of Review: The Case Of Corporate Law, Tomer S. Stein

Scholarly Works

In Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, the Supreme Court limited deference to universities. In West Virginia v. EPA, the Court reduced its deference to administrative agencies. In Coster v. UIP Cos., Inc., the Delaware Supreme Court limited deference to boards of directors, proclaimed a new standard of review, and then retracted the new standard of review (maybe). Common to these constitutional, administrative, and corporate law cases is unpredictability, uncertainty, and inconsistency in the use and application of substantive standards of review. This doctrinal chaos is explicitly acknowledged by the very judges that formulate …

The Failure Of Market Efficiency, William Magnuson

Faculty Scholarship

Recent years have witnessed the near total triumph of market efficiency as a regulatory goal. Policymakers regularly proclaim their devotion to ensuring efficient capital markets. Courts use market efficiency as a guiding light for crafting legal doctrine. And scholars have explored in great depth the mechanisms of market efficiency and the role of law in promoting it. There is strong evidence that, at least on some metrics, our capital markets are indeed more efficient than they have ever been. But the pursuit of efficiency has come at a cost. By focusing our attention narrowly on economic efficiency concerns—such as competition, …

The Incompatibility Of Artificial Intelligence And Citizens United, Michael R. Siebecker

Sturm College of Law: Faculty Scholarship

In Citizens United v. FEC, the Supreme Court granted corporations essentially the same political speech rights as human beings. But does the growing prevalence of artificial intelligence (“AI”) in directing the content and dissemination of political communications call into question the jurisprudential soundness of such a commitment? Would continuing to construe the corporation as a constitutional rights bearer make much sense if AI entities could wholly own and operate business entities without any human oversight? Those questions seem particularly important, because in the new era of AI, the nature and practices of the modern corporation are quickly evolving. The magnitude …

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 …

Moby-Dick As Corporate Catastrophe: Law, Ethics, And Redemption, David Yosifon

University of Cincinnati Law Review

Herman Melville’s Moby-Dick serves here as a vehicle through which to interrogate core features of American corporate law and excavate some of the deeper lessons about the human soul that lurk behind the pasteboard mask of the law’s black letter. The inquiry yields an illuminating vantage on the ethical consequences of corporate capital structure, the law of corporate purpose, the meaning of voluntarism, the ethical stakes of corporate fiduciary obligations, and the role of lawyers in preventing or facilitating corporate catastrophe. No prior familiarity with the novel or corporate law is required.

Fiduciary Duties And Corporate Climate Responsibility, Cynthia A. Williams

Vanderbilt Law Review

Corporate-law scholarship for decades has been occupied with agency costs and how to mitigate them. But when I teach the basic business organizations class, starting with agency law and looking at the fiduciary duties of care, loyalty, and full disclosure of any agent to her principal, we explore both costs and benefits of agency relationships. I do so by introducing Ronald Coase’s theory of the firm. Using an example close to most second-year law students’ experience, that of buying a suit for interviews, I contrast Brooks Brothers establishing its own factories (the “make” decision) with Brooks Brothers using supply chains, …

Federal Corporate Law And The Business Of Banking, Morgan Ricks, Lev Menand

Vanderbilt Law School Faculty Publications

The only profit-seeking business enterprises chartered by a federal government agency are banks. Yet there is barely any scholarship justifying this exception to state primacy in U.S. corporate law.

This Article addresses that gap. It reinterprets the National Bank Act (NBA) the organic statute governing national banks, the heavyweights of the financial sec- tor-as a corporation law and recovers the reasons why Congress wrote this law: not to catalyze private wealth creation or to regulate an existing industry, but to solve an economic governance problem. National banks are federal instrumentalities charged with augmenting the money supply-- a delegated sovereign privilege. …

Price Elasticity Of Demand In The Market For Governance In Businesses Location Decisions In Oecd Nations From 2015-2019, Luke Kendall

Senior Honors Theses

This study proposes a framework of viewing the competition between governments to attract businesses into their jurisdiction as a competitive market. Literature is reviewed on the market forces and incentives of businesses and governments in location decisions. A possible gap in the literature of quantifying the price elasticity of competition between national governments for business activity is identified. OECD data is analyzed using equations supported by literature and results are evaluated to better understand the elasticity of international location decisions. The results of this study indicate that elasticity varies widely between countries, and countries with smaller economies may face more …

Corporate Law For Good People, Yuval Feldman, Adi Libson, Gideon Parchomovsky

Northwestern University Law Review

This Article offers a novel analysis of the field of corporate governance by viewing it through the lens of behavioral ethics. It calls for both shifting the focus of corporate governance to a new set of loci of potential corporate wrongdoing and adding new tools to the corporate governance arsenal. Behavioral ethics scholarship emphasizes that the large share of wrongdoing is generated by “good people” whose intention is to act ethically. Their wrongdoing stems from “bounded ethicality”—various cognitive and motivational limitations in their ethical decision-making processes—that leads to biased decisions that seem legitimate. Bounded ethicality has important implications for a …

Delaware's Global Competitiveness, William J. Moon

Faculty Scholarship

For about a hundred years, Delaware has been the leading jurisdiction for corporate law in the United States. The state, which deliberately embarked on a mission to build a haven for corporate law in the early twentieth century, now supplies corporate charters to over two thirds of Fortune 500 companies and a growing share of closely held companies. But Delaware’s domestic dominance masks the important and yet underexamined issue of whether Delaware maintains its competitive edge globally.

This Article examines Delaware’s global competitiveness, documenting Delaware’s surprising weakness competing in the emerging international market for corporate charters. It does so principally …

Dodge V. Ford: What Happened And Why?, Mark J. Roe

Vanderbilt Law Review

Behind Henry Ford’s business decisions that led to the widely taught, famous-in-law-school Dodge v. Ford shareholder primacy decision were three industrial organization structures that put Ford in a difficult business position. First, Ford Motor had a highly profitable monopoly and needed much cash for the just-begun construction of the River Rouge factory, which was said to be the world’s largest when completed. Second, to stymie union organizers and to motivate his new assembly-line workers, Henry Ford raised worker pay greatly; Ford could not maintain his monopoly without sufficient worker buy-in. And, third, if Ford explicitly justified his acts as in …

Team Production Revisited, William W. Bratton

Vanderbilt Law School Faculty Publications

This Article reconsiders Margaret Blair and Lynn Stout’s team production model of corporate law, offering a favorable evaluation. The model explains both the legal corporate entity and corporate governance institutions in microeconomic terms as the means to the end of encouraging investment, situating corporations within markets and subject to market constraints but simultaneously insisting that productive success requires that corporations remain independent of markets. The model also integrates the inherited framework of corporate law into an economically derived model of production, constructing a microeconomic description of large enterprises firmly rooted in corporate doctrine but neither focused on nor limited by …

Challenging Gender Discrimination In Closely Held Firms: The Hope And Hazards Of Corporate Oppression Doctrine, Meredith R. Miller

Scholarly Works

The #MeToo Movement has ushered sexual harassment out of the shadows and thrown a spotlight on the gender pay gap in the workplace. Harassment and unfair treatment have, however, been difficult to extinguish. This has been true for all workers, including partners – those women who are owners in their firms and claim that they have suffered harassment or unfair treatment based on gender. That is because a partner’s lawsuit for discrimination often will suffer an insurmountable hurdle: plaintiff’s status as a partner in the firm means that they may not be considered an “employee” under the relevant employment discrimination …

Team Production Theory Across The Waves, Brian R. Cheffins, Richard Williams Faculty Of Law

Vanderbilt Law Review

Team production theory, which Margaret Blair developed in tandem with Lynn Stout, has had a major impact on corporate law scholarship. The team production model, however, has been applied sparingly outside the United States. This article, part of a symposium honoring Margaret Blair’s scholarship, serves as a partial corrective by drawing on team production theory to assess corporate arrangements in the United Kingdom. Even though Blair and Stout are dismissive of “shareholder primacy” and the U.K. is thought of as a “shareholder-friendly” jurisdiction, deploying team production theory sheds light on key corporate law topics such as directors’ duties and the …

Insolvency Law In Emerging Markets, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

Corporate insolvency law can serve as a powerful mechanism to promote economic growth. Ex ante, a well-functioning insolvency framework can facilitate entrepreneurship, innovation and access to finance. Ex post, corporate insolvency law can perform several functions, including the reorganization of viable companies in financial distress, the liquidation of non-viable businesses in a fair and efficient manner, and the maximization of the returns to creditors. Therefore, if having an efficient corporate insolvency framework is essential for any country, it becomes even more important for emerging economies due to their potential for growth and their greater financial needs.

Foreword--Comparative Corporate Law & Governance, Dan W. Puchniak, Randall S. Thomas

Vanderbilt Journal of Transnational Law

Despite the challenges posed by Covid-19, especially for the student editors of the Journal, this special issue has been published on time and has been superbly edited. On behalf of the authors, NUS Law, and the Law & Business Program of Vanderbilt Law School, we would like to express our sincere appreciation to the editor in chief, Joshua D. Minchin, and the entire editorial team of the Vanderbilt Journal of Transnational Law for their remarkable skill, effort, and dedication in these challenging times. Your performance gives us great hope that the future is extremely bright.

Maine Corporation Law & Practice, Gregory S. Fryer

Maine Law Review

The scarcity of case law in Maine on corporate law issues of the day is a fact of life for corporate law practitioners in this State. While courts in more populous states fill library shelves with an ever-growing mix of corporate law decisions, we in Maine often can only wonder which way our own courts would turn if presented with those same issues. Faced with a limited amount of local case law, corporate lawyers here might rarely venture beyond well-hewn traditions were it not for two-and now three-fortunate developments. First and foremost is the Maine Business Corporation Act. The Act …

Maine Corporation Law & Practice, Gregory S. Fryer

Maine Law Review

The scarcity of case law in Maine on corporate law issues of the day is a fact of life for corporate law practitioners in this State. While courts in more populous states fill library shelves with an ever-growing mix of corporate law decisions, we in Maine often can only wonder which way our own courts would turn if presented with those same issues. Faced with a limited amount of local case law, corporate lawyers here might rarely venture beyond well-hewn traditions were it not for two-and now three-fortunate developments. First and foremost is the Maine Business Corporation Act. The Act …

Delaware's New Competition, William J. Moon

Northwestern University Law Review

According to the standard account in American corporate law, states compete to supply corporate law to American corporations, with Delaware dominating the market. This “competition” metaphor in turn informs some of the most important policy debates in American corporate law.

This Article complicates the standard account, introducing foreign nations as emerging lawmakers that compete with American states in the increasingly globalized market for corporate law. In recent decades, entrepreneurial foreign nations in offshore islands have used permissive corporate governance rules and specialized business courts to attract publicly traded American corporations. Aided in part by a select group of private sector …

The Misuse Of Tobin’S Q, Robert Bartlett, Frank Partnoy

Vanderbilt Law Review

In recent years, scholars have addressed the most important topics in corporate law based on a flawed assumption: that the ratio of the market value of a corporation’s securities to their book value is a valid measure of the value of the corporation. The topics have included staggered boards, incorporation in Delaware, shareholder activism, dual-class share structures, share ownership, board diversity, and other significant aspects of corporate governance. We trace the history of this flawed assumption, and document how it emerged from Tobin’s q, a concept from an unrelated area in macroeconomics. We show that scholars have misused Tobin’s q, …

Management Succession In Korea: Tunneling, Semi-Tunneling, And The Reaction Of Corporate Law, Kyung-Hoon Chun

Vanderbilt Journal of Transnational Law

Recently in Korea, certain issues of corporate law became the subjects of fierce political debates unlike many other jurisdictions where corporate law issues generally remain in the exclusive realm of professionals and academics. This Article begins with the question of why corporate law issues attracted so much political attention in Korea and whether such political attention actually helped improve the corporate law. In pursuing the answers to such questions, this Article identifies a recurring pattern: (i) existence of strict rules against seeking private benefits; (ii) various clever measures to circumvent such rules; (iii) failure of the courts to regulate such …