Business Organizations Law Commons^™

Appraisal Arbitrage And Shareholder Value, Scott Callahan, Darius Palia, Eric L. Talley

Faculty Scholarship

Post-merger appraisal rights have been the focus of heated controversy within mergers and acquisitions circles in recent years. Traditionally perceived as an arcane and cabalistic proceeding, the appraisal action has recently come to occupy center stage through the ascendancy of appraisal arbitrage — whereby investors purchase target-company shares shortly after an announcement principally to pursue appraisal. Such strategies became more feasible and profitable a decade ago, on the heels of two seemingly technocratic reforms in Delaware: (i) the statutory codification of pre-judgment interest, pegging a presumptive rate at five percent above the federal discount rate; and (ii) the Transkaryotic opinion, …

Economic Individualism And Preference Formation, Andrzej Rapaczynski

Faculty Scholarship

This note examines some issues involved in an attempt to go beyond the assumption, long-made by most economists, that people’s preferences are simply to be treated as “given” and that the principle of consumer sovereignty entails a refusal to consider some (or some people’s) revealed preferences as more authoritative than others. The most important break with that assumption has been the development of behavioral economics, which shows that people may not always know what they really want, and that economists have to develop a more critical approach, distinguishing people’s true preferences from those that are merely apparent. While this approach, …

Foreword – The 2017 Tax Cuts: How Polarized Politics Produced Precarious Policy, Michael J. Graetz

Faculty Scholarship

By lowering the corporate tax rate from 35% to 21%, the 2017 tax legislation brought the U.S. statutory rate into closer alignment with the rates applicable in other Organisation for Economic Co-operation and Development (OECD) nations, thereby decreasing the incentive for businesses to locate their deductions in the United States and their income abroad. Its overhaul of the U.S. international income tax rules simultaneously reduced preexisting incentives for U.S. multinationals to reinvest their foreign earnings abroad and put a floor on the benefits of shifting profits to low-tax jurisdictions. The 2017 legislation also added an unprecedented, troublesome lower rate for …

The Macpherson-Henningsen Puzzle, Victor P. Goldberg

Faculty Scholarship

In the landmark case of MacPherson v. Buick, an automobile company was held liable for negligence notwithstanding a lack of privity with the injured driver. Four decades later, in Henningsen v. Bloomfield Motors, the court held unconscionable the standard automobile company warranty which limited its responsibility to repair and replacement, even in a case involving physical injury. This suggests a puzzle: if it were so easy for firms to contract out of liability, did MacPherson accomplish anything?

How Investors Can (And Can't) Create Social Value, Paul Brest, Ronald J. Gilson, Mark A. Wolfson

Faculty Scholarship

Most investors throughout the world have a single goal: to earn the highest risk- adjusted financial returns. They would not accept a lower financial return from an investment that also produced social benefits.

More recently, an increasing number of socially-motivated investors have goals beyond maximizing returns. They also seek to align their investments with their social values (value alignment), and some also seek to cause the companies in which they invest to create more social value as a result of their investment (social value creation). We show in this essay that while it is relatively easy to achieve value alignment, …

Bespoke Discovery, Jessica Erickson

Law Faculty Publications

The U.S. legal system gives contracting parties significant freedom to customize the procedures that will govern their future disputes. With forum selection clauses, parties can decide where they will litigate future disputes. With fee-shifting provisions, they can choose who will pay for these suits. And with arbitration clauses, they can make upfront decisions to opt out of the traditional legal system altogether. Parties can also waive their right to appeal, their right to a jury trial, and their right to file a class action. Bespoke procedure, in other words, is commonplace in the United States.

Far less common, however, are …

Reforming Regulation Of Multi-Level Marketing In Myanmar, Zeyar Nyunt Oo

Chulalongkorn University Theses and Dissertations (Chula ETD)

The business of multi-level marketing is prohibited in Myanmar under the Notification no 46/2018. There are not only three paragraphs but also lack of the definition of MLM in this Notification. If distributors sell any product through MLM in Myanmar, they will be punished with imprisonment for a term exceeding three years under section 5 of the Myanmar Essential Goods and Services Law 2012. The study of the provisions on the business of MLM in selected ASEAN countries, Indonesia, Malaysia, Thailand, and Singapore indicates that the definition of multi-level marketing and pyramid scheme is not the same. Moreover, businessman and …

The Weakening Of Fiduciary Law, Andrew F. Tuch

Scholarship@WashULaw

In the 1970s and 80s, as major financial institutions grew and diversified their operations, courts and scholars recognized that fiduciary law posed profound challenges for the organizational practices of these firms. The challenges were considered existential by some: firms, ultimately, would need to slim down their operations, and perhaps even need to disaggregate some units, to avoid fiduciary liability. However, since these challenges were recognized, financial conglomerates have grown massively and focused more on taking direct stakes as principals, a practice that accentuates the risk of conflicts of interest.

How were financial conglomerates able to continue growing and diversifying despite …

Contractarian Theory And Unilateral Bylaw Amendments, Albert H. Choi, Geeyoung Min

Ira M. Millstein Center for Global Markets and Corporate Ownership

Corporate directors have been utilizing a potent mechanism in dealing with shareholder activism and shareholder litigation: the right to unilaterally amend corporate bylaws. Directors have exercised this right, for instance, to impose various requirements on who can nominate a director or call a special shareholder meeting, or to designate an exclusive forum where the shareholders can bring suit. Based on the theory that corporate charters and bylaws constitute a “contract” between the shareholders and the corporation, courts have blessed many of the bylaws that directors have unilaterally adopted. This Article examines the contractarian theory by drawing a parallel between amending …

Individual Autonomy In Corporate Law, Elisabeth De Fontenay

Faculty Scholarship

The field of corporate law is riven with competing visions of the corporation. This Article seeks to identify points of broad agreement by negative implication. It examines two developments in corporate law that have drawn widespread criticism from corporate law scholars: the Supreme Court's recognition of corporate religious rights in Burwell v. Hobby Lobby and the Nevada legislature's decision to eliminate mandatory fiduciary duties for corporate directors and officers. Despite their fundamental differences, both resulted in expanding individual rights or autonomy within the corporation-for shareholders and managers, respectively.

The visceral critiques aimed at these two developments suggest a broadly shared …

Crowdfunding Signals, Darian M. Ibrahim

Georgia Law Review

Entrepreneurs can now “crowdfund,” or sell securities to unaccredited investors over the Internet, to raise capital. But will these companies be able to attract the follow-on investors (angels and venture capitalists) that are necessary for long-term success? Angels and VCs face extreme levels of information asymmetry when deciding whether to fund a company. Signals can reduce this asymmetry. Early commentary argues a company only crowdfunds as a last resort for fear of sending a negative signal about the company’s quality to follow-on investors. This Article argues the inverse. This Article argues a successful crowdfunding campaign can send a positive signal …

The Cost Of Appraisal Rights: How To Restore Certainty In Delaware Mergers, Matthew E. Miehl

Georgia Law Review

Delaware's legislature created appraisal rights to
ensure that minority shareholders received fair
compensation for shares that were involuntarily sold in
a merger. Modern securities practices blur the line
between a share's equity interest and its voting interest,
which enables appraisal arbitrage-individuals,
particularly hedge funds, petitioning for appraisal
rights over shares that another person has the voting
rights to. Instances of appraisalarbitragein Delaware
mergers are soaring and causing corporate buyers to be
uncertain about a merger's ultimate price. This Note
contends that Delaware's legislature can ameliorate
this problem by establishing a contemporaneous
ownership requirement and by initiating efforts to
centralize share …

Delaware's Retreat: Exploring Developing Fissures And Tectonic Shifts In Delaware Corporate Law, James D. Cox, Randall S. Thomas

Faculty Scholarship

No abstract provided.

Shareholder Voice In Corporate Charter Amendments, Geeyoung Min

Ira M. Millstein Center for Global Markets and Corporate Ownership

State corporate laws require shareholder approval for corporate charter amendments, but only the board of directors has the power to propose how to amend charters. The directors’ exclusive power over charter amendment proposals creates a potential for managerial opportunism by refusing to propose amendments that empower shareholders or by pursuing amendments that favor managers. While shareholder approval can theoretically serve as a check against such opportunism, dispersed shareholders’ rational apathy and collective action problems, can also prevent them from being effective monitors. Prior scholarship has thus viewed charter amendments with suspicion, but there has been no systematic, empirical examination to …

Greater Expectations: Strategies For Effective Board Meeting Preparation, Jonathan Kim, Marcel Bucsescu

Ira M. Millstein Center for Global Markets and Corporate Ownership

Directors face an increasingly complex environment in which their businesses operate. That complexity can present opportunities for corporations that adapt, and also places new pressures on boards to respond effectively. One strategy for directors to consider is to adapt their approaches to preparing for board meetings by focusing not just on company specific reporting and decisions, but also by acting as the “eyes and ears” for management on key issues for the company. This article makes practical suggestions for directors to consider as they approach their board meeting preparation with this broader view in mind.

The Changing Landscape Of The Capital Markets, Barbara Krumsiek

Ira M. Millstein Center for Global Markets and Corporate Ownership

Much has been made of the rise of activist hedge funds over the past five years. But the shifts in the makeup of the investor community run much deeper than that, impacting both capital formation and capital deployment.

From the proliferation of hedge funds and the emergence of SRI and other new investment strategies, to the massive shift of funds to passive investors, the intermediation of the investment chain, and the concentration of ownership in the largest institutional investors, understanding the trend lines in the capital markets is integral to understanding where governance and the performance of public corporations goes …

Environmental And Social Sustainability In The Boardroom, Jon Lukomnik

Ira M. Millstein Center for Global Markets and Corporate Ownership

The last 10 years has seen a remarkable shift in the attention and importance of social and environmental issues for public corporations. This has meant an increased focus by boards on these important matters.

Climate change, human rights, corporate political influence, and inequality are just some of the issues that are being raised by shareholders and other stakeholders. As calls for corporate transparency grow, how boards incorporate these issues into their decision making processes, disclose them, and address them from a risk perspective will continue to garner attention.

A Relationship Of Reciprocal Influence: Singapore Company Law And The Economy, Vincent Ooi, Cheng Han Tan

Research Collection Yong Pung How School Of Law

A strong reciprocal relationship has existed between Singapore Company Law (“SCL”) and the economy since Independence in 1965. Swift Parliamentary responses to economic events and successful implementation of Government policies has made it possible to clearly attribute cause and effect to statutory amendments and economic events in turn, proving the reciprocal relationship between the two. The first theme of this paper seeks to explain the fundamental characteristics of SCL that have resulted in such an unusually strong reciprocal relationship: the 1) Autochthonous nature of SCL; 2) Responsive nature of legislation; and 3) Government control at multiple levels of implementation. The …

Should Securities Regulators Allow Companies Going Public With Dual-Class Shares?, Aurelio Gurrea-Martinez

Research Collection Yong Pung How School Of Law

In the past years, several companies, such as Google, Linkedin, Facebook, and Alibaba, went public with dual-class share structures, that is, share structures that typically include two classes of ordinary shares carrying unequal voting rights. Those shares with more voting rights (eg, ‘class A’ shares) are usually held by the company´s founders and executives, while the rest of the company´s share capital, formed by stock with regular voting rights (eg, ‘class B’ shares), is generally sold to outside investors.

Evolving Norms Of Corporate Social Responsibility: Lessons Learned From The European Union Directive On Non-Financial Reporting, Constance Z. Wagner

All Faculty Scholarship

This article examines an important development in the field of corporate social responsibility, namely theadoption of a 2014 European Union Directive (“2014 EU Directive”) mandating non-financial reporting by certain large companies. Such disclosure has traditionally been provided by businesses on a voluntary basis, but the 2014 EU Directive reflects an emerging global trends toward mandatory reporting. Such trend emerged in response to the perceived low quantity and poor quality of information disclosed voluntarily onsocial and environmental topics of importance to corporate stakeholders. The author analyzes the history and development of policy and legislation on this issue both at the European …