Business Organizations Law Commons^™

The Black Hole Problem In Commercial Boilerplate, Stephen J. Choi, G. Mitu Gulati, Robert E. Scott

Faculty Scholarship

Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey …

Investor-Driven Financial Innovation, Kathryn Judge

Faculty Scholarship

Financial regulations often encourage or require market participants to hold particular types of financial assets. One unintended consequence of this form of regulation is that it can spur innovation to increase the effective supply of favored assets. This Article examines when and how changes in the law prompt the spread of “investor-driven financial innovations.” Weaving together theory, recent empirical findings, and illustrations, this Article provides an overview of why investors prefer certain types of financial assets to others, how markets respond, and how the spread of investor-driven innovations can transform the structure of the financial system. This examination suggests that …

Restoring Pre-Existing Compliance Through The Fcpa Pilot Program, Andrew B. Spalding

Law Faculty Publications

For a quarter-century, incentives to invest in corporate compliance programs have been a cornerstone of federal white-collar enforcement. But the U.S. Department of Justice's most recent announcement of anti-bribery enforcement policy-the FCPA Pilot Program-takes a peculiar and possibly inadvertent turn. In providing newly transparent and explicit penalty reductions, and rolling out the Department's declination policy, the program neglects to incentivize investments in pre-existing compliance. Though remedial, or postviolation, compliance receives a newly heightened importance, pre-existing compliance receives virtually no attention. This is strange, but should not be understood as a new policy change on the benefits of pre-existing compliance; no …

Piling On? An Empirical Study Of Parallel Derivative Suits, Jessica Erickson

Law Faculty Publications

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and, …

Moneys' Legal Hierarchy, Katharina Pistor

Faculty Scholarship

This chapter discusses the way in which money is legally constructed and hierarchically structured. In financial markets, participants trade different forms of money, some of which is state-issued and some privately issued. A form of money is closer to the “apex” of the system the closer it is to entities that can issue liquid means or determine acceptable forms of payment, such as central banks and governments. During financial crises, market participants close to the “apex” are systematically advantaged. Various legal devices, e.g. property rights, collateral rights, or trust law, contribute to hierarchically structuring the financial system, by granting preferential …

Stock Market Futurism, Merritt B. Fox, Gabriel Rauterberg

Faculty Scholarship

The U.S. stock market is undergoing extraordinary upheaval. The approval of the application of the Investors Exchange (IEX) to become the nation’s newest stock exchange, including its famous “speed bump,” was one of the SEC’s most controversial decisions in decades. Other exchanges have proposed a raft of new innovations in its wake. This evolving equity market is a critical piece of national infrastructure, but the regulatory scheme for its institutions is increasingly frayed. In particular, current regulation draws sharp distinctions among different kinds of markets for trading stocks, treating stock exchanges as self-regulatory organizations immune from private civil litigation, while …

Proxy Access And Optimal Standardization In Corporate Governance: An Empirical Analysis, Reilly S. Steel

Faculty Scholarship

According to the conventional wisdom, “one size does not fit all” in corporate governance. Firms are heterogeneous with respect to their governance needs, implying that the optimal corporate governance structure must also vary from firm to firm. This one-size-does-not-fit-all axiom has featured prominently in arguments against numerous corporate law regulatory initiatives, including the SEC’s failed Rule 14a-11 — an attempt to impose mandatory, uniform “proxy access” on all public companies — which the D.C. Circuit struck down for inadequate cost-benefit analysis.

This Article presents an alternative theory as to the role of standardization in corporate governance — in which investors …

Corporate Political Spending And The Size Effect, Reilly S. Steel

Faculty Scholarship

In the years since Citizens United v. FEC, corporate-political-spending disclosure has become an increasingly heated public policy issue. The portion of the Court’s opinion that championed shareholder rights to make decisions about corporate political speech generated a substantial, interdisciplinary literature, and shareholders responded by demanding political-spending disclosure through a bevy of shareholder proposals. However, many commentators have argued that shareholder activists’ efforts to bring about disclosure on their own are bound to be inade­quate, and in 2011, a group of law professors petitioned the Securities and Exchange Commission (SEC) for rules that would mandate disclo­sure by public companies — a …

Coordinating Compliance Incentives, Veronica Root

Faculty Scholarship

In today’s regulatory environment, a corporation engaged in wrongdoing can be sure of one thing: regulators will point to an ineffective compliance program as a key cause of institutional misconduct. The explosion in the importance of compliance is unsurprising given the emphasis that governmental actors — from the Department of Justice, to the Securities and Exchange Commission, to even the Commerce Department — place on the need for institutions to adopt “effective compliance programs.” The governmental actors that demand effective compliance programs, however, have narrow scopes of authority. DOJ Fraud handles violations of the Foreign Corrupt Practices Act, while the …

“Captured Boards”: The Rise Of “Super Directors” And The Case For A Board Suite, Kobi Kastiel, Yaron Nili

Faculty Scholarship

Boards of public corporations in the United States are becoming increasingly independent, due to an effort to ensure that shareholders' interests in the company are protected. Yet, little attention has been given to the way that board members obtain and digest the information necessary for their independent decision-making. In this Article, we highlight how "independent" boards remain extremely dependent on management for the information they need to accomplish their role -- we classify as the "informational capture" of the board. We further describe how activist hedge funds identified this capture and are using what is commonly termed as "super directors" …

Regulatory Competition And The Market For Corporate Law, Ofer Eldar, Lorenzo Magnolfi

Faculty Scholarship

This article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a novel database of incorporation decisions from 1995- 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms.Our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. Our findings support the hypothesis that …

Brief Of Professors At Law And Business Schools As Amicus Curiae In Support Of Respondents, James D. Cox, J. Robert Brown Jr., Lyman Johnson, Lawrence W. Treece, Joan Macleod Heminway

Faculty Scholarship

This Amicus Brief was filed with the U.S. Supreme Court on behalf of nearly 50 law and business faculty in the United States and Canada who have a common interest in ensuring a proper interpretation of the statutory securities regulation framework put in place by the U.S. Congress. Specifically, all amici agree that Item 303 of the Securities and Exchange Commission's Regulation S-K creates a duty to disclose for purposes of Rule 10b-5(b) under the Securities Exchange Act of 1934.
The Court’s affirmation of a duty to disclose would have little effect on existing practice. Under the current state of …

The Constitutional Rights Of Corporations In The United States, Brandon L. Garrett

Faculty Scholarship

No abstract provided.

Out Of Sight Out Of Mind: The Case For Improving Director Independence Disclosure, Yaron Nili

Faculty Scholarship

Director independence is a cornerstone of modern corporate law. Independent directors are entrusted with objectively and impartially monitoring management and ensuring that the interests of shareholders are well served. But translating the notion of independence into practice is far from a simple task, and while regulators and stock exchanges have tackled this elusive standard in different ways, for the most part their attempts have come up short. Currently, boards designate themselves as independent, and as this Article demonstrates empirically, they provide little information to investors regarding the considerations that supported their designation.

Regulating director independence is at heart a means …

The Right Deed For The Wrong Reason: A Critical Examination Of Regulation A+ And Its Rationales, Louis Anthony Steiner

Fordham Journal of Corporate & Financial Law

The recent enactment of Regulation A+ makes it possible for the first time for companies to conduct retail equity crowdfunding (i.e., equity crowdfunding campaigns involving general solicitation of unaccredited investors). On its surface, Regulation A+ seems poised to provide dual benefits to start-ups by both democratizing access to capital and easing the transition into public company status. However, Regulation A+ is largely a solution in search of a problem. There is little empirical evidence of an equity gap for early stage companies, nor is there evidence that the recent dip in small-company IPOs has anything to do with regulatory burdens. …

The Battle Over Corporate Bylaws, Ariel Beverly

Loyola of Los Angeles Law Review

No abstract provided.

Sex Quotas And Burkini Bans, Darren Rosenblum

Elisabeth Haub School of Law Faculty Publications

This Essay recounts how feminist theorists and activists managed to write their ideals into the fabric of French law and culture, and how nonfeminists began to appropriate those ideals. Parité, the 2000 law that requires half of all candidates for public office be women, saw French feminists first engineer a change in French universalism to respect sex difference; although not wholly successful, Parité advanced women's political inclusion. Then, like a drop of water in a pond, these feminist ideas disappeared in plain sight: they became intrinsic to French state norms and public values. As they became woven into such norms, …

Cultures Of Compliance, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

There has been a "cultural turn" in discussion and debates about the promise of corporate compliance efforts. These efforts are occurring quickly, without great confidence in their efficacy. Thus the interest in culture. This article explores what a culture of compliance means and why it is so hard to achieve. The "dark side" that enables non-compliance in organizations is powerful and often hidden from view, working via scripts that rationalize or normalize, denigrations of regulation, and celebrations of beliefs and attitudes that bring with them compliance dangers. The article addresses how both culture and compliance should be judged by those …

Distributed Governance, Carla L. Reyes, Nizan Geslevich Packin, Benjamin P. Edwards

Scholarly Works

Distributed ledger technology disrupts traditional business organizations by introducing new business entities without the directors and officers of traditional corporate entities. Although these emerging entities offer intriguing possibilities, distributed entities may suffer significant collective action problems and expose investors to catastrophic regulatory and governance risks. Our Article examines key considerations for stakeholders and argues that distributed entities must be carefully structured to function effectively.

This Article breaks new ground by critically examining distributed entities. We argue that a distributed model is most appropriate when distributed ledger technology solves a unique corporate governance problem. We caution against ignoring the lessons painstakingly …

Redefining Roles And Duties Of The Transactional Lawyer: A Narrative Approach, Lori D. Johnson

Scholarly Works

Today’s transactional lawyers perform myriad tasks for their clients, including structuring, drafting, conceptualizing, negotiating, and executing the complex, risky, and often cutting-edge transactions their clients bring to the table. On the other side of that table, often sits another team of sophisticated transactional lawyers. These opposing counsel are armed for battle over every nuance, every word, every representation, every deliverable, and every obligation their client is poised to undertake or agree to. Therefore, modern transactional lawyers must behave as advocates and explore new modes of persuasion. As a response, scholars have begun to propose that transactional lawyers employ methods of …