Category Archives: Corporate Law
Aug 13, 2024 Ann LiptonCorporate Law
Hilary J. Allen,
Interest Rates, Venture Capital, and Financial Stability, __
U. Ill. L. Rev. __ (forthcoming), available at
SSRN (March 8, 2024).
The last decade has seen a transformation in patterns of corporate organization. Enabled by loosened restrictions on private capital raising, venture capital firms have fueled the creation of a new ecosystem of large, privately held “unicorn” companies that are so well capitalized that they have not sought to access the public markets. That shift has been accompanied by a host of new questions about optimal governance arrangements, fiduciary obligations, the positive externalities of securities disclosure, fraud prevention, the role of shareholder agreements, and the disciplining effect of the capital markets.
In her new paper, Interest Rates, Venture Capital, and Financial Stability, forthcoming in the Illinois Law Review, Professor Hilary Allen adds a new question: what are the risks to financial stability? Allen claims that low interest rates fueled the growth of venture capital, which is itself prone to inflating bubbles and exacerbating panics. She ultimately argues that financial regulators need to be more attuned to unexpected places where funding tends to flow during periods of accommodative monetary policy. Continue reading "Venture Capital and Financial Stability"
Jul 16, 2024 Da LinCorporate Law
How can we better understand the scope of inequity and track its evolution?
By any metric, gender gaps are ubiquitous within senior ranks of the legal profession. Women have outnumbered men in law schools since 2016 but represent only 20% of all equity partners at multi-tier law firms, are 2 to 3 times more likely than male faculty to occupy non-tenure track and interim dean positions, and make up only 12 to 22% of those who have argued before the U.S. Supreme Court over the past decade. Yet these figures, although striking, don’t capture the full scope of the inequality. Qualitative studies consistently reveal, for instance, that female attorneys have different professional experiences than their male counterparts, exit the profession earlier, and face greater obstacles advancing in their careers.
The persistence of gender and racial inequities in the legal profession is not new, nor are questions surrounding their causes, effects, and potential solutions. But a recent article, Gender and the Social Structure of Exclusion in U.S. Corporate Law, by Afra Afsharipour and Matthew Jennejohn offers an intriguing avenue to better answers. Continue reading "Network Effects"
Jun 13, 2024 Matteo GattiCorporate Law
Roberto Tallarita’s recent Harvard Business Review article, “AI Is Testing the Limits of Corporate Governance,” insightfully discusses the upheaval at OpenAI last November, when its CEO, Sam Altman, was temporarily ousted by the board, a move quickly reversed to thwart his potential departure to Microsoft with key team members.
Tallarita’s piece showcases the inadequacies of traditional corporate governance mechanisms in managing the unique challenges posed by artificial intelligence (AI). His evaluation of the OpenAI board actions is based on two key observations. He asserts that conventional corporate governance design is ill-equipped to mitigate the existential risks associated with AI. This shortcoming arises from a fundamental clash between the pursuit of profit and societal goals. In scenarios where financial incentives are as compelling as they have been for a disruptive entity like OpenAI, profit motives are likely to take precedence. Notably, OpenAI diverged from typical governance by securing investments for an entity fully controlled by a nonprofit, a rare approach in the tech sector. Continue reading "What Corporate Governance for AI?"
May 16, 2024 Robert RosenCorporate Law
Some data show that the recent significant increase in board diversity is less well explained by NASDAQ and CA regulations than by the Black Lives Matter Movement. How did the BLM Movement against police behavior become a call for racial justice that reverberated in corporate boardrooms? More generally why do CEOs, boards, and managers (members of what C. Wright Mills would call the “power elite”) pursue (or want to appear to be pursuing) ESG policies? This article answers such questions by identifying the increasing power of some of the millennial generation — those born between 1981-1996 — as consumers, employees, and investors.
As the authors show “Social issues can become financial problem in short order.” (P. 304.) Their examples are Black Lives Matter, Me-Too and Climate Change. If this article were written today, they might discuss the Governors of Florida or Texas and index funds value-diversifying their funds ( e. g. Catholic faith-based investors), with the consequent loss in the index fund’s concentrated voting power. As the authors admit, “current views on ESG are polarized.” There is conflict within the power elite. The Millennial Corporation: Strong Stakeholders, Weak Managers reveals strategies for getting ESG into corporate action. Continue reading "Conflict within the Power Elites: Intra-Elite Politics and ESG"
Apr 12, 2024 Brett McDonnellCorporate Law
Those who, like me, spend much of their time focused on corporate law know that over the past decade or so there has been a serious re-examination of the traditional American understanding that corporate directors and officers should focus exclusively on advancing the interests of their shareholders. Many in the field will also be aware of a related debate over the conventional consensus that securities regulation should focus on protecting financial investors. Fewer corporate law scholars, though, may have paid as much attention to questioning within antitrust law of the focus on protecting consumers or within bankruptcy law on protecting creditors.
And fewer still will have pondered the connections between the debates going on within these separate though related fields. Aneil Kovvali explores those connections in his recent article, Stakeholderism Silo Busting. In corporate law, securities regulation, antitrust, and bankruptcy law, a decades-old consensus maintains that the law should focus exclusively on protecting one specific group. But within each field, rebels are now calling upon decision makers to consider the interests of various stakeholders. In his article, Kovvali describes shared arguments that are made by traditionalists and by those questioning traditions within each of the four fields. He further argues that considering developments in the fields together could yield new insights and practical suggestions. Continue reading "Stakeholderism Crosses Legal Lines"
Mar 18, 2024 Andrew F. TuchCorporate Law
Many of us find it hard to imagine that firms seeking to maximize profits would credibly commit to reducing their greenhouse gas (GHG) emissions. But in Green Pills: Making Corporate Climate Commitments Credible, Oxford professors John Armour, Luca Enriques, and Thom Wetzer argue there is reason to believe that such firms, even in the absence of regulation, might credibly commit to “net-zero” targets. The article lays out a case for such optimism and proposes a mechanism through which corporate managers can enhance the credibility of commitments.
Green Pills initially describes a world in which profit-maximizing companies might eventually credibly commit to reducing GHGs even without regulatory intervention, because a green transition not only imposes physical and transition risks but also creates profitable commercial opportunities. Even as investors are largely climate-indifferent—meaning that they are unwilling to pay more for companies that make significant headway in mitigating their impact on climate change—Armour, Enriques, and Wetzer believe “it is likely that at some point firms will reach a tipping point and conclude their future profits will be maximized by aligning their business model with net zero.” (P. 291.) (Net zero refers to the goal of cutting a firm’s net GHG emissions to as close to zero as possible within a stated time frame). But change of this sort may be a long time in coming. Any gains from transition are likely to be long-term and unexpected, while costs will be certain and immediate. In the minds of corporate managers—whose expected job tenures and therefore time horizons are short—the costs of reducing GHG emissions will weigh more heavily than the benefits, making managers “likely to be highly conservative in their transition policy.” (P. 300.) Continue reading "Climate-Conscious Investors and Climate Pledges"
Feb 19, 2024 Omari SimmonsCorporate Law
Nearly two-thirds of workers have access to an employer-sponsored retirement plan (P. 324.) Consequently, retirement security is a salient issue in US politics and corporate governance. BlackRock, Vanguard Group, and State Street, the three largest investment managers, who own about 20 percent of every company in the S&P 500 Index, offer a menu of mutual funds and other services for employer-sponsored retirement plans. (P. 308.) Institutional investors’ prominence and putative conflicts of interest are hot topics among scholars and regulators. (Pp. 307-21.)
Natalya Shnitser’s must-read article, The 401(k) Conundrum in Corporate Law, argues that these concerns and efforts, however well-intentioned, are based upon shaky theoretical foundations: (i) a description of how employer-sponsored retirement plan decisions are executed that does not reflect the evolution of plan governance and (ii) reliance on outdated information that fails to consider recent trends showing less biased voting decisions among fund managers. The article deftly captures the intersection of corporate governance and employee benefits law. Continue reading "Retiree Exploitation? Debunking the Retirement Business Theory"
Dec 12, 2023 Caroline BradleyCorporate Law
Quinn Curtis, Mark C. Weidemaier, & Mitu Gulati,
Green Bonds, Empty Promises (February 6, 2023). Virginia Public Law and Legal Theory Research Paper No. 2023-14, Virginia Law and Economics Research Paper No. 2023-05, UNC Legal Studies Research Paper No. 4350209. Available at
SSRN.
Climate change adaptation (moving towards net zero by shifting to renewable energy and changing behaviors so that we produce fewer greenhouse gas emissions) and mitigation (building resilience in the face of the impacts of climate change) are expensive, and must be paid for somehow. Policy-makers accept that climate change mitigation and adaptation require co-operation between public authorities and private business, and a combination of public and private finance. Green bonds promise to be a component of addressing this need for financing, as well as the interests of investors who want to invest in sustainability. But do they really do this? The urgency of the need to address climate change, together with our reliance on private finance as an important part of the proposed solution, means that this is a really important question. In order to address climate change, green bonds should finance green or sustainable activities, and, preferably, activities that would not otherwise be funded.
In Green Bonds, Empty Promises, Quinn Curtis, Mark C. Weidemaier, and Mitu Gulati present the results of their study of a dataset of green bonds issued between 2012 and 2022 and of interviews with market participants. The authors say that in credible green bonds they would expect to see mechanisms to increase the cost of non-compliance, but, instead, they find “a concerning lack of enforceable promises” (P. 56.) They find some language of commitment in more than half of the bonds in the dataset, although they state that, for varying reasons, they are likely to be overstating the extent to which issuers make firm green commitments (e.g. pp. 17,19). But even where green promises are made, they are not backed up by the usual enforcement mechanisms: none of the bonds in the sample “expressly makes it an event of default for the issuer to fail to live up to its green promises.”(P. 24.) In addition, the authors find that green bonds are evolving away from enforceability over time, now including disclaimers excluding a failure to comply with green promises from the application of a catch-all events of default provision and disclaimers of any duty to pursue green objectives. Continue reading "Unpacking Green Bonds"
Oct 6, 2023 Bill BrattonCorporate Law
We in business law tend to be creatures of the law reviews. Good new books don’t come along very often. When one does appear, it is doubly welcome. A History of Securities Law in the Supreme Court, by A.C. Pritchard and Robert B. Thompson, recently published by Oxford Press, is that rare, good book. It is absolutely, doubly welcome.
Pritchard and Thompson present every one of what turns out to be 134 cases. For the reader it is a bit like taking a law school course—the material goes case by case. This may not sound enticing, but please believe me when I say that it is, for the authors are master teachers. It is just that the medium is the written word rather than an oral presentation. Excellent writing is called for and Pritchard and Thompson answer the call. This book is fun to read. Continue reading "Securities at the Supremes"
Sep 8, 2023 Andrew F. TuchCorporate Law
- Michael Klausner & Michael Ohlrogge, Was the SPAC Crash Predictable?, 40 Yale J. Reg. 101 (2023).
- Michael Klausner, Michael Ohlrogge & Emily Ruan, A Sober Look at SPACs, 39 Yale J. Reg. 228 (2022).
- Michael Klausner & Michael Ohlrogge, SPAC Governance: In Need of Judicial Review, (Nov. 19, 2021), available at SSRN.
- Michael Klausner, Michael Ohlrogge & Harald Halbhuber, Net Cash Per Share: The Key to Disclosing SPAC Dilution, 40 Yale J. Reg. 18 (2022).
- Michael Klausner & Michael Ohlrogge, Is SPAC Sponsor Compensation Evolving? A Sober Look at Earnouts, (Jan. 31, 2022) available at SSRN.
Few scholars have done more to illuminate little-understood but vitally important areas of corporate and securities practice than Michael Klausner and Michael Ohlrogge. Their work has been an essential guide to the boom in special purpose acquisition companies (SPACs). Once a remote corner of securities practice, mergers of SPACs suddenly became a mainstream method for taking companies public. And just as suddenly, they faltered. The boom having now ended, Professors Klausner and Ohlrogge ask: “Was the SPAC Crash Predicable?” It is the title of their latest article. The answer, they think, is yes.
In the article, Professors Klausner and Ohlrogge replicate much of the analysis of an earlier, critically important study coauthored with Emily Ruan. At the time, the group promised a “sober look” at SPAC transactions and presented compelling evidence that SPACs are a rigged game. That evidence attracted strong industry skepticism but has since become broadly accepted. The influence of their findings is apparent in the Securities and Exchange Commission’s proposed SPAC reforms and in recent decisions from the Delaware Court of Chancery. Continue reading "Explaining the SPAC Crash"
