Category Archives: Corporate Law
Jun 22, 2022 Robert RosenCorporate Law
Wisdom sometimes is best recognized by a traveler. In Delaware’s Fiduciary Imagination: Going Privates and Lord Eldon’s Reprise, Professor David Kershaw of the London School of Economics revisits cases that we know very well, putting them in the context of British decisions, and elicits a distinction that appears obvious, yet comes as a bit of a surprise: There is a distinction between abuse of power and abuse of influence. These are two ideal types of the “source of obligation” for fiduciaries
Abuse of power flows from the grant of power to the fiduciary. Abuse of influence flows from the limited consent of the beneficiary. For example, controlling shareholders were once understood as being able to abuse their corporate powers. Today, it is more common to focus on how they can “threaten the minority to say ‘yes.’” Duties to creditors follow from influence over them near the debtor’s insolvency but do not flow from an abuse of corporate powers. Continue reading "Bringing the Fiduciary Back In"
May 23, 2022 Omari SimmonsCorporate Law
Stavros Gadinis and Amelia Miazad,
A Test of Stakeholder Capitalism, __
J. Corp. L. __ (forthcoming, 2021), available at
SSRN.
Stavros Gadinis and Amelia Miazad’s thought-provoking paper, A Test of Stakeholder Capitalism, reveals certain shortcomings of the current academic debate on stakeholder governance.
Somewhat buried in a polarized corporate-purpose debate between shareholder primacy and stakeholder-centric perspectives is a novel narrative of evolution within companies. The authors note that the pandemic’s far-reaching and diverse effects on all types of companies and stakeholders offer a unique glimpse into corporate engagement with stakeholders. However, they caution that we cannot attribute the recent emphasis on stakeholders to the pandemic alone.
Instead, they argue, the pandemic has hastened an ongoing evolution: companies adapt to the complex business environment by developing mechanisms to proactively address stakeholder concerns as a risk management tool. Their collection and evaluation of stakeholder information is a process that ultimately enhances director oversight. Gadinis and Miazad capture this trend and illustrate how companies are becoming more sensitive to business risks, particularly those that are hard to predict; for example, various types of social and political risks. Continue reading "The Pandemic’s Testing of Stakeholder Governance"
Apr 18, 2022 Christopher M. BrunerCorporate Law
As efforts to improve the sustainability of corporate operations advance, growing attention has naturally turned to the form and degree of sustainability-related disclosures that large publicly traded companies are required to make. Various constituencies, including institutional investors, have increasingly demanded robust disclosures of information related to a range of environmental, social, and governance issues impacted by corporate activities. These matters are typically lumped together as “ESG disclosure” in capital-market parlance, and the U.S. Securities and Exchange Commission (SEC) has recognized the need for reform.
However, a host of vexing issues complicate such reform efforts. These include the degree to which current disclosure rules already reach such issues; the extent of reforms that could be pursued within the SEC’s market-oriented statutory mandate and financially driven conception of materiality; and – most significantly – the efficacy of disclosure-based regulation as a means of addressing complex global challenges like climate change. Modernizing ESG Disclosure, a recent paper by Virginia Harper Ho, tackles these weighty and interrelated challenges, providing detailed and nuanced analyses of where we stand, what the SEC could do within the current framework, and the more fundamental statutory reforms that would be required to produce an ESG disclosure regime more substantially contributing to the overarching goal of corporate sustainability. Continue reading "ESG and the SEC"
Mar 9, 2022 Caroline BradleyCorporate Law
The valuation of a shareholder’s interest in a corporation is a central issue in corporate law. In recent cases the Delaware courts have responded to appraisal arbitrage by limiting recovery in appraisal actions to deal price, deal price less synergy, or even market price unaffected by the deal. The cases have given rise to a literature of both praise and critique. Charles Korsmo and Minor Myers take the analysis a step further in What Do Stockholders Own? The Rise of the Trading Price Paradigm in Corporate Law, arguing that the implications of these appraisal decisions reach beyond appraisal to cases involving mergers more generally, and suggest an incipient paradigm shift in how Delaware law conceives of the (value of the) stockholder’s interest in the corporation: “[i]n a real sense, the Supreme Court in the appraisal cases has simply altered its conception of the public corporation as a form of property.” (P. 3.) The authors argue that the new paradigm is a negative development, essentially eliminating appraisal (which they see as a remedy with beneficial effects), reducing incentives for investors to buy shares in public corporations, and creating undesirable uncertainty about bedrock propositions of Delaware corporate law.
This is an important argument in a very readable and carefully argued article, one that is perhaps even more significant now, as appraisal is not the only area where the Delaware Supreme Court is limiting shareholder litigation. In the appraisal context the authors say it is not “the first time the Delaware Supreme Court has recently tried to hide sweeping doctrinal change beneath a veneer of “nothing-to-see-here” consistency.” (P. 4.) Brookfield Asset Management v Rosson and United Food and Commercial Workers Union v Zuckerberg have much the same feel. Continue reading "The Value of a Shareholding"
Feb 4, 2022 James TierneyCorporate Law
Emily Winston,
Unequal Investment: A Regulatory Case Study,__
Cornell L. Rev. __ (forthcoming), available at
SSRN.
Between rising asset prices, high returns on investment, and yawning wealth gaps, the wealthiest equity investors have had a better run than most of us. What, if anything, is to be done about that? Should legal rules governing market structure reflect egalitarian commitments? Securities law scholars have considered this as an “investor protection” problem. A small but vocal line of thought has envisioned democratizing finance and reducing inequality by tinkering with legal rules like the “accredited investor” standard, or funds mediating access to private markets.
A largely unacknowledged assumption of this work is that egalitarian goals can be achieved by liberalizing access to risky financial assets. Professor Emily Winston’s article Unequal Investment: A Regulatory Case Study, forthcoming in Cornell Law Review, unpacks that assumption. She offers an important corrective to the intuition that fighting inequality involves loosening market-access restrictions and letting more investors share in the gains. Continue reading "Securities Law’s Effects on Wealth Inequality: The Case of Asymmetric Investment Opportunity"
Jan 7, 2022 Anna GelpernCorporate Law
US Treasury securities are to financial markets what carbon is to life on Earth—ubiquitous, foundational, indispensable, and acting very scary of late. “The Treasury market is the biggest, deepest and most important bond market in the world and acts as a benchmark that is used to price trillions of dollars of assets globally,” says the Financial Times, an authority on these matters—yet you would be hard-pressed to find half a dozen law review articles on the subject. A pair of papers by Yesha Yadav, most recently with (her dad) Pradeep K. Yadav, deserves much praise for starting to fill the gap. The papers properly frame the subject at the intersection of law, finance, and economics, while public and private sector “grandees” and “heavyweights” sound financial stability alarms and try to patch the fraying market architecture.
We have it on good authority that carbon is a relatively recent arrival in our universe; more so the US Treasuries. As recently as a century ago, the US Treasury Department was hawking versions of bespoke project bonds and struggling to emerge from Britain’s shadow in the financial markets. A succession of design choices in response to 20th century upheavals helped transform the US Treasury market from a fringe contender into the undisputed center of global financial gravity. Its centrality was on full display in October 2008 when frightened humans gorged on sticky pudding while the markets supplying their carbs scrambled for their own comfort food, the US Treasury securities. Continue reading "The Elephant in the Room"
Dec 1, 2021 Bill BrattonCorporate Law
Robert Miller,
Stock Market Value and Deal Value in Appraisal Proceedings, 96
Notre Dame L. Rev. 1403 (2021), available at
SSRN.Delaware’s law of appraisal rights has been in an uproar since hedge fund arbitrageurs showed up in the Chancery Court fifteen or so years ago as appraisal petitioners. The shock led to minor changes in the statute and extensive changes in the caselaw. Responsive commentaries continue to appear with regularity. Professor Robert Miller takes a fresh look at the situation in Stock Market Value and Deal Value in Appraisal Proceedings. His paper is well worth a look.
I need to back up those fifteen years in order to frame the paper. Appraisal arbitrage really changed the game. All of a sudden a notoriously plaintiff-unfriendly legal remedy became a play space for Wall Street smart money looking for Alpha. The arbs worked the system by cooking up persuasive discounted cash flow (DCF) valuations that came in above the merger price. Shareholder advocates saw much to like in this development. The Delaware bar and judiciary, along with most of the rest of the establishment, saw things differently. The bar pushed through some minor revisions of the statute through the legislature, but those were not enough to stop the show. Continue reading "Reconstructing the Meaning of “Fair Value” in the Wake of Appraisal Arbitrage"
Nov 3, 2021 Gina-Gail FletcherCorporate Law
Cary Martin Shelby,
Profiting from Our Pain: Privileged Access to Social Impact Investing, 109
Cal. L. Rev. __ (forthcoming, 2021), available at
SSRN.
“Doing well while doing good” has become the mantra for a large segment of investors in today’s capital markets. In the wake of COVID-19, the Black Lives Matter movement, and the increased focus on climate change, many investors today are looking for ways to use their capital to positively impact society and address its various challenges. Responding to this demand, various socially conscious investment vehicles have emerged, such as environmental, social, and governance (ESG) investments, socially responsible investments (SRI), and social impact investing. But as these investments grow in popularity and size, it becomes necessary to question whether they are truly having the positive impact their name suggests.
In Profiting from Our Pain: Privileged Access to Social Impact Investing Professor Cary Martin Shelby explores the underbelly of socially conscious investment, focusing specifically on social impact investing. Social impact investments “seek to positively impact the environment or society at large, while simultaneously yielding a return for the underlying investors.” Because of its express and specific focus on social impact, this type of investing has the greatest potential for generating positive results for targeted communities. Yet, despite the potential benefits of social impact investing, Professor Martin Shelby argues that the public-private divide in U.S. federal securities laws creates opportunities for elite investors to profit at the expense of marginalized communities. This occurs through two interrelated yet distinct ways. Continue reading "Doing Well While Doing Good: Impact Investing & the Commodification of Marginalization"
Oct 5, 2021 Christine AbelyCorporate Law
Peter Molk and D. Daniel Sokol’s recent article The Challenges of Nonprofit Governance addresses a less-examined area of the governance literature: namely, the governance of nonprofit organizations. As the authors note, nonprofit governance failures have made the news in the past few years, as with, for example, the allegations against the National Rifle Association for self-dealing and fraud, or those against the University of Southern California related to sexual assault, discrimination, and corrupt admissions dealings. This article fills a notable gap in the governance literature by addressing important differences between corporate and nonprofit governance mechanisms; discussing currently available methods to monitor nonprofit activities, as well as the shortcomings of those approaches; and proposing solutions to promote more robust oversight and to better safeguard the interests of the nonprofit stakeholders and beneficiaries, as well as those of the general public.
Molk and Sokol identify several issues inherent in and unique to nonprofit governance. State attorneys general are usually tasked with nonprofit oversight. The authors note that such monitoring is often hampered by a lack of resources, as well as a dearth of required financial disclosures that could be used to evaluate nonprofits’ fiscal health. The authors attribute these shortcomings to the structural flaw that nonprofits may operate in numerous states, but that the mission of an individual state attorney general centers primarily around the protection of citizens of only its own state. As such, a problem of the commons arises whereby the resulting observed level of enforcement is less than would be optimal, but no one state attorney general has sufficient incentive to increase enforcement to detect wrongdoing outside of its own jurisdiction. Continue reading "The Governance of Nonprofit Organizations"
Sep 2, 2021 Elizabeth PollmanCorporate Law
Corporate law readers: Do not let this excellent new work by Erika George escape your attention. It is a book focused on human rights. But make no mistake it is about corporations and it richly deserves a spot on your reading list.
The motivating problem in this area is relatively well understood: global human rights slip through the cracks of different regulatory regimes. As Professor George explains: “[C]orporate law fails to adequately address the external effects of the modern corporation and its relationship to society.” Further, “public international law fails to adequately govern the conduct of private nonstate actors.” Multinational corporations influence the ability of many millions of people to enjoy human rights, but these corporations are not currently understood to have the requisite international legal personality to become a party to an existing, binding international human rights treaty. Global competitive pressures discourage home and host states from adopting a level playing field with high standards. Efforts at creating a new, legally-binding international treaty to regulate business have been unsuccessful. The U.S. Supreme Court has narrowed access to courts under the Alien Tort Statute and litigation has proven an unreliable source for a remedy to human rights abuses. Continue reading "The Path Toward Corporate Accountability on Human Rights"
