Two recent scandals spotlighted corporate fraud: the recent Wirecard scandal, which revealed €1.9 billion of missing corporate cash, and FTX’s bankruptcy scandal. Those incidents raised questions about the blameworthiness of professional third parties—lawyers, auditors, and banks, among others—who repeatedly fail to protect large public corporations from corporate fraud and misconduct. Professional third parties often are not held accountable...
Corporate Law
National security review of corporate transactions has long been a relatively sleepy corner of regulatory policy. But as governments merge economic and national security, national security reviews are expanding in frequency and scope, causing numerous deals to be renegotiated or even blocked. This expansion of national security’s impact on corporate transactions—which this Essay calls “national security creep”—raises theoretical questions...
This Piece provides a novel framework guiding adjudication in cases of mistakes, such as unintended money transfers. We draw on Guido Calabresi’s seminal work, The Costs of Accidents, to introduce a parallel framework for mistakes and detail its operation and embodied policy considerations. We explain that mistakes, unlike accidents, can be socially harmless. When a mistake is harmless, the law acts to protect the mistaken party, thereby...
The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: For public companies in the United States, corporate governance has become a “system” composed of an array of institutional players, with a powerful shareholderist orientation. Our original account of this “corporate governance machine” generates...
In response to the national reckoning on race that began in the summer of 2020, Aunt Jemima resigns and issues a call to all corporations to address systemic racism. In this imagining of the letter that she, as a real Black woman, would send upon her resignation from PepsiCo, she tells her own story as a spokesperson based on racist tropes and suggests that the country is at a turning point. Corporations must do more than issue statements about...
The COVID-19 pandemic has brought new attention to the period between signing and closing in mergers and acquisitions (M&A). Transactional planners heavily negotiate the provisions that govern the behavior of the parties during this window, not only to allocate risk between the buyer and seller, but also to manage moral hazard, opportunistic behavior, and other distortions in incentives. Prior literature, both academic and practitioner, has...
Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives...
Rule 10b-5 and the securities-fraud action provide a private enforcement tool only where litigants can show a defendant’s misrepresentation impacted the price of a security. But investors increasingly demand disclosure about how a corporation interacts with stakeholder groups such as employees, consumers, and communities. Because these “sustainability disclosures” are aimed at long-term value, misrepresentations will only...
Business corporations long ago rejected the idea of unaccountable directors running firms with only their consciences to keep them in check. Yet unaccountable boards are the norm in the nonprofit sector. This need not be the case. The laws of all fifty states and the District of Columbia provide a template for accountability in nonprofit governance: membership statutes. These statutes define the roles and responsibilities of nonprofit members,...
Companies with a dual-class structure have increasingly been involved in high-profile battles over the reallocation of control rights. Google, for instance, sought to entrench its founders’ control by recapitalizing from a dual-class into a triple-class structure. The CBS board, in contrast, attempted to dilute its controlling shareholder by distributing a voting stock dividend that would empower minority shareholders to block a merger it perceived...