Corporate Law

THE COSTS OF MISTAKES

Maytal Gilboa* & Yotam Kaplan**

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 CORPORATE GOVERNANCE MACHINE

Dorothy S. Lund* & Elizabeth Pollman**

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...

DEALS IN THE TIME OF PANDEMIC

Guhan Subramanian* & Caley Petrucci**

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...

The following Piece reflects the revised and extended remarks given by Barbara Novick at the Harvard Roundtable on Corporate Governance, November 6, 2019. Thank you to Lucian Bebchuk for inviting me to share some thoughts on investment stewardship to kick off the 2019 Corporate Governance Roundtable. I. Academic Theories on Investment Stewardship Corporate governance and […]

COMPLEX COMPLIANCE INVESTIGATIONS

Veronica Root Martinez*

Whether it is a financial institution like Wells Fargo, an automotive company like General Motors, a transportation company like Uber, or a religious organization like the Catholic Church, failing to properly prevent, detect, investigate, and remediate misconduct within an organization’s ranks can have devastating results. The importance of the compliance function is accepted within corporations, but the reality is that all types of organizations—private...