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...
Corporate Law
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 […]
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...
In 2018, the Delaware courts confronted an extraordinary crisis of corporate governance: an open conflict between a corporation’s board of directors and its controlling shareholder. The board of CBS Corporation, a large media firm, voted to issue a dividend that would have diluted the shares of its controlling shareholder, National Amusements, Inc. (NAI). The dividend would have severed NAI’s control, leaving the board in sole command of CBS’s...
Introduction The IPO parade of 2019 is making the early shareholders of technology startups such as Uber, Lyft, Slack, and Pinterest (among others) staggeringly wealthy. Now that these companies are publicly traded, equity owners can easily cash out at a huge profit. As shares of stock, this profit would normally be taxed at long-term capital […]
Introduction According to the opinions in In re Trados (Trados) and In re Nine Systems (Nine Systems), both cases involved the peculiar corporate law equivalent of a burglary in which nothing was stolen. In Trados, the board of directors—composed mostly of representatives from venture capital (VC) firms holding preferred stock—voted in favor of a $60 million merger […]
The #MeToo movement has shaken corporate America in recent months, leading to the departures of several high-profile executives as well as sharp stock price declines at a number of firms. Investors have taken notice and taken action: Shareholders at more than a half dozen publicly traded companies have filed lawsuits since the start of 2017 alleging that corporate fiduciaries breached state law duties or violated federal securities laws in connection...
For centuries, the duty of loyalty has been the hallowed centerpiece of fiduciary obligation, widely considered one of the few “mandatory” rules of corporate law. That view, however, is no longer true. Beginning in 2000, Delaware dramatically departed from tradition by granting incorporated entities a statutory right to waive a crucial part of the duty of loyalty: the corporate opportunities doctrine. Other states have since followed Delaware’s...