Using KRB to Teach the Financial Crisis in Business Associations

Erik Gerding reports that:

I am wondering how those of you teaching Business Associations and Corporations have integrated the financial crisis into your classes.

I'm sure that the crisis will make my end-of-the semester class on Corporate Social Responsibility even more lively. I wish I had remembered, but I meant to talk about why Bear Stearns didn't just abandon their two hedge funds in the context of my veil piercing classes. Moral or implicit recourse seems an important lesson; just because shareholders have protection of the corporate veil, doesn't mean they will use it. The crisis also came up in the context of executive compensation and the Disney and Jones v. Harris cases.

The progression in the Klein Ramseyer {Bainbridge interjects here to ask, "what am I, chopped liver?} book from Disney to Jones v. Harris also allowed a brief discussion on unintended consequences of corporate law reform. We talked a little bit about how option based compensation resulted from a desire to cure management entrenchment and better align management incentives with those of shareholders. We then talked a bit about the lesson of being careful in designing options or other compensation or you might stimulate short-term decision-making and accounting gamesmanship.

Jones v. Harris (subject of the Glom's forum two weeks ago) provided an opportunity to talk about how the rise of institutional shareholders was supposed to play a key role in corporate governance. We also discussed how institutional investing just pushes the agency costs to another level.

Casebook adopters can also get my Sarbanes-Oxley supplement for use in conjunction with KRB, complete with PowerPoint slides. Next summer I plan to work up a similar supplement to address the financial crisis and the Obama era of corporate governance.

Comments

[David Friedman]

We examined the composition of the Lehman board and asked if they looked like an independent group capable of performing their fiduciary responsibilities. A good discussion to throw into governance. (Who should be on boards, what should they be able to do.)