The UCLA School of Law's Lowell Milken Institute is sponsoring a Private Fund Conference: The Role of Activist Funds. During one session I will be debating the merits of shareholder activism with Patrick Foulis of The Economist, who wrote that magazine's latest paean in favor of shareholder activism.
I'll only have ten minutes to present my basic case, so let me direct interested readers to my latest article on the topic, Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013), available at SSRN: http://ssrn.com/abstract=2298415, which argues that:
There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.
This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.
Of course, as long time readers know, I have frequently criticized The Economist's coverage of shareholder activism, so here's a trip down memory lane:
Oct 9, 2014 ... The latest edition of The Economist is once again beating the drums for shareholder activism. (As I've said before, I love them despite their ...
Feb 8, 2015 ... The Economist is at it again, with yet another paean to shareholder activism. Or, more precisely,two: The latest print issue has both a leader and ...
Update: For an extended defense of my director primacy model of corporate governance, which I think anticipated Patrick's criticisms of it, see my book The New Corporate Governance in Theory and Practice. For an additional treatment of shareholder activism in the context of the broader set of corporate governance issues of the day, see my book Corporate Governance after the Financial Crisis.
The announcement that the Delaware bar is proposing legislation banning fee shifting bylaws raises a conundrum. Do I try to do a quick and dirty piece that could get rushed into an online review before the legislative session ends in June? Or a more considered critique of the bill (assuming it passes) for publication in a traditional law review in the fall?
Quick and dirty would likely mean basically refurbishing blog posts--i.e., SPLAT. Personally, I have no problem with SPLAT. To the contrary, in this sort of setting, I think it makes sense. (See this post) But some law reviews (yes, I'm looking at you Stanford) get all moralistic about it.
Anyway. Thoughts would be welcome.
BTW, here are the posts I'd be splatting:
Nov 18, 2014 ... (2) What's in the best interest of the key interest group that would be affected by fee shifting bylaws? As we'll see, I think those questions have ...
Nov 17, 2014 ... I had been planning on writing a law review article on fee shifting bylaws, but I suspect that events will overtake the inevitably lengthy ...
I like to have music or the TV on in the background when I'm working. Today I'm working at home and there's an Eric Clapton documentary on Palladium. Right now they're doing an acoustic version of Layla. I am very happy.
In 2007, as the late Larry Ribstein observed, "the North Dakota Legislature adopted the North Dakota Publicly Traded Corporations Act. To quote the Act’s sponsor, the North Dakota Corporate Governance Council, the Act “ 'provides a governance structure for publicly traded corporations that gives shareholders greater rights than they currently have under other state laws. It has been designed to reflect the best thinking of institutional investors and governance experts and addresses each of the current hot topics in corporate governance.' ”
In brief, the law permits firms incorporated under North Dakota law after July 1, 2007 to elect to include a provision in their articles that they elect to be subject to the new statute. Shareholders then get a set of provisions that looks like a shareholder rights advocate’s wish list, including majority voting for directors, advisory shareholder votes on executive compensation committee reports, a right for certain shareholders to propose board nominees on the company’s proxy statement; reimbursement of proxy expenses to shareholders to the extent they are successful in getting nominees elected; a requirement of a non-executive board chair; and restrictions on poison pills and other takeover devices. The Economistrecently applauded the Flickertail State‘s plan “to poach company incorporations from Delaware” as “injecting some much-needed competition into the field of corporate law and governance.”
In my essay, Why the North Dakota Publicly Traded Corporations Act Will Fail (March, 18 2009), available at SSRN: http://ssrn.com/abstract=1364402, I argued that:
North Dakota hopes that the Act will empower it to compete with Delaware in the market for corporate charters. In my view, North Dakota is doomed to failure. If state chartering competition is a race to the bottom, managers will prefer Delaware to North Dakota because the former facilitates the extraction of private rents. If state competition is a race to the top, investors will prefer the director primacy approach taken by Delaware to the shareholder primacy one adopted by North Dakota. Either way, North Dakota loses.
Now we learn from Myron Steele that:
North Dakota had two publicly traded corporations in 2007, when they adopted everybody's wish list of faith based corporate governance. And just two remain.
Former Chief Justice Myron T. Steele, Lecture: Continuity and Change in Delaware Corporate Law Jurisprudence, 20 Fordham J. Corp. & Fin. L. 352, 366 (2015).
So I was right. The statute flopped. Now the question is: Why?
I was intrigued by another amicus brief filed on the defendants’ behalf. Not the brief by onetime SEC defendant and billionaire sports team owner Mark Cuban, but the one by three professors as famous in the securities law biz as Cuban is in the rest of the world. Stephen Bainbridge of UCLA, Jonathan Macey of Yale and Todd Henderson of the University of Chicago argued in a brief docketed Thursday that the 2nd Circuit panel in the Newman and Chiasson case was exactly right on what constitutes a personal benefit to a corporate insider. (As it happens, the same three, along with Allen Ferrell of Harvard, also filed an amicus brief backing Mark Cuban when the SEC appealed the dismissal of its case against him to the 5th Circuit.)
Wait one second. How come Macey and Henderson got bold typeface but not yours truly? (Update: The squeaky wheel gets the bold typeface.)
The professors said that despite the SEC’s arguments in Dirks for the prohibition of all trades based on material, non-public information, the Supreme Court concluded blanket insider trading rules would “ultimately damage the overall health of the market, because they limit the incentives of market participants to seek out information on which to trade.”
Instead, the professors’ brief said, the Supreme Court came up with the “personal benefit” test, which was supposed to draw an objective line between tips passed by a corporate insider with an improper motive and information provided innocently. The Dirks opinion did say that an insider’s improper purpose can be to enrich a friend, but, according to the securities professors, the court “was not endorsing the proposition that an insider who discloses inside information to a ‘friend’ is therefore seeking a personal benefit.”
... The professors contend that the government interpretation – which the Justice Department and the SEC want the 2nd Circuit to enshrine in a reconsideration of the Newman and Chiasson decision – would undermine the free-market policy concerns at the heart of Dirks. They urged the 2nd Circuit to deny the government’s petition.
Bainbridge said in an email that he’s done about 10 such amicus briefs in his 25-year career and that the Newman filing reflects views he has been espousing on his blog, ProfessorBainbridge.com, for about a year.
Leo Strine and Nicholas Walker's provocative article Conservative Collision Course?: The Tension Between Conservative Corporate Law Theory and Citizens United has now been published in the Cornell Law Review (100 Cornell L. Rev. 335). So this seems like an opportune moment to remind you of my response Corporate Social Responsibility in the Night Watchman State: A Comment on Strine & Walker (September 9, 2014), available at SSRN: http://ssrn.com/abstract=2494003:
Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”
This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.
The Seattle University Law Review recently published a symposium devoted to a 15 year retrospective on Margaret Blair and Lynn Stout’s article A Team Production Theory of Corporate Law. Deservedly so. It was a provocative article that advanced the ball in many respects. Ultimately, however, I was unpersuaded and explained why in my article Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U. L. Rev. 547, 592-600 (2003). The following excerpt is taken from my original draft. I offer it up as a rebuttal to the recent symposium. In doing so, however, I am reminded of the lyrics of a Dave Mason song:
...we can't see eye to eye.
There ain't no good guy, there ain't no bad guy,
There's only you and me and we just disagree.
Blair and Stout contend that corporate law treats directors not as hierarchs charged with serving shareholder interests, but as referees—mediating hierarchs, to use their term—charged with serving the interests of the legal entity known as the corporation. In turn, the corporation’s interests are defined as the “joint welfare function” of all constituents who make firm specific investments. Although Blair and Stout tend to downplay the normative implications of their model, they acknowledge that it “resonates” with the views of progressive corporate legal scholarship. They differ from the progressive wing of the corporate law academy mainly on positive grounds. Many progressives believe that corporate directors currently do not take sufficient account of nonshareholder constituency interests and that law reform is necessary. In contrast, Blair and Stout believe that corporate directors do take such interests into account and the current law is adequate in this regard.
Team production is an important and highly useful concept in neoinstitutional economics. Blair and Stout stretch the team production model to encompass the entire firm. Doing so is unconventional. In my view, stretching team production that far also detracts from the model’s utility.
Production teams are defined conventionally as “a collection of individuals who are interdependent in their tasks, who share responsibility for outcomes, [and] who see themselves and who are seen by others as an intact social entity embedded in one or more larger social systems ....” This definition contemplates that production teams are embedded within a larger entity. As one commentator defines them, teams are “intact social systems that perform one or more tasks within an organizational context.”
Building on the work of Rajan and Zingales, Blair and Stout define team production by reference to firm specific investments. Hence, for example, they describe the firm “as a ‘nexus of firm-specific investments.’” In fact, however, firm specific investments are not the defining characteristic of team production. Instead, the common feature of team production is task nonseparability.
Oliver Williamson identifies two forms production teams take: primitive and relational. In both, team members perform nonseparable tasks. The two forms are distinguished by the degree of firm specific human capital possessed by such members. In primitive teams, workers have little such capital; in relational teams, they have substantial amounts. Because both primitive and relational team production requires task nonseparability, it is that characteristic that defines team production.
Most public corporations have both relational and primitive teams embedded throughout their organizational hierarchy. Self-directed work teams, for example, have become a common feature of manufacturing shop floors and even some service workplaces. Even the board of directors can be regarded as a relational team. Hence, the modern public corporation arguably is better described as a hierarchy of teams rather than one of autonomous individuals. To call the entire firm a team, however, is neither accurate nor helpful.
As among shop floor workers organized into a self-directed work team, for example, team production is an appropriate model precisely because their collective output is not task separable. In a large firm, however, the vast majority of tasks performed by the firm’s various constituencies are task separable. The contribution of employees of one division versus those of a second division can be separated. The contributions of employees and creditors can be separated. The contributions of supervisory employees can be separated from those of shop floor employees. And so on. Accordingly, the concept of team production is simply inapt with respect to the large public corporations with which Blair and Stout are concerned. 
John Coates argues that Blair and Stout’s mediating hierarch model fares poorly whenever there is a dominant shareholder. If so, the model’s utility is vitiated with respect to close corporations, wholly-owned subsidiaries, and publicly held corporations with a controlling shareholder. In addition, Coates argues, Blair and Stout’s model also fares poorly whenever any corporate constituent dominates the firm. Many of publicly held corporations lacking a controlling shareholder are dominated one of the constituents among which the board supposedly mediates—namely, top management. Although the precise figures disputed, a substantial minority of publicly held corporations have boards in which insiders comprise a majority of the members. Even where a majority of the board is nominally independent, the board may be captured by insiders.
I more skeptical than Coates of board capture theories, having argued elsewhere that independent board members have substantial incentives to buck management. On balance, however, Coates makes a persuasive case that the mediating hierarch model has a relatively small domain. In contrast, the domain of director primacy, which merely requires the absence of a controlling shareholder, seems considerably larger.
Blair and Stout develop the mediating hierarchy model by telling the story of a start-up venture in which a number of individuals come together to undertake a team production project. The participating constituents know that incorporation, especially the selection of independent board members, will reduce their control over the firm and, consequently, expose their interests to shirking or self-dealing by other participants. They go forward, Blair and Stout suggest, because the participants know the board of directors will function as a mediating hierarch resolving horizontal disputes among team members about the allocation of the return on their production.
On its face, Blair and Stout’s scenario is not about established public corporations. Instead, their scenario seems heavily influenced by the high-tech start-ups of the late 1990s. Yet, even in that setting, the model seems inapt. In the typical pattern, the entrepreneurial founders hire the first factors of production. If the firm subsequently goes public, the founding entrepreneurs commonly are replaced by a more or less independent board. The board thus displaces the original promoters as the central party with whom all other corporate constituencies contract. It is due to my empirical impression that this is the typical pattern that director primacy assumes the board of directors—whether comprised of the founding entrepreneurs or subsequently appointed outsiders—hires factors of production, not the other way around.
Lest the foregoing seem like an argument for shareholder primacy, I think it is instructive to note the corporation—unlike partnerships, for example—did not evolve from enterprises in which the owners of the residual claim managed the business. Instead, as a legal construct, the modern corporation evolved out of such antecedent forms as municipal and ecclesiastical corporations. The board of directors as an institution thus pre-dates the rise of shareholder capitalism. When the earliest industrial corporations began, moreover, they typically were large enterprises requiring centralized management. Hence, separation of ownership and control was not a late development but rather a key institutional characteristic of the corporate form from its inception. At the risk of descending into chicken-and-egg pedantry, the historical record thus suggests that director primacy emerged long before shareholder primacy. Directors have always hired factors of production, not vice-versa.
In Blair and Stout’s model, directors are hired by all constituencies and charged with balancing the competing interests of all team members “in a fashion that keeps everyone happy enough that the productive coalitions stays together.” In other words, the principal function of the mediating board is resolving disputes among other corporate constituents. This account of the board’s role differs significantly from the standard account.
The literature typically identifies three functions performed by boards of public corporations: First, and foremost, the board monitors and disciplines top management. Second, while boards rarely are involved in day-to-day operational decisionmaking, most boards have at least some managerial functions. Broad policymaking is commonly a board prerogative, for example. Even more commonly, however, individual board members provide advice and guidance to top managers with respect to operational and/or policy decisions. Finally, the board provides access to a network of contacts that may be useful in gathering resources and/or obtaining business. Outside directors affiliated with financial institutions, for example, apparently facilitate the firm’s access to capital. In none of these capacities, however, does the board of directors directly referee between corporate constituencies.
To be sure, institutional economics acknowledges that dispute resolution is an important function of any governance system. Ex post gap-filling and error correction are necessitated by the incomplete contracts inherent in corporate governance. Those functions inevitably entail dispute resolution. As we’ve seen, the firm addresses the problem of incomplete contracting by creating a central decisionmaker authorized to rewrite by fiat the implicit—and, in some cases, even the explicit—contracts of which the corporation is a nexus.
As the principal governance mechanism within the public corporation, the board of directors is that central decisionmaker and, accordingly, bears principal dispute resolution responsibility. Yet, in doing so, the board “is an instrument of the residual claimants.” Hence, if the board considers the interests of nonshareholder constituencies when making decisions, it does so only because shareholder wealth will be maximized in the long-run.
If directors suddenly began behaving as mediating hierarchs, rather than shareholder wealth maximizers, an adaptive response would be called forth. Consistent with the predictions developed above, shareholders would adjust their relationships with the firm, demanding a higher return to compensate them for the increase in risk to the value of their residual claim resulting from director freedom to make trade-offs between shareholder wealth and nonshareholder constituency interests. Ironically, this adaptation would raise the cost of capital and thus injure the interests of all corporate constituents whose claims vary in value with the fortunes of the firm.
Because a model’s ability to predict real world outcomes is more important than the extent to which the model’s assumptions accurately depict the real world, the key question is whether the mediating hierarchy model facilitates accurate predictions about the content of the law. To support their claim that the mediating hierarch model explains the substantive content of corporate law as it exists today, Blair and Stout examine a substantial number of doctrinal principles. Out of consideration for the long-suffering reader, because delving deeply may be more instructive than taking a broad overview, and so as to leave something for future articles, I focus here on a single doctrine—the business judgment rule.
The business judgment rule is the separation of ownership and control’s chief common law corollary. It pervades every aspect of the state law of corporate governance, from allegedly negligent decisions by directors, to self-dealing transactions, to board decisions to seek dismissal of shareholder litigation, and so on. Enabling one to make accurate predictions about the business judgment rule’s scope and content thus stands as the basic test for any model.
Blair and Stout correctly assert that the business judgment rule does not reflect a norm of shareholder primacy, but err in suggesting that the business judgment rule does not reflect a norm of shareholder wealth maximization. The case law, properly understood, does not stand for the proposition that directors have discretion to make trade-offs between nonshareholder and shareholder interests. Instead, the cases stand for the proposition that courts will abstain from reviewing the exercise of directorial discretion even when the complainant alleges that directors took nonshareholder interests into account in making their decision.
The question is one of means and ends. In the classic case of Dodge v. Ford Motor Co., the court emphasized that director discretion is the means by which corporations are governed. More recently, the Delaware supreme court explained:
Under Delaware law, the business judgment rule is the offspring of the fundamental principle, codified in [Delaware General Corporation Law] § 141(a), the business and affairs of a Delaware corporation are managed by or under its board of directors.... The business judgment rule exists to protect and promote the full and free exercise of the managerial power granted to Delaware directors.
In other words, the rule ensures that the null hypothesis is deference to the board’s authority as the corporation’s central and final decisionmaker. On this Blair and Stout and I agree. We part company, however, when they deny that the end towards which corporations are governed is, as the Dodge court put it, “the profit of the stockholders.”
Put another way, we agree that the business judgment rule exists to preserve director discretion, but disagree as to why that discretion is important. Blair and Stout contend that the business judgment rule insulates the board of directors from “the direct command and control” of shareholders (or other corporate constituents for that matter) so as to prevent the various constituents from opportunistically expropriating rents from the team. In contrast, I contend that the business judgment rule is the doctrinal mechanism by which courts on a case-by-case basis resolve the competing claims of authority and accountability.
As a positive theory of corporate governance, director primacy claims that fiat—centralized decisionmaking—is the essential attribute of efficient corporate governance. As a normative theory of corporate governance, director primacy claims that authority and accountability cannot be reconciled. As Kenneth Arrow observed:
[Accountability mechanisms] must be capable of correcting errors but should not be such as to destroy the genuine values of authority. Clearly, a sufficiently strict and continuous organ of [accountability] can easily amount to a denial of authority. If every decision of A is to be reviewed by B, then all we have really is a shift in the locus of authority from A to B and hence no solution to the original problem.
The business judgment rule prevents such a shift in the locus of decisionmaking authority from boards to judges. It does so by establishing a limited system for case-by-case oversight in which judicial review of the substantive merits of those decisions is avoided. The court begins with a presumption against review. It then reviews the facts to determine not the quality of the decision, but rather whether the decisionmaking process was tainted by self-dealing and the like. The questions asked are objective and straightforward: Did the board commit fraud? Did the board commit an illegal act? Did the board self-deal? Whether or not the board exercised reasonable care is irrelevant, as well it should be. The business judgment rule thus builds a prophylactic barrier by which courts pre-commit to resisting the temptation to review the merits of the board’s decision. This is precisely the rule for which shareholders would bargain, because they would conclude that the systemic costs of judicial review exceed the benefits of punishing director misfeasance and malfeasance.
I got this email from a staffer to a Democratic Congressman from New England:
Our boss ... is concerned with the recent 2nd Circuit Court of Appeals decision in the insider trading case against Todd Newman and Tony Chiasson. It seems that the appeals court relied on the Supreme Court's intent in a 1983 ruling, Dirks v. the Securities and Exchange Commission, which said a person could be guilty of insider trading only if he knew that the corporate insider leaking the information was breaching a duty to the company. When defining a breach, the court explained that "the test is whether the insider personally will benefit," adding, "Absent some personal gain, there has been no breach of duty.” This seems like a very narrow standard, and our boss is interested in introducing legislation to prohibit insider trading outright. We saw you quoted in a recent New York TImes article on the subject and are hoping to arrange a time for a call to discuss ways to broaden the standard to prohibit all insider trading.
To which I responded:
Why on earth would you want to prohibit all insider trading? It seems to me that the Newman court got it exactly right, as I explained in this blog post.
For a more detailed discussion of the state of insider trading law and the rationale for prohibiting some--but not all--insider trading, see my essay Regulating Insider Trading in the Post-Fiduciary Duty Era: Equal Access or Property Rights, in Research Handbook on Insider Trading 80 (Edward Elgar Publishing; Stephen M. Bainbridge ed. 2013), which I attach.
You can download a pre-publication draft of the essay here. Or, better yet, you could buy one of my books:
After Gregory Bolan quit as a research analyst for Wells Fargo & Co. in Nashville, Tenn., his former colleague, trader Joseph Ruggieri, gave him a set of keys to Mr. Ruggieri’s Manhattan apartment to help him as he interviewed for jobs in New York.
This seemingly innocuous favor was cited by the Securities and Exchange Commission, when it filed civil charges last year against both men alleging insider trading.
The agency said the gesture of friendship helped demonstrate that Mr. Bolan benefited from allegedly tipping Mr. Ruggieri about his upcoming market-moving reports on several stocks from April 2010 through March 2011, when they still worked together.
Now, the supposed benefit is at the center of a courtroom battle—the latest in a string of legal challenges stemming from a landmark appeals-court ruling in December that raises the bar for prosecutors and the SEC in proving insider trading.
The two men intend to file a motion Thursday, seeking the dismissal of all charges against them as a result of the appeals-court ruling, according to Mr. Bolan’s lawyer, Sam Lieberman. The men deny wrongdoing and say the SEC’s case doesn’t meet the new standard set by courts. ...
Prosecutors and the SEC “in a lot of ways…have been quite cavalier” about assuming that friendships are sufficient to satisfy the personal-benefit test in insider-trading cases, said Stephen Bainbridge, a law professor at the University of California, Los Angeles. That’s set to change, he added: “The days when you could just allege that [the tipper and trader] were buddies and talked to each other are clearly over.”
From the NYT:
Added Stephen M. Bainbridge, an insider trading expert at the University of California, Los Angeles School of Law: “It’s always been a problem to gerrymander insider trading into fraud.” ...
The best limiting principle might well be a statute. “I think the law should be clear rather than vague,” Professor Bainbridge said. “The law ought to put you on notice what you can and cannot legally do.” This seems especially true when a person convicted of violating it faces jail time.
11 Hastings Bus. L.J. 29
Hastings Business Law Journal Winter 2015 GOODWILL AND THE EXCESSES OF CORPORATE POLITICAL SPENDING David Rosenberg
...business purpose of the company as broadly as possible in order to avoid claims that certain activities are ultra vires STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS, 59 60 Found. Press 2002). [FN35] . Faith Stevelman Kahn, Pandora's Box: Managerial Discretion and the Problem ...
...805, 812 (Del. 1984) [FN40] Shlensky v. Wrigley, 237 N.E.2d 776, 780-81 (Ill. App. Ct. 1968) [FN41] See BAINBRIDGE supra note 34, at 123. [FN42] Wrigley , 237 N.E.2d at 780 [FN43] . Elhauge, supra note 12, at 776. [FN44 ...
...accept for the corporation the highest risk adjusted returns available that are above the firm's cost of capital” See also BAINBRIDGE supra note 34, at 107. [FN51] . Larry Ribstein, Corporate Political Speech , 49 WASH. & LEE L. REV . 109, 126 (1992) Although...
GATEKEEPER LIABILITY OF LIFE INSURANCE COMPANY INSIDE ATTORNEYS ““APPEARING” BEFORE THE SEC
Gary O. Cohen November 12 - 14, 2014 SW003 ALI-CLE 879 Conference on Life Insurance Company Products Featuring Current SEC, FINRA, Insurance, Tax, and ERISA Regulatory and Compliance Issues The American Law Institute Continuing Legal Education
...involving accountants)(emphasis added)[hereinafter Touche Ross]. [FN119] . Villa Article, supra note 32, at 105-106 (emphasis added). [FN120] . Professor Stephen Bainbridge, Stephen Bainbridge's Journal of Law, Politics, and Culture (Oct. 4, 2011) (emphasis added), available at http:// www.professorbainbridge.com/professorbainbridgecom/2011/10/remarks-onin-house-counsel-as-gatekeepers.html(emphasis added)[hereinafter Prof. Bainbridge Remarks]. [FN121] Id. [FN122] . Prezioso Outline, supra note 5, at 6 (emphasis added). [FN123] . Rule 102(f)(2)(emphasis added
...aff'd Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) available at https://www.sec.gov/info/municipal/dcccweissopinion112806.pdf. [FN137] . Prof. Bainbridge Remarks, supra note 120. [FN138] . SEC Monson Proceeding, supra note 94. [FN139] . SEC Monson Decision, supra note 18, at 5...
GATEKEEPER LIABILITY OF LIFE INSURANCE COMPANY INSIDE ATTORNEYS ““APPEARING” BEFORE THE SEC-SUPPLEMENTAL MATERIAL
Stephen L. CohenGary O. Cohen November 12 - 14, 2014 SW003 ALI-CLE 957 Conference on Life Insurance Company Products Featuring Current SEC, FINRA, Insurance, Tax, and ERISA Regulatory and Compliance Issues The American Law Institute Continuing Legal Education
...involving accountants)(emphasis added)[hereinafter Touche Ross]. [FN119] . Villa Article, supra note 32, at 105-106 (emphasis added). [FN120] . Professor Stephen Bainbridge, Stephen Bainbridge's Journal of Law, Politics, and Culture (Oct. 4, 2011)(emphasis added), available at http:// www.professorbainbridge.com/professorbainbridgecom/2011/10/remarks-on-in-house-counsel-asgatekeepers.html (emphasis added)[hereinafter Prof. Bainbridge Remarks]. [FN121] Id. [FN122] . Prezioso Outline, supra note 5, at 6 (emphasis added). [FN123] . Rule 102(f)(2)(emphasis added
...aff'd Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) available at https://www.sec.gov/info/municipal/dcccweissopinion112806.pdf. [FN137] . Prof. Bainbridge Remarks, supra note 120. [FN138] . SEC Monson Proceeding, supra note 94. [FN139] . SEC Monson Decision, supra note 18, at 5...
100 Cornell L. Rev. 99
Cornell Law Review November, 2014 FINDING ORDER IN THE MORASS: THE THREE REAL JUSTIFICATIONS FOR PIERCING THE CORPORATE VEIL Jonathan Macey, Joshua Mitts
...we believe that our taxonomy can produce a coherent account of veil-piercing cases, and are thus more optimistic than Stephen Bainbridge, who famously called for the abolishment of the doctrine. [FN51] Unlike Bainbridge, we believe that there are strong public policy rationales for retaining veil piercing in certain situations. We hesitate to conclude ...
...Shareholder Liability: Vicarious Tort Liability for Corporate Officers, 57 VAND. L. REV. 329, 337 (2004) [FN14] Id. at 340 [FN15] . Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. CORP. L . 479, 507 (2001) [FN16] . See id. at 506-07 ; see also Frank H ...
...frequency of and rates for veil piercing in Contract and Tort.” [FN50] . See Matheson, supra note 46, at 4. [FN51] . Bainbridge, supra note 15, at 479. [FN52] STEPHEN B. PRESSER, PIERCING THE CORPORATE VEIL (2013). [FN53] 42 U.S.C. § 9601 (2012...
66 Fla. L. Rev. 2179
Florida Law Review November, 2014 SHAREHOLDER PROPOSALS IN THE MARKET FOR CORPORATE INFLUENCE Paul Rose
...proponents of shareholder primacy. Director primacy is not wholly compatible with agency models of the shareholder-director relationship. As Professor Stephen Bainbridge puts it, directorial power is “sui generis”; directors may be elected by shareholders, but they are not mere agents of ...
...2013) [FN14] . Paul Rose, Common Agency and the Public Corporation, 63 Vand. L. Rev. 1355, 1359 (2010) [FN15] . See, e.g., Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U. L. Rev. 547, 550 (2003) [FN16] . See id ...
...will not question the rational business judgments made by directors, corporate boards should nonetheless “ultimately promote stockholder value”). [FN21] . See Bainbridge, supra note 15, at 560. [FN22] Id. at 563-65 [FN23] . See id. at 567 [FN24] Id. at 563-65 [FN25] . Rose, supra note 14, at 1364-65. [FN26] . See Stephen M. Bainbridge, The Creeping Federalization of Corporate Law, Reg., Spring 2003, at 26, 26. [FN27] . See infra Part IV. [FN28] . Elizabeth Garrett...
99 Minn. L. Rev. 27
Minnesota Law Review November, 2014 A CORPORATE RIGHT TO PRIVACY Elizabeth Pollman
...a discussion of the roles of directors and officers, see KLEIN ET AL., supra note 163, at 116, 135-37; Stephen M. Bainbridge, Why a Board? Group Decisionmaking in Corporate Governance , 55 VAND. L. REV. 1, 5 (2002) ; Donald C. Langevoort, The Human...
48 U.C. Davis L. Rev. 271
U.C. Davis Law Review November, 2014 THE (UN)ENFORCEMENT OF CORPORATE OFFICERS' DUTIES Megan W. Shaner
...228 229 240 249 274 available at http://www.gpo.gov/fdsys/pkg/FR-2003-04-16/pdf/03-9157.pdf; see also Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance , 97 NW. U. L. REV. 547, 559-60, 605-06 (2003) [hereinafter The Means and Ends ]; Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment , 119 HARV. L. REV . 1735, 1735-36 (2006) [hereinafter Shareholder Disempowerment [FN3] See DEL . C ODE ...
...78o and 18 U.S.C. § 1350 ) (addressing auditors, audit committees, officer certification, prohibition on loans to officers and financial reports); STEPHEN M. BAINBRIDGE, CORPORATE GOVERNANCE AFTER THE FINANCIAL CRISIS (2012) (discussing corporate governance following the financial crisis); ABA Report supra , at 107 (noting ...
...a result of federal preemption. See Mark J. Roe, Delaware's Competition , 117 HARV. L. REV. 588, 600 (2003) see also Stephen M. Bainbridge, The Creeping Federalization of Corporate Law REG ., Spring 2003, at 26, 31 (asserting that the “substance of corporate governance standards...
48 U.C. Davis L. Rev. 337
U.C. Davis Law Review November, 2014 AGAINST CONFIDENTIALITY Dru Stevenson
...that mandatory disclosure “equalizes information asymmetries, thereby enhancing settlement prospects and also reducing surprises and gamesmanship at trial.” [FN6] See Stephen M. Bainbridge, Community and Statism: A Conservative Contractarian Critique of Progressive Corporate Law Scholarship 82 CORNELL L. REV . 856, 869 n.53..
In yesterday's WSJ, William Galston opined that shareholder wealth maximization norm harms workers, citing as an example Timken Corp.:
Timken survived the deep recession of the 1980s, which drove many American manufacturers out of business, only because it made massive investments in state-of-the-art production facilities that meant, says Mr. Schwartz, “lower profits in the short term and less capital to return to shareholders.” Because of this patient approach, Timken was able to dominate the global market in specialized steel while providing good wages to workers and contributing to schools and public institutions in its hometown of Canton, Ohio.
It is often argued that managements, such as Timken’s once was, are violating their fiduciary responsibility to “maximize shareholder value.” But Washington Post economics writer Steven Pearlstein argues that there is no such duty, and UCLA law professor Stephen Bainbridge, past chairman of the Federalist Society’s corporate-group executive committee, backs him up. In practice, Mr. Bainbridge has written, courts “generally will not substitute their judgment for that of the board of directors [and] directors who consider nonshareholder interests in making corporate decisions . . . will be insulated from liability.”
Well, yes, but. Galston took that quote out of context. For the full context, see this post.
In short, there is a fiduciary duty to maximize shareholder wealth. To be sure, current law allows boards of directors substantial discretion to consider the impact of their decisions on interests other than shareholder wealth maximization. This discretion, however, exists not as the outcome of conscious social policy but rather as an unintended consequence of the business judgment rule. To be sure, some scholars find an inconsistency between the business judgment rule and the shareholder wealth maximization norm. I concede that the business judgment rule sometimes has the effect of insulating a board of directors from liability when it puts the interests of nonshareholder constituencies ahead of those of shareholders, but deny that that is the rule’s intent. Most importantly, the rule is not inconsistent with the indea that the board of directors' duty is to the shareholders.