Retweets are not endorsements. On an unrelated topic, committees are fun, I love grading, and one can never have too many associate deans.— Shit Academics Say (@AcademicsSay) May 8, 2015
"We are like dwarfs sitting on the shoulders of giants. We see more, and things that are more distant, than they did, not because our sight is superior or because we are taller than they, but because they raise us up, and by their great stature add to ours." Hence, at a minimum, we have an obligation to cite those giants.
Apropos of which, I've been reading a lot of articles lately about the constitutional rights of corporations that fail to cite--let alone engage--the seminal work done by the late Larry Ribstein. In my view, these failures are not just sloppy, they are shoddy.
So if you're writing on this topic, stop what you're doing and go read:
Right now. Go. Shoo.
Over the past twenty years there has been a dramatic increase in both CEO pay and the wealth of the richest Americans. We examine three hypotheses regarding the relationship between wealth inequality and CEO compensation: first, that the increase in CEO income inequality helped cause increased wealth inequality; second, that increases in wealth inequality helped cause increased CEO income inequality; and third, that both types of inequality are caused by a third factor. We test these hypotheses by using ExecuComp and Forbes 400 data to estimate power law distributions and compare the behavior of these distributions over time. We find no support for any of the three hypotheses.
Blackwell, Calvin and Graefe-Anderson, Rachel and Hefner, Frank L and Vaught, Dyanne, Wealth Inequality and CEO Compensation (April 27, 2015). Available at SSRN: http://ssrn.com/abstract=2599740
Nov 18, 2014 ... In a recent WSJ column, Lisa Rickard did a great job analyzing the decision Delaware's legislature will sonn face with respect to fee shifting ...
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 ...
Oct 2, 2014 ... But if I were, I'd be jumping up and down to get the Committee to follow Oklahoma (of all places) lead on fee-shifting bylaws. Kevin Lacroix has ...
2 days ago ... "This proposed fee-shifting bill does little to address the well-documented, longstanding problem of abusive merger-and-acquisition litigation in ...
Mar 9, 2015 ... Francis Pileggi reports that: Legislation is being proposed to ask the Delaware Legislature to limit the ability of corporations to adopt fee-shifting ...
Mar 9, 2015 ... If the ability of stockholders to bring lawsuits were seriously curtailed by fee-shifting provisions, a regulator is quite likely to fill the void--perhaps ...
Mar 31, 2015 ... The Court found that the fee-shifting bylaw did not apply to the plaintiff in this case, and in reaching this conclusion, made some interesting ...
Mar 11, 2015 ... As regular readers know, I think the Delaware state bar made a serious policy error by proposing legislation to ban fee-shifting bylaws and ...
Nov 19, 2014 ... Delaware's Decision: Viewing fee shifting bylaws through a public choice lens | Main | As long as Presidents aren't enforcing laws, why not add ...
As tensions over religious freedom mount in the United States and other parts of the world, Pope Francis on Thursday called on a cross-section of Christian leaders to defend the freedom of religious expression against a “misguided principle of tolerance.” ...
“I think of the challenges posed by legislation which, in the name of a misinterpreted principle of tolerance, ends up preventing citizens from peacefully and legitimately expressing their religious convictions,” he said. ...
Cardinal Péter Erdő told the gathering this is a particularly problematic time for Christians, saying that persecution and discrimination also takes place in Europe and represents the suffering of many Christians regardless of denomination.
According to Erdő, president of the European council, it’s as if someone wants to “shelve” the Christian presence in society and to ensure that faith is absent from public life.
The US Chamber of Commerce's Institute for Legal reform has filed a letter and testimony with with Delaware Senate in opposition to the proposed ban on fee shifting bylaws:
I also commend to your attention Lisa Rickard's statements in opposition to the bill. It goes without saying that I agree with the Chamber's position.
Francis Pileggi blogs about Quadrant Structured Products Company, Ltd. v. Vertin, C.A. No. 6990-VCL (Del. Ch. May 4, 2015), which he predicts "is destined to be cited as a seminal ruling for its historical and doctrinal analysis of important principles of Delaware corporate law, including the following:
Go read the whole thing. As counselor Pileggi kindly points out, the opinion indirectly cites yours truly by quoting (p.18 n.19) from Leo Strine's opinion in Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P.:
Professor Bainbridge‘s views regarding the substantive effect the question of insolvency should have on directors‘ ability to rely upon the business judgment rule . . . is identical to mine—short answer none. . . .
Strike is referring to my analysis in Much Ado about Little? Directors' Fiduciary Duties in the Vicinity of Insolvency. Journal of Business and Technology Law, Forthcoming; UCLA School of Law, Law-Econ Research Paper No. 05-26. Available at SSRN: http://ssrn.com/abstract=832504:
Where the contract between a corporation and one of its creditors is silent on some question, should the law invoke fiduciary duties as a gap filler? In general, the law has declined to do so. There is some precedent, however, for the proposition that directors of a corporation owe fiduciary duties to bondholders and other creditors once the firm is in the vicinity of insolvency.
Courts embracing the zone of insolvency doctrine have characterized the duties of directors as running to the corporate entity rather than any individual constituency. This approach is incoherent in practice and insupportable in theory. Courts should focus on whether the board has an obligation to give sole concern to the interests of a specific constituency of the corporation.
Concern that shareholders will gamble with the creditors' money is the principal argument for imposing a duty on the board running to creditors when the corporation is in the vicinity of insolvency. On close examination, however, this argument proves unpersuasive. It is director and manager opportunism, rather than strategic behavior by shareholders that is the real concern. Because bondholders and other creditors are better able to protect themselves against that risk than are shareholders, there is no justification for imposing such a duty.
This article also argues that the zone debate is much ado about very little. The only cases in which the zone of insolvency debate matters are those to which the business judgment rule does not apply, shareholder and creditor interests conflict, and a recovery could go to directly to those who have standing to sue. In those cases, as this Article explains, there is a strong policy argument that creditors should be limited to whatever rights the contract provides or might be inferred from the implied covenant of good faith.
Trying a small practice hill in my Jeep Cherokee Trailhawk. It's not a big hill, of course, but I'm still learning. This ride was on West Camino Cielo in the Los Padres National Forest.
A while back, Todd Henderson and I came up with the idea of "board service providers." As the abstract to our article explains:
State corporate law requires director services be provided by “natural persons.” This Article puts this obligation to scrutiny, and concludes that there are significant gains that could be realized by permitting firms (be they partnerships, corporations, or other business entities) to provide board services. We call these firms “board service providers” (BSPs). We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships will increase board accountability, both from markets and judicial supervision. The potential economies of scale and scope in the board services industry (including vertical integration of consultants and other board member support functions), as well as the benefits of risk pooling and talent allocation, mean that large professional director services firms may arise, and thereby create a market for corporate governance distinct from the market for corporate control. More transparency about board performance, including better pricing of governance by the market, as well as increased reputational assets at stake in board decisions, means improved corporate governance, all else being equal. But our goal in this Article is not necessarily to increase shareholder control over firms – we show how a firm providing board services could be used to increase managerial power as well. This shows the neutrality of our proposed reform, which can therefore be thought of as a reconceptualization of what a board is rather than a claim about the optimal locus of corporate power.
Boards-R-Us: Reconceptualizing Corporate Boards (July 10, 2013). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 646; UCLA School of Law, Law-Econ Research Paper No. 13-11. Available at SSRN: http://ssrn.com/abstract=2291065.
Interestingly, under current U.K. law:
It is ... possible to appoint a company or similar corporate body that has its own legal identity as a director of another company. As partnerships and trusts do not have their own legal identity they, however, cannot be appointed as directors. The corporate body can be a company incorporated in the United Kingdom or anywhere else in the world.
The roles and responsibilities of a corporate director are exactly the same as for individual directors.
Sadly, however, the United Kingdom is now acting to ban BSPs:
The Act will also prohibit the use of corporate directors and require all directors of a UK company to be natural persons, with limited exceptions. The exceptions are due to be to be set out in regulations and, according to guidance issued by the UK Government in support of the Act, corporate directors may be permitted to continue to be appointed where their use “presents a low risk of illicit activity and is of high value to the running of the company.”
The explanation for this change strikes me as grossly inadequate:
... corporate directors can be used to help criminals that are looking to misuse companies. Where a corporate director of a UK company is a company incorporated offshore it can become difficult to identify who are the directors and shareholders of that offshore corporate director. Making the company’s ownership structure as opaque and complex as possible can serve to hide the true beneficial owners from law enforcement agencies. Nominee directors, corporate or individual, can also be used to conceal corporate control. Where individuals want to use a company to facilitate criminal activity they are unlikely to want to register themselves as a director and therefore may appoint a nominee director and/or an offshore corporate director.
Lots of good things can be abused. That doesn't mean we should ban them. Instead, we should regulate the potential abuses.
Louis Brandeis famously remarked that "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." Instead of banning BSPs, the UK should take Brandeis' advice, and require transparency through an appropriate disclosure regime. (Assuming the evidence shows that market forces do not lead to adequate voluntary disclosure.)
The annual comprehensive corporation law amendment bill has been introduced in the Delaware Senate. As expected it contains the ban on fee shifting bylaws.
The US Chamber of Commerce sent along this comment by email:
"This proposed fee-shifting bill does little to address the well-documented, longstanding problem of abusive merger-and-acquisition litigation in Delaware. In addition, it removes a useful tool for protecting innocent shareholders against these frivolous lawsuits with no new protections.
“Helping trial lawyers instead of shareholders calls into question Delaware’s commitment to maintaining the balanced legal system that until now has been the hallmark of its corporate franchise.”
I'm in complete agreement, as detailed in may prior posts:
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 ...
Adam J. Epstein advises the boards of pre-IPO and small-cap companies through his firm, Third Creek Advisors, LLC. He recently offered an assessment of the pros and cons of shareholder activism. Recommended.
There's a new blog out there called New Private Law. Its editors apparently define "private law" as including "the areas of torts, property, contracts, intellectual property, commercial law, wills & trusts, and remedies."
I'm afraid I have to agree with Matt Bodie (which does't happen every day), who observed:
... what’s the source for your definition of private law? I understand the exclusion of employment law (though I would disagree substantively), but what about corporate and securities law? I thought those were pretty firmly ensconced as private law.
This looks interesting:
Because religious piety induces individuals to be more honest and risk-averse, it makes managers less likely to exploit shareholders, thereby mitigating the agency conflict and potentially influencing governance arrangements. We exploit the variation in religious piety across U.S. counties and investigate the effect of religious piety on anti-takeover provisions. Our results show that religious piety substitutes for corporate governance in alleviating the agency conflict. Effective governance is less necessary for firm with strong religious piety. As a result, religious piety leads to weaker governance, as indicated by more anti-takeover defenses. We exploit historical religious piety as far back as 1952 as our instrumental variable. Religious piety from the distant past is unlikely correlated with current corporate governance directly, except through contemporaneous religious piety. Further analysis shows that religious piety is not merely associated with, but rather brings about, more anti-takeover provisions.
Chintrakarn, Pandej and Jiraporn, Pornsit and Tong, Shenghui and Kitsabunnarat-Chatjuthamard, Pattanaporn, Exploring the Causal Effect of Religious Piety on Corporate Governance: Evidence from Anti-Takeover Defenses and Historical Religious Identification (April 21, 2015). Available at SSRN: http://ssrn.com/abstract=2597338
Because anti-takeover defenses are generally regarded as adverse to shareholders, many might question their logic, but the paper offers a slightly more detailed explanation of their hypothesis:
... religious piety induces managers to be more honest and less likely to expropriate from shareholders. As a result, managers are less inclined to exploit shareholders for private benefits. In such firms, strong governance is less necessary because managers are already honest and well-behaved. In other words, religious piety substitutes for strong governance. In addition, anti-takeover devices are less likely to be abused by religious managers. Therefore, they are less harmful in religious firms and are more likely to be adopted. This hypothesis predicts that religious piety is associated with more anti-takeover devices. We label this view “the substitution hypothesis”.
I'm not convinced by the abbreviated analysis in the paper. but it looks like a good project for a number cruncher.