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The Cambridge Handbook on Compliance is Out

I just got my copy of The Cambridge Handbook of Compliance. It includes a chapter by yours truly on insider trading compliance programs.

The advertising tells us that:

Compliance has become key to our contemporary markets, societies, and modes of governance across a variety of public and private domains. While this has stimulated a rich body of empirical and practical expertise on compliance, thus far, there has been no comprehensive understanding of what compliance is or how it influences various fields and sectors. The academic knowledge of compliance has remained siloed along different disciplinary domains, regulatory and legal spheres, and mechanisms and interventions. This handbook bridges these divides to provide the first one-stop overview of what compliance is, how we can best study it, and the core mechanisms that shape it. Written by leading experts, chapters offer perspectives from across law, regulatory studies, management science, criminology, economics, sociology, and psychology. This volume is the definitive and comprehensive account of compliance.

We are third

From Brian Leiter's blog:

Valuation of a Business in Legal Settings II: Discounted Dividend Methods

Valuation of a Business in Legal Settings I: Discounting to Present Value

The Reader's Digest Condensed Version of my Article, Don’t Compound the Caremark Mistake by Extending It to ESG Oversight, is Up

Here

My Article "A Critique of the Insider Trading Prohibition Act of 2021" is now online at the University of Illinois Law Review Online

A Critique of the Insider Trading Prohibition Act of 2021, 2021 U. Ill. L. Rev. Online 231 (Aug. 8, 2021), https://www.illinoislawreview.org/online/a-critique-of-the-insider-trading-prohibition-act-of-2021/

The Insider Trading Prohibition Act of 2021 has been passed by the House of Representatives and, as of this writing, is awaiting action in the Senate. The Act’s proponents claim that it simply codifies and clarifies ex- isting law. In fact, the Act does neither. It likely will expand the scope of insider trading in undesirable ways and introduce new ambiguities into the law.

The ways in which the Act likely will expand the insider trading pro- hibition, coupled with the new ambiguities it introduces, threatens the cen- tral policy on which the insider trading prohibition rests. The Supreme Court has recognized that the work of market analysts and other investment professionals inherently entails seeking information advantages. In turn, as the Court also recognized, that work is an essential part of maintaining efficient stock markets. By increasing the risk of liability, especially in light of the draconian penalties associated with insider trading, the Act likely will chill this vital activity to the detriment of all investors.

When a very similar bill passed the House in the 116th Congress, the legislation died in the Senate. The Insider Trading Prohibition Act of 2021 now awaits Senate action. The Senate would be well advised to let this bill die as well.

A New Paper by Yours Truly: Don’t Compound the Caremark Mistake by Extending it to ESG Oversight

Posted to SSRN: Don’t Compound the Caremark Mistake by Extending it to ESG Oversight.

Abstract: Since the foundational decision in In re Caremark Intern. Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996), Delaware corporate law has required boards of directors to establish reasonable legal compliance programs. Although Caremark has been applied almost exclusively with respect to law and accounting compliance, the original Caremark decision contemplated applying the oversight duty to the corporation’s “business performance.” Accordingly, there is no doctrinal reason that Caremark claims should not lie in cases in which the corporation suffered losses, not due to a failure to comply with applicable laws, but rather due to lax risk management.

The question thus arises as to whether Caremark should be extended to board failures to exercise oversight with respect to environmental, social, and governance (ESG) factors. Obviously, where existing legislation or regulations impose compliance obligations in ESG-related areas, such as human resources, the environment, or worker safety, Caremark already applies. As such, boards must “ensure that compliance and monitoring systems are in place” to oversee corporate compliance with those laws.

Many ESG issues are not yet the subject to legal requirements, however. The question addressed in this Article is whether the board’s Caremark obligations should be extended to encompass oversight of corporate performance with such issues. In other words, should the board face potential liability not just for failing to ensure that the company has adequate reporting and monitoring systems in place to insure compliance with ESG-related legal requirements, but also to monitor ESG risks in areas where corporate compliance would be voluntary or aspirational. 

Yours Truly Quoted in The Motley Fool re the Insider Trading Prohibition Act

From The Motley Fool:

The bill before the Senate would outlaw insiders from trading or tipping in exchange for a "direct or indirect personal benefit." It also states prosecutors don't have to prove a trader knew the info was exchanged for benefit, only that they recklessly ignored its illicit source, thus negating the Newman ruling.

Potential Side Effects: Extensive research is routine for stock traders, and many insider trading cases come down to fuzzy scenarios of analysts seeking an "edge." Distinguished UCLA financial law professor Stephen Bainbridge wrote the proposed legislation could "expand the scope of insider trading in undesirable ways," leading to apprehension among stockbrokers attempting to do legitimate research.

The paper to which he refers is: Bainbridge, Stephen Mark, A Critique of the Insider Trading Prohibition Act of 2021 (June 17, 2021). UCLA School of Law, Law-Econ Research Paper No. 21-08, Available at SSRN: https://ssrn.com/abstract=3869222

Financial Times cites yours truly on the Insider Trading Prohibition Act of 2021

In today's Financial Times, Sujeet Indap reports on the House passed Insider Trading Prohibition Act of 2021. He quotes yours truly:

Another eminent professor, Stephen Bainbridge of University of California, Los Angeles, wrote in a recent paper that TPA will “expand the scope of insider trading in undesirable ways and introduce new ambiguities”. Bainbridge’s specific concern is that the legislation will chill the work that stock traders do to determine asset prices if that work is more easily prosecuted with the help of a misguided law.

The paper to which he refers is: Bainbridge, Stephen Mark, A Critique of the Insider Trading Prohibition Act of 2021 (June 17, 2021). UCLA School of Law, Law-Econ Research Paper No. 21-08, Available at SSRN: https://ssrn.com/abstract=3869222

Abstract

The Insider Trading Prohibition Act of 2021 has been passed by the House of Representatives and, as of this writing, is awaiting action in the Senate. The Act’s proponents claim that it simply codifies and clarifies existing law. In fact, the Act does neither. It likely will expand the scope of insider trading in undesirable ways and introduce new ambiguities into the law.

The ways in which the Act likely will expand the insider trading prohibition, coupled with the new ambiguities it introduces, threatens the central policy on which the insider trading prohibition rests. The Supreme Court has recognized that the work of market analysts and other investment professionals inherently entails seeking information advantages. In turn, as the Court also recognized, that work is an essential part of maintaining efficient stock markets. By increasing the risk of liability, especially in light of the Draconian penalties associated with insider trading, the Act likely will chill this vital activity, to the detriment of all investors.

When a very similar bill passed the House in the 116th Congress, the legislation died in the Senate. The Insider Trading Prohibition Act of 2021 now awaits Senate action. The Senate would be well advised to let this bill die as well.

Federalist Society CLE Program on Board Diversity Requirements, Featuring Yours Truly

Register here.

Christianity and Market Regulation has been published, including an essay by yours truly on Christianity and Corporate Purpose

Cambridge University Press has released Christianity and Market Regulation: An Introduction, edited by Daniel A. Crane and Samuel Gregg. 

Historically, the Christian tradition has played an influential role in Western economic thought concerning the regulation of markets, but, with the fracturing of the Christian tradition following the Reformation, the decline of Christian influence in academia, and the increasing specialization of economic analysis, that influence has become increasingly opaque. This volume brings together an interdisciplinary team of prominent academic experts on market regulation from four different continents and various faith traditions to reconsider the impact of Christianity on market regulation. Drawing on law, economics, history, theology, philosophy, and political theory, the authors consider both general questions of market regulation and particular regulatory fields such as bankruptcy, corporate law, and antitrust from a Christian perspective.

My essay, Christianity and Corporate Purpose, is one of 10 essays in the book.

 

My essay critiquing the Insider Trading Prohibition Act of 2021 is up at The Harvard Law School Forum on Corporate Governance

You can read it here.

The Insider Trading Prohibition Act (“Act”) passed the U.S. House of Representatives by a wide bipartisan margin on May 18, 2021, and is now awaiting Senate action. The Act’s proponents claimthat the bill makes only modest changes in the definition of insider trading as it has been developed in the courts, while at the same time creating “a clear definition of insider trading . . . so that there is a codified, consistent standard for courts and market participants.” Unfortunately, the Act neither codifies nor clarifies.

Insider Trading Compliance Programs in The Cambridge Handbook of Compliance

The Cambridge Handbook of Compliance has just been released:

Compliance has become key to our contemporary markets, societies, and modes of governance across a variety of public and private domains. While this has stimulated a rich body of empirical and practical expertise on compliance, thus far, there has been no comprehensive understanding of what compliance is or how it influences various fields and sectors. The academic knowledge of compliance has remained siloed along different disciplinary domains, regulatory and legal spheres, and mechanisms and interventions. This handbook bridges these divides to provide the first one-stop overview of what compliance is, how we can best study it, and the core mechanisms that shape it. Written by leading experts, chapters offer perspectives from across law, regulatory studies, management science, criminology, economics, sociology, and psychology. This volume is the definitive and comprehensive account of compliance.

It includes 69 articles by leading experts on various aspects of compliance, both theoretical and practical. Among them is an article by yours truly on insider trading compliance programs.

Yours truly will be a speaker on the Acton Institute University Panel on Corporate Social Responsibility June 23

See this discussion of the panel and my fellow panelists.

My Advanced Corporation Law casebook gets an endorsement

One of the things I’ve enjoyed this semester: teaching a new course on Advanced Corporate Law to a wonderful group of @EmoryLaw students & using Stephen Bainbridge’s (@PrawfBainbridge @UCLA_Law) new Advanced Corporation Law textbook. Deep, balanced, current & highly recommended. pic.twitter.com/cMBItRdqLA

— George S. Georgiev (@GeorgievLaw) April 16, 2021