ProfessorBainbridge.com

Professor Bainbridge versus the Socratic Method: A ProfessorBainbridge.com Studio Production

The production values aren't great. But I am proud of the substance.

What course would you teach using my Advanced Corporation Law casebook?

A friend emailed to say she liked my new casebook on Advanced Corporation Law. But when I wrote back to encourage her to adopt it, she expressed doubt as to what course she would use it in.

A fair question. I use it in a course at UCLA called Advanced Corporation Law.

Reflections on being a Corporate Lawyer

A video from my new YouTube playlist on corporate law.

Professor Bainbridge on Corporate Law: Videos

I've created a playlist on Youtube of my videos on corporate law. You can access it here.

Delaware Vice Chancellor Laster cites yours truly

In Firefighters' Pension System of the City of Kansas City v. Presidio, Inc., CV 2019-0839-JTL, 2021 WL 298141, at *29 n.13 (Del. Ch. Jan. 29, 2021), Vice Chancellor Laster cited my article, Stephen M. Bainbridge, Unocal at 20: Director Primacy in Corporate Takeovers, 31 Del J. Corp. L. 769, 788–89 (2006), in a long string cite about how mergers involve final period problems. 

Later in the opinion (at *49 n.28) he cites, Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U.L. Rev. 547, 605 (2003), for the proposition that directors are not agents of the shareholders.

Cooking with Professor Bainbridge

I started blogging at ProfessorBainbridge.com in 2003. The blog started out with a focus on corporate law, but quickly evolved into a platform for talking about all of my interests: both vocational and avocational.

In the earlier years, the Food and Wine section of the blog consisted mostly of notes on wines Helen and I had tasted. But I had started cooking in my teens and it had eventually evolved into a hobby. Encouraged by Helen, I gradually started writing down some of the recipes I concocted and transcribing them to the blog.

Being bored during the pandemic, I decided to amuse myself by compiling all those recipes into a cookbook. Not to sell but just to share with friends and readers. And now it's ready.

You can download Cooking with ProfessorBainbridge.com here.

I hope you make some of the recipes and enjoy them.

Yours truly on the Federalization of Corporate Law from a 2009 Federalist Society Program

My book "Corporation Law and Economics" turned up in the oddest place

Well, maybe not the oddest place. But a friend of mine on Facebook spotted this picture on his timeline and sent it to me. The original poster apparently is a French lawyer. Look carefully at the top book.

The book in question is my Corporations: Law and Economic Analysis (2002). It has a LOT more economic analysis than my Concepts and Insights version, so may be especially useful for academics. Lots of director primacy, of course.

 

My essay The Business Roundtable’s Statement on Corporate Purpose One Year Later is now online

Here

Best week ever at CodeCracker. No brag. Just fact.

No brag. Just fact. We are Persuasive.

Michael J. Vargas, Dodge v. Ford Motor Co. at 100: The Enduring Legacy of Corporate Law's Most Controversial Case, 75 Bus. Law. 2103, 2122 mm. 59 and 64 (2020):

Professor Stephen Bainbridge argues persuasively that the business judgment rule, though insulating board actions from review, nonetheless is intended to and does encourage maximum shareholder wealth generation by preventing costly and inefficient interference by judges, a situation that shareholders themselves would likely appreciate and for which they would bargain. Stephen Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 NW. U. L. REV.547, 600-05 (2003). However, Professor Bainbridge admits that the rule may have the effect of insulating boards that engage in actions that do not maximize shareholder value. Id. at 601 n.269.

Citing Shlensky, Professor Stephen Bainbridge has persuasively argued that the business judgment rule should be read as a rule of abstention rather than a substantive standard of liability, which would fully withdraw the courts from any review of the merits of business decisions unless a breach of trust is raised. Stephen Bainbridge, The Business Judgment Rule as Abstention Doctrine, 57 VAND. L. REV. 83, 95-102 (2004). 

New Article by Yours Truly: Long-Term Bias and Director Primacy

Long-Term Bias and Director Primacy (August 4, 2020). the Columbia Business Law Review (forthcoming), UCLA School of Law, Law-Econ Research Paper No. 20-04, Available at SSRN: https://ssrn.com/abstract=3666593

Abstract In an important recent contribution to the short-termism debate, Professors Michal Barzuza and Eric Talley what they call an “emerging consensus in certain legal, business, and scholarly communities … that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects. See Michal Barzuza & Eric L. Talley, Long-Term Bias (February 20, 2019), forthcoming in the Columbia Business Law Review, available at SSRN: https://ssrn.com/abstract=3338631. Instead, Barzuza and Talley contend that that “corporate managers often fall prey to long-term bias—excessive optimism about their own long-term projects.”

This article is an invited comment on Barzuza and Talley’s article. Subject to various quibbles raised herein, I broadly concur with Barzuza and Talley’s argument that corporate directors and officers can be biased towards long-term projects and, accordingly, may reject short-term projects offering higher returns.

But what law reforms follow logically from their conclusion, if any? With respect to judicial review, I want to differ with Barzuza and Talley on three points. First, I believe Barzuza and Talley overstate the risk of judicial intervention. Second, they fail adequately to distinguish between directors and managers, even though that distinction is central to the application of Delaware law. Third, I believe their analysis implies that judges should retain the deference to director decision making inherent in doctrines such as the business judgment rule and intermediate review.

With respect to encouraging shareholder activism, I argue that the responsibility for policing managerial hyperopia (or myopia, for that matter) should be assigned to the board of directors, not the shareholders. Heterogenous shareholders lack the proper incentives and knowledge to properly police management.

Keywords: corporate governance, management, directors and officers, short-term, long-term, behavioral economics

JEL Classification: K22

The Fourth Edition of Bainbridge on Corporate Law from Foundation Press' Concepts and Insights Treatise Series is Out

Many students find their Corporation Law class difficult because they do not understand the transactions giving rise to those cases. As with its predecessors, this fourth edition is intended to assist students by not only restating the law but also by putting the law into its business and financial context. The pedagogy is up-to-date, with a strong emphasis on the doctrinal issues taught in today's Corporations classes. The text is highly readable: The style is simple, direct, and reader-friendly. Even when dealing with complicated economic or financial issues, the text seeks to make those issues readily accessible.

This new edition brings the material up-to-date with complete coverage of developments in both state corporate law and federal securities law.

Law school faculty can view it here. Please consider recommending it to your Corporations and Business Associations students.

The Bainbridge Hypothetical Makes it into the National Law Review

From the National Law Review:

The problem of stakeholderism is brilliantly illustrated by the eponymous Bainbridge Hypothetical:

"[S]uppose that the board of directors is considering closing an obsolete plant. The closing would harm the plant's workers and the local community.  However, the closing would benefit shareholders, creditors, and employees at a more modern plant to which the work previously performed at the old plant would be transferred.  Moreover, the closing would benefit communities around the modern plant.  Assume that the latter groups cannot gain except at the former groups' expense. By what standard should the board make the decision?  Shareholder wealth maximization provides a clear answer to this otherwise difficult situation--close the plant.  The alternative to following the shareholder wealth maximization norm would, on the other hand, force directors to struggle with indeterminate balancing standards. In turn, such standards would deprive directors of the critical ability to determine ex ante whether their behavior comports with the law's demands, thereby raising the transaction costs of corporate governance."

BTW, it turns out that post was from Keith Paul Bishop.

Making Sense of The Business Roundtable’s Reversal on Corporate Purpose

Bainbridge, Stephen Mark, Making Sense of The Business Roundtable’s Reversal on Corporate Purpose (July 30, 2020). UCLA School of Law, Law-Econ Research Paper No. 20-03, Available at SSRN: https://ssrn.com/abstract=3664078

Abstract: In August 2019, the Business Roundtable (BRT) issued a statement on the purpose of the corporation in which it reversed a longstanding position. Since 1978, the BRT has periodically issued statements on Principles of Corporate Governance, which purport to summarize law and best practice in this area. Since 1997, all versions of those statements had embraced the view that corporations exist primarily to serve their shareholders. In contrast, the 2019 version contains a much broader conception of corporate purpose, which posits that corporations should “commit to deliver[ing] value to all of” the corporation’s stakeholders.

Obviously, the BRT cannot unilaterally change the law. As this article explains, the law of corporate purpose remains that directors have an obligation to put shareholder interests ahead of those of other stakeholders and maximize profits for those shareholders.

What people do matters more than what they say. To date, the evidence is most BRT members remain committed to shareholder value maximization, despite their recent rhetoric to the contrary. This should not be surprising. The incentive structure faced by directors and managers still skews in favor of shareholders.

Why then did the BRT shift position? This article suggests two possibilities. First, the members may be engaged in puffery intended to attract certain stakeholders for the long-term benefit of the shareholders. Specifically, they may be looking to lower the company’s cost of labor by responding to perceived shifts in labor, lower the cost of capital by attracting certain investors, and increase sales by responding to perceived shifts in consumer market sentiment. They may also be trying to fend off regulation by progressive politicians. Second, some BRT members may crave a return to the days of imperial CEOS.

This article is a response to Jeffrey M. Lipshaw, The False Dichotomy of Corporate Governance Platitudes, Journal of Corporation Law (forthcoming).

Keywords: corporate law, corporate social responsibility, ESG, board of directors, corporate purpose

JEL Classification: K22, M14