Corporate Law
Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts
The retirement security of American workers is increasingly linked to the collective investment trust (CIT), a century-old bank product whose dramatic growth has been largely overlooked. As CITs replace mutual funds in retirement plans, this Essay explores the trade-offs associated with CITs as investment funds and as institutional investors.
The Credit Markets Go Dark
Mirroring the recent paradigm shift in corporate equity, corporate debt is now increasingly private and concentrated in the hands of investment funds. This Article chronicles the rise of private credit—loans originated by investment funds, rather than banks—and discusses its implications, including the potential loss of information and liquidity.
The Modern State and the Rise of the Business Corporation
This Article argues that the rise of the modern state was a necessary condition for the rise of the business corporation. Corporate technologies require the support of a powerful state with the geographical reach, administrative power, and legal capacity necessary to enforce the law uniformly among a corporation’s various owners.
Barbarians Inside the Gates: Raiders, Activists, and the Risk of Mistargeting
This Article argues that the conventional wisdom about corporate raiders and activist hedge funds—lambasting raiders and praising activists—is wrong. The authors explain how activists are more likely than raiders to engage in mistargeting, implying they are also more likely to destroy value and, ultimately, social wealth.
A Proposed Postpandemic Framework for Ordinary Course and MAE Provisions in Merger Agreements: Reviewing Recent Market Practice Changes and Addressing Skewed Incentives
This empirical analysis of merger agreements indicates an evolution in market practice since the COVID-19 pandemic toward providing additional flexibility to targets to respond to extraordinary events that may occur pending closing. This Essay argues that relying on the buyer’s providing consent for such responses is inadequate, and proposes a new framework for ordinary course covenants and MAE provisions.
Corporate Governance Reform and the Sustainability Imperative
Promoting sustainable corporate governance will require reforming features of the corporation that incentivize excessive risk-taking and cost externalization. This Feature critiques how prevailing theories cabin the debate and presents an alternative approach more conducive to reform, evaluating disclosure-based strategies and assessing initiatives that re-envision board composition and underlying incentive structures.
In Search of Good Corporate Governance
In this Forum Response, Dorothy Lund considers whether the “corporate governance gap” between large and small public companies is the product of harmful or beneficial forces, and in so doing, rejects the idea that there is a single governance framework that is optimal for all public companies.
The Corporate Governance Gap
This Article offers an empirical account of the differences in governance practices between large- and small-cap companies, resulting in what this Article terms the “Corporate Governance Gap.” Recognizing a disparity in the operation of driving forces that promote governance practices, the Article proposes policy reforms aimed at bridging this gap.
Equality Metrics
For decades firms have asserted their support for diversity efforts but struggled to achieve increased demographic diversity. This Essay argues that institutional investors should require firms to disclose information regarding the current demographic diversity of their workforces and supply chains, as well as measurable, specific plans to improve racial equity.
Title 18 Insider Trading
Securities regulation is a poor host for insider trading doctrine. This Note advances an alternative: the law of federal criminal fraud. It argues that a standalone model of Title 18 insider trading can resolve stubborn doctrinal puzzles, stamp out judge-made securities crimes, and reanchor the offense to its conceptual foundations.
Distorted Choice in Corporate Bankruptcy
Two new strategies—restructuring support agreements and deathtrap provisions—distort the voting process in nearly every big Chapter 11 case. Although they could be banned, this Article, the first comprehensive assessment, calls for a more nuanced approach, outlining four rules of thumb for determining whether a distortive technique should be permitted.
The Proceduralist Inversion – A Response to Skeel
This essay assesses Distorted Choice in Corporate Bankruptcy, by David Skeel. While Skeel usefully identifies how Restructuring Support Agreements (RSAs) help debtors secure support for Chapter 11 reorganizations, this essay argues that Skeel fails to appreciate that RSAs can also short-circuit the plan process, severing plan distributions from pre-bankruptcy entitlements.
The Strategies of Anticompetitive Common Ownership
This Article examines the mechanisms through which anticompetitive effects may arise when institutional investors hold stakes in competing firms. Most mechanisms, including cartel facilitation and passive failures to encourage competition, either lack empirical evidence or else are contrary to the interests of institutional common owners.
The #MeToo Movement Migrates to M&A Boilerplate
A new provision in M&A boilerplate addresses the business risk of sexual-harassment allegations in the #MeToo era. While the #MeToo clause was designed to maximize corporate profit, this Note argues for its potential to both reduce buy-side risk and to incentivize companies to maintain effective reporting channels.
Special Meetings and Consent Solicitations: How the Written-Consent Right Uniquely Empowers Shareholders
Despite a decline in takeover defenses, provisions barring shareholders from acting by written consent remain intact. Companies frequently argue that the written-consent right is unnecessary because it is equivalent to the right to call a special meeting. This Note shows why that equivalence is false.
Prosecuting Corporate Crime when Firms Are Too Big to Jail: Investigation, Deterrence, and Judicial Review
Some corporations have become so large or so systemically important that the government cannot credibly threaten efficient criminal sanctions. This Note presents a microeconomic model of corporate criminal prosecution for Too-Big-to-Jail businesses and offers several prosecutorial reforms to help hold these companies accountable.
A Cooperative Federalism Approach to Shareholder Arbitration
Arbitration has begun to take a new form: mandatory arbitration provisions built into corporate charters and bylaws. The debate about the merits of arbitration is well worn, but its application to shareholder claims opens the door to a different set of responses. This Essay provides one, explaining why the overlapping authority of federal and state actors in this field makes cooperative federalism is a natural fit for addressing these issues.
The Agency Costs of Equal Treatment Clauses
This Essay explores the agency costs associated with equal treatment clauses, which require all share classes to receive equal consideration in the event of an acquisition. Despite these clauses’ benign appearance, they actually create another hurdle to the sale of a controlled company to the potential detriment of minority shareholders.
Hedge Fund Activism, Short-Termism, and a New Paradigm of Corporate Governance
Chief Justice Strine’s important article, Who Bleeds When the Wolves Bite?, brings a much-needed perspective to the modern corporate governance debate. Chief Justice Strine looks at the corporate governance world through the lens of what he calls the “human investors,” i.e., the ordinary individuals who are the ultimate beneficiaries of the mutual funds, pension funds, and other aggregators of investment capital that control a sizable portion of today’s public company equity securities. As the Feature emphasizes, human investors have an overriding interest in the long-term health of business enterprises, both as equity and debt investors and as wage earners. Through their lens, Chief Justice Strine raises a number of significant issues. These include the disconnect between the money managers focused on short-term performance and the long-term horizons of the human investors whose funds they manage, as well as the opportunism of activist hedge funds that seek to make quick profits through financial engineering rather than long-term investment. He also focuses on the growing evidence that equity gains realized by financial engineering pushed by activist hedge funds, to the extent those gains exist, are likely the result of diverting value from debt holders, workers or other constituencies. Short-term pressures that suppress investment in research and development, productive assets and future business opportunities are hurting our corporations and our broader economy. Chief Justice Strine is right to raise these issues, and addressing them is vital.