Corporate Law
Their Bark Is Bigger Than Their Bite: An Essay on Who Bleeds When the Wolves Bite
Delaware Chief Justice Leo Strine is of the view that America is in terrible shape. Specifically, he identifies deep problems in the fabric of American society, which include “growing income inequality, inflated executive pay, job losses, [and] wage stagnation.” Having noted these problems, Strine lays a portion of the blame at the feet of activist hedge funds and the apparently misguided pension plans and university endowments that invest in such hedge funds. In this Essay, I articulate Strine’s worldview and argue that while his Feature in this issue of the Yale Law Journal is ostensibly about hedge fund activists, his real complaint is with modernity itself. Hedge funds are merely piling on. Accordingly, his proposed solutions, which focus largely on disclosure and reporting requirements, are misplaced in the current debate.
Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System
The JOBS Act and Middle-Income Investors: Why It Doesn’t Go Far Enough
122 Yale L.J. 2069 (2013).
Recoupment Under Dodd-Frank: Punishing Financial Executives and Perpetuating “Too Big To Fail”
122 Yale L.J. 507 (2012).
Corporate Purposes in a Free Enterprise System: A Comment on eBay v. Newmark
121 Yale L.J. 2405 (2012).
Cross-National Patterns in FCPA Enforcement
121 Yale L.J. 1970 (2012). This Note undertakes an empirical examination of U.S. enforcement actions under the Foreign Corrupt Practices Act (FCPA) in order to explore the cross-national patterns associated with the United States’ international antibribery enforcement. I investigate a number of possible determinants of FCPA enforcement, including variation in the level of U.S. foreign direct investment (FDI), cross-national variation in corruption levels, the level of foreign regulatory and enforcement cooperation with the United States, and U.S. foreign policy interests. I find that higher levels of U.S. FDI and higher levels of corruption are significantly associated with increased FCPA enforcement, as is the presence of bilateral mechanisms of enforcement cooperation. In contrast, other variables—including the level of foreign policy alignment between the host nation and the United States—do not appear to be associated with variation in FCPA enforcement. In addition, I find that cross-national variation in the number of FCPA cases in a given country is much more closely associated with actual recorded experience with corruption (as measured by cross-national survey instruments) than with more widely used measures of corruption perceptions. Finally, I employ data on past enforcement actions to generate a cross-national measure of the “FCPA enforcement-action intensity” of U.S. FDI, and I consider the potential use of such an index as a measure of FCPA country risk.
Common Control and the Delineation of the Taxable Entity
121 Yale L.J. 624 (2011). This Note proposes a solution to what has been one of the most vexing problems in state corporate taxation and in multijurisdictional taxation generally: the delineation of the scope of the entity that an individual jurisdiction is entitled to tax. Starting from the observation that the federal government already aggregates the income of commonly controlled groups of corporations to prevent them from taking advantage of the lowest tax brackets multiple times, this Note proposes that states “piggyback” on these efforts and allow the federal government thereby to shoulder the burden of delineating the taxable entity.
To "Make Full Disclosure and Play No Tricks": A Proposal To Enhance Fee Transparency After Jones v. Harris Associates
120 Yale L.J. 1579 (2011).
The Right Solution to the Wrong Problem: The Status of Controlling Shareholders After In re John Q. Hammons Hotels Inc.
120 Yale L.J. 1251 (2011).
Securities Regulation in the Shadow of the Antitrust Laws: The Case for a Broad Implied Immunity Doctrine
120 Yale L.J. 910 (2011). This Note provides a defense of the Supreme Court’s decision in Credit Suisse Securities (USA) LLC v. Billing, in which the Court reaffirmed a broad standard for determining when securities market activities are impliedly immune from antitrust liability. It argues that, contrary to criticisms leveled by several commentators, Billing’s implied immunity analysis is consistent with precedent and, moreover, that a broad grant of immunity is normatively desirable. Antitrust courts are likely to prohibit too much conduct in the securities area and to impose excessive liability even as to activities that merit prohibition. As a result, the concern with a narrow implied immunity doctrine is not just that it might produce overdeterrence ex post but that ex ante it might induce the SEC to forgo an optimal, nuanced regulatory approach in favor of completely authorizing a particular practice in order to preempt antitrust litigation.
Trade Secret Law and the Changing Role of Judge and Jury
120 Yale L.J. 955 (2011).
Privacy, Personhood, and the Courts: FOIA Exemption 7(C) in Context
120 Yale L.J. 379 (2010).
Taking Exit Rights Seriously: Why Governance and Fee Litigation Don’t Work in Mutual Funds
120 Yale L.J. 84 (2010). Unlike shareholders of ordinary companies, mutual fund shareholders do not sell their shares—they redeem them from the issuing funds for cash. We argue that this unique form of exit almost completely eliminates mutual fund investors’ incentives to use voting, boards, and fee liability. Investors will almost never become active in their funds even if the investors are large and sophisticated and even if most of the mutual fund market is not competitive. We also catalogue a number of unintended and harmful ways in which exit distorts voting, boards, and fee liability. Exit interacts with voting, for example, to make firing managers impossible and to prevent investors from receiving notice of fee increases. Exit also interacts with fee liability to cause recoveries to go to the wrong investors and to discourage investors from moving to lower-fee funds. Though exit gives investors a powerful tool to protect their interests, the net effect of exit on many investors is ambiguous, because investors who do not use their rights to leave underperforming funds cannot expect activism by other investors to improve the funds. Ultimately, exit causes mutual funds to look more like products than like ordinary companies. Voting, boards, and fee liability therefore have limited value, and whatever benefits they now achieve could be achieved more effectively and at lower cost by product-style regulation that applies automatically without investor action or that prompts investors to use exit rights effectively.
Disenfranchising Shareholders: The Future of Blasius After Mercier v. Inter-Tel
119 Yale L.J. 2040 (2010). This Note analyzes the Delaware Chancery Court’s recent decision in Mercier v. Inter-Tel (Delaware), Inc., in which the court upheld against a Blasius challenge the Inter-Tel board’s decision to postpone its imminent special meeting in order to prevent shareholders from voting down a merger with Mitel. It argues that Inter-Tel represents an attempt to limit Blasius’s compelling justification standard for board action interfering with the shareholder franchise to cases involving board entrenchment, and that such a limitation is misguided because it ignores the potential agency costs associated with a decision to postpone an imminent vote on a transaction. The Note concludes that outside of the entrenchment context Blasius should remain a default rule that shareholders can opt out of ex ante.
A Free Pass for Foreign Firms? An Assessment of SEC and Private Enforcement Against Foreign Issuers
119 Yale L.J. 1638 (2010). While proponents of the bonding hypothesis have posited that foreign firms crosslist in the United States to signal compliance with the strict U.S. corporate governance regime, these scholars have taken the enforcement of U.S. securities laws largely for granted. This Note presents an empirical examination of previously unexplored data on the enforcement of U.S. securities laws against foreign issuers. The results suggest that relative to domestic issuers, foreign issuers in the United States have benefited not only from a more lax set of rules, but also from a more forgiving public enforcement agency. At the same time, U.S. courts have limited private enforcement against foreign issuers, thus restricting an alternative to public enforcement and further widening the gap between the corporate governance regime for U.S. issuers and the one for foreign issuers.
Strategic Vagueness in Contract Design: The Case of Corporate Acquisitions
119 Yale L.J. 848 (2010). The unprecedented and unanticipated economic and financial shocks of the past couple of years have led parties to look for contractual escapes from deals. As the current crisis works its way through our economic system, however, attention will be shifted from the collapsed deals to the design of future transactions. The vague language of past agreements has fueled disputes and threatened costly and uncertain litigation. Should future parties, in corporate acquisition deals and other commercial contracts, inject greater precision in their agreements? There are many proponents of this advice. However, we lack a theoretical framework for setting out the costs and benefits of vague and precise provisions. In this Article, we provide such a framework in order to improve awareness of the strategic use of vagueness in contracting. The conventional rules-standards analysis suggests that vague terms are justified when the expected larger litigation costs in enforcing standards are outweighed by the lower costs of drafting. In acquisition agreements, this would suggest that vague MAC clauses yield benefits only by reducing front-end drafting costs. Yet, some proxies for material adverse change, such as quantitative thresholds in stock price, revenues, or accounting earnings, are easy to draft and can be verified at low cost. They are usually noisy proxies, however, and therefore are not perfect. We demonstrate that litigation costs, when properly harnessed, can in fact improve contracting by operating as a screen on the seller’s decision to sue. We review three possible goals of MAC clauses: (a) to provide efficient incentives for investment and precautions against future contingencies by the seller between the time of the agreement and closing; (b) to allow the seller to better signal its private information to the acquirer at the time of contracting; and (c) to enable the seller to better signal private information at the time of closing, in order to promote ex post efficiency in terminating or executing the acquisition. We show that, in achieving these goals, vague provisions may work better than more precise and less costly proxies.