Corporate Law

We analyze whether non-shareholder constituencies are better protected with internal corporate law reform or with external regulation. We reply to Professor Aneil Kovvali’s article, Stark Choices for Corporate Reform, that criticizes some of our previous output, in which we warned that a stakeholderist corporate law reform would stymie efforts to achieve effective stakeholder protections with external regulation. In his article, Kovvali...

For decades, corporate law scholars insisted on a simple division of responsibilities. Corporations were told to focus exclusively on maximizing financial returns to shareholders while the government tended to all other concerns by adopting new regulations. As reformers challenged this orthodoxy by urging corporations to take action on pressing social problems, defenders of the status quo have responded by suggesting that these efforts could be...

Two recent scandals spotlighted corporate fraud: the recent Wirecard scandal, which revealed €1.9 billion of missing corporate cash, and FTX’s bankruptcy scandal. Those incidents raised questions about the blameworthiness of professional third parties—lawyers, auditors, and banks, among others—who repeatedly fail to protect large public corporations from corporate fraud and misconduct. Professional third parties often are not held accountable...

NATIONAL SECURITY CREEP IN CORPORATE TRANSACTIONS

Kristen E. Eichensehr* & Cathy Hwang**

National security review of corporate transactions has long been a relatively sleepy corner of regulatory policy. But as governments merge economic and national security, national security reviews are expanding in frequency and scope, causing numerous deals to be renegotiated or even blocked. This expansion of national security’s impact on corporate transactions—which this Essay calls “national security creep”—raises theoretical questions...

THE COSTS OF MISTAKES

Maytal Gilboa* & Yotam Kaplan**

This Piece provides a novel framework guiding adjudication in cases of mistakes, such as unintended money transfers. We draw on Guido Calabresi’s seminal work, The Costs of Accidents, to introduce a parallel framework for mistakes and detail its operation and embodied policy considerations. We explain that mistakes, unlike accidents, can be socially harmless. When a mistake is harmless, the law acts to protect the mistaken party, thereby...

THE CORPORATE GOVERNANCE MACHINE

Dorothy S. Lund* & Elizabeth Pollman**

The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: For public companies in the United States, corporate governance has become a “system” com­posed of an array of institutional players, with a powerful shareholderist orientation. Our original account of this “corporate governance machine” generates...

In response to the national reckoning on race that began in the sum­mer of 2020, Aunt Jemima resigns and issues a call to all corporations to address systemic racism. In this imagining of the letter that she, as a real Black woman, would send upon her resignation from PepsiCo, she tells her own story as a spokesperson based on racist tropes and suggests that the country is at a turning point. Corporations must do more than issue statements about...

DEALS IN THE TIME OF PANDEMIC

Guhan Subramanian* & Caley Petrucci**

The COVID-19 pandemic has brought new attention to the period between signing and closing in mergers and acquisitions (M&A). Transactional planners heavily negotiate the provisions that govern the behavior of the parties during this window, not only to allocate risk between the buyer and seller, but also to manage moral hazard, opportunistic behavior, and other distortions in incentives. Prior literature, both academic and practitioner, has...

Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives...

Rule 10b-5 and the securities-fraud action provide a private enforcement tool only where litigants can show a defendant’s misrepresentation impacted the price of a security. But investors increasingly demand disclosure about how a corporation interacts with stakeholder groups such as employees, consumers, and communities. Because these “sustainability disclosures” are aimed at long-term value, misrep­resentations will only...