Sunday, December 1, 2013
- Matteo Tonello on “The Separation of Ownership from Ownership”
The increase in institutional ownership of corporate stock has led to questions about the role of financial intermediaries in the corporate governance process. This post focuses on the issues associated with the so-called “separation of ownership from ownership,” arising from the growth of three types of institutional investors, pensions, mutual funds, and hedge funds.
- Frank Reynolds: “Delaware must fix state takeover law now, law professor warns”
Originally, the anti-takeover law passed its court challenges because the judges accepted faulty data that showed investors could acquire at least 85 percent of the target corporation and satisfy the Williams Act, Subramanian said. But none of the cases used to support the anti-takeover law actually allowed hostile suitors to acquire a controlling 85 percent of a target company, he said, and plaintiffs using research from new studies would be able to convince a judge that the statute is unconstitutionally restrictive.
- Pascal-Emmanuel Gobry: “Let’s Listen to Pope Francis on Economics”
For me, the financial crisis was an eye-opening moment. I’ve long believed in free market economics and believed that the Church would do a lot of good in the world if it embraced it. And I still believe those things. But what the financial crisis has laid bare is that the most conventional version of free market economics was actually dead wrong.
- Martin Lipton: “Some Thoughts for Boards of Directors in 2014”
In many respects, the relentless drive to adopt corporate governance mandates seems to have reached a plateau: essentially all of the prescribed “best practices”—including say-on-pay, the dismantling of takeover defenses, majority voting in the election of directors and the declassification of board structures—have been codified in rules and regulations or voluntarily adopted by a majority of S&P 500 companies…. In other respects, however, the corporate governance landscape continues to evolve in meaningful ways.
Friday, November 15, 2013
I have posted an updated draft of my latest paper Rehabilitating Concession Theory, which is forthcoming in the Oklahoma Law Review, on SSRN. I have made only minor changes to the the prior draft, but I thought I’d post the abstract and link to the paper here in case any blog readers haven’t seen the paper before and might be interested in the content.
In Citizens United v. FEC, a 5-4 majority of the Supreme Court ruled that, “the Government cannot restrict political speech based on the speaker's corporate identity.” The decision remains controversial, with many arguing that the Court effectively overturned over 100 years of precedent. I have previously argued that this decision turned on competing conceptions of the corporation, with the majority adopting a contractarian view while the dissent advanced a state concession view. However, the majority was silent on the issue of corporate theory, and the dissent went so far as to expressly disavow any role for corporate theory at all. At least as far as the dissent is concerned, this avoidance of corporate theory may have been motivated at least in part by the fact that concession theory has been marginalized to the point where anyone advancing it as a serious theory risks mockery at the hands of some of the most esteemed experts in corporate law. For example, one highly-regarded commentator criticized the dissent by saying: “It has been over half-a-century since corporate legal theory, of any political or economic stripe, took the concession theory seriously.” In this Essay I consider whether this marginalization of concession theory is justified. I conclude that the reports of concession theory’s demise have been greatly exaggerated, and that there remains a serious role for the theory in discussions concerning the place of corporations in society. This is important because without a vibrant concession theory we are primarily left with aggregate theory and real entity theory, two theories of the corporation that both defer to private ordering over government regulation.
Saturday, November 9, 2013
As Marc O. DeGirolami notes here: "In an extensive decision, a divided panel of the U.S. Court of Appeals for the Seventh Circuit has enjoined the enforcement of the HHS contraception mandate against several for-profit corporations as well as the individual owners of those corporations.” I have not had a chance to read the entire decision (which you can find here), but I did do a quick search for “corporation” and pass on the following excerpts I found interesting.
The plaintiffs are two Catholic families and their closely held corporations—one a construction company in Illinois and the other a manufacturing firm in Indiana. The businesses are secular and for profit, but they operate in conformity with the faith commitments of the families that own and manage them…. These cases—two among many currently pending in courts around the country—raise important questions about whether business owners and their closely held corporations may assert a religious objection to the contraception mandate and whether forcing them to provide this coverage substantially burdens their religious-exercise rights. We hold that the plaintiffs—the business owners and their companies—may challenge the mandate. We further hold that compelling them to cover these services substantially burdens their religious exercise rights…. Nothing in RFRA [the Religious Freedom Restoration Act] suggests that the Dictionary Act’s definition of “person” is a “poor fit” with the statutory scheme. To use the Supreme Court’s colloquialism, including corporations in the universe of “persons” with rights under RFRA is not like “forcing a square peg into a round hole.” [Rowland, 506 US 194, 200 (1993).] A corporation is just a special form of organizational association. No one doubts that organizational associations can engage in religious practice…. It’s common ground that nonprofit religious corporations exercise religion in the sense that their activities are religiously motivated. So unless there is something disabling about mixing profit-seeking and religious practice, it follows that a faith-based, for-profit corporation can claim free-exercise protection to the extent that an aspect of its conduct is religiously motivated.
The quote I focus on above is: “A corporation is just a special form of organizational association.” I have argued previously that when courts render decisions like the Seventh Circuit did here, they seem to be giving mere lip service to the word “special” in that sentence. For more on that, you can go here.
Wednesday, November 6, 2013
Yesterday was election day! Elections hold a special place in my heart, and I remain interested in the interplay of corporations and campaigns, especially in a post-Citizens United world. The races, candidates, and results, however, received significantly less attention without a federal election (mid-term or general) to garner the spotlight. The 2014 election season, which officially begins today, has several unknowns. While Citizens United facilitated unlimited independent expenditures (distinguishable from direct campaign contributions) for individuals and corporations alike, corporations remain unable to donate directly to campaigns. Individual campaign contributions are currently capped at $2,500 per candidate/election and are subject to aggregate caps as well. McCutcheon v. FEC, which was argued before the US Supreme Court on October 8, 2013, challenges the individual campaign contribution cap. If McCutcheon removes individual caps, the foundation will be laid to challenge corporate campaign contribution bans as well. See this pre-mortem on McCutcheon by Columbia University law professor Richard Briffault. As for current corporate/campaign finance issues, the focus remains on corporate disclosures of campaign expenditures in the form of shareholder resolutions (118 have been successful) and company-initiated disclosure policies, possible SEC disclosure requirements for corporate political expenditures, and the threat of legislation augmenting corporate disclosure requirements for political expenditures (see, for example the latest bill introduced: the Corporate Politics Transparency Act (H.R. 2214)).
As an aside, brief treatment of the questions regarding the rights of corporations to participate in elections, and the role of corporations in our democracy elicit some of the best (and most heated) student discussions in my Corporations class. If you have the stomach for it, I highly recommend that you try it!
Sunday, October 20, 2013
Sarah C. Haan has posted “Opaque Transparency: Outside Spending and Disclosure by Privately-Held Business Entities in 2012 and Beyond” on SSRN. Here is a portion of the abstract:
In this Article, I analyze data on outside spending from the treasuries of for-profit business entities in the 2012 federal election – the very spending unleashed by Citizens United v. FEC. I find that the majority of reported outside spending came from privately-held, not publicly-held companies, including a significant proportion of unincorporated business entities such as LLCs, and that more than forty percent of spending by privately-held businesses was characterized by opaque transparency: Though fully disclosed under existing campaign finance disclosure laws, something about the origin of the money was obscured. This happened when political expenditures were spread among affiliated business-donors, typically donating similar amounts to the same recipient(s) on similar dates, and when for-profit business entities were used as shadow money conduits. I also argue that, due to differences between access-oriented and replacement-oriented electoral strategies, for-profit businesses engaged in outside spending in a federal election are likely to be experiencing insider expropriation. The expropriation of a business entity’s political voice by a controlling person is another potential way in which voters are misled in our current disclosure regime. In light of these spending patterns, and evidence of insider expropriation of the political voice of many privately-held business donors, I argue that privately-held business entities that engage in federal election-related spending should be compelled to reveal the individual(s) who control them.