March 13, 2011
Erickson on Overlitigating Corporate Fraud
Overlitigating Corporate Fraud: An Empirical Analysis, by Jessica Erickson, University of Richmond School of Law, was recently posted on SSRN. Here is the abstract:
Corporate law leaves no stone unturned when it comes to litigating corporate fraud. The legal system has developed a remarkable array of litigation options – shareholder derivative suits, securities class actions, SEC enforcement actions, even criminal prosecutions – all aimed at preventing the next corporate scandal. Scholars have long assumed that these different lawsuits offer different avenues for deterring the masterminds of corporate fraud. Yet this assumption has gone untested in the legal literature. This Article aims to fill that gap through the first empirical examination of the broader world of corporate fraud litigation. Analyzing over 700 lawsuits, the study reveals that these lawsuits do not target different types of corporate wrongs. Instead these lawsuits too often target the same alleged misconduct, the same defendants, and the same corporate coffers. The data also demonstrate that certain types of lawsuits consistently outperform others, creating a litigation hierarchy within corporate law. These findings raise critical questions about traditional theories of deterrence, suggesting that more may not always be better when it comes to combating corporate fraud. The Article then brings these empirical insights to bear in developing a new framework for more targeted deterrence of corporate fraud.
Brown on The SEC and Corporate Governance
Essay: The Politicization of Corporate Governance: Bureaucratic Discretion, the SEC, and Shareholder Ratification of Auditors, by J. Robert Brown Jr., University of Denver Sturm College of Law, was recently posted on SSRN. Here is the abstract:
The role of the Securities and Exchange Commission in the corporate governance process has shifted dramatically in recent years. The Commission has increasingly supplanted state law in determining substantive standards of corporate governance. The replacement of states with the Commission will have significant consequences.
For one thing, the regulatory philosophy will change. For another, governance practices will become increasingly politicized and volatile. The volatility will be less apparent with respect to rulemaking and more apparent with respect to staff interpretations, particularly those under Rule 14a-8, the shareholder proposal rule.
This is particularly clear in connection with changes to the interpretation of the “ordinary business” exclusion in Rule 14a-8. As a case study, the piece examines the phenomena in the context of proposals calling for shareholder approval of outside auditors. In 2005, the staff abandoned more than 50 years of consistent interpretation and found that proposals calling for shareholder ratification of auditors could be deleted from proxy statements under the “ordinary business” exclusion. The explanation for the shift is less likely changes in SOX that gave audit committees of some public companies the authority to select auditors and more likely a desire to reflect the views of the Commission.
Volatility imposes costs. The article recommends a number of changes to Rule 14a-8 that are designed to reduce staff discretion and the risk of political shifts in practice.
Broome et alia on Board Diversity
Does Critical Mass Matter? Views from the Board Room, by Lissa L. Broome, University of North Carolina (UNC) at Chapel Hill - School of Law; John M. Conley, University of North Carolina (UNC) at Chapel Hill - School of Law; and Kimberly D. Krawiec, Duke University - School of Law, was recently posted on SSRN. Here is the abstract:
In this article, we report and analyze the results of forty-six wide-ranging interviews with corporate directors and other relevant insiders on the general topic of whether and how the racial, ethnic, and gender composition of corporate boards matters. In particular, we explore their views on the concept of “critical mass” – that is, the theory that women and racial or ethnic minorities are unlikely to have an impact in the boardroom until they grow from a few tokens into a considerable minority of the board.
In contrast to other recent qualitative research on corporate boards, we find more limited support among our respondents for critical mass theory. Though some female respondents expressed the view, consistent with critical mass theory, that having more women on the board increased their comfort level and eased some of the stresses associated with being the first and only female, this narrative is in tension with our respondents’ apparent embrace of their first and only status. Moreover, with the possible exception of employee relations, our interviews largely fail to support the theory that a critical mass of female directors will produce different, and distinctly feminine, boardroom outcomes
Sitkoff on the Economic Structure of Fiduciary Law
The Economic Structure of Fiduciary Law, by Robert H. Sitkoff, Harvard Law School, was recently posted on SSRN. Here is the abstract:
This essay revisits the economic theory of fiduciary law. Nearly two decades have passed since the publication of the seminal economic analyses of fiduciary law by Cooter and Freedman (1991), and by Easterbrook and Fischel (1993), which together have come to underpin the prevailing economic, contractarian model of fiduciary law. The economic theory of agency that motivates those papers has come to permeate the literature on law and legal institutions generally. The law-and-economics movement has matured further, developing new tools and refining its understanding of previously applied concepts. The purpose of this essay is to restate the economic theory of fiduciary law in an updated and accessible synthesis.