Securities Law Prof Blog

Schwartz on Crowdfunding

Crowdfunding Securities, by Andrew A. Schwartz, University of Colorado Law School, was recently posted on SSRN.  Here is the abstract:

A new federal statute authorizes the online "crowdfunding" of securities, a new idea based on the concept of "reward" crowdfunding practiced on Kickstarter and other websites. This method of selling securities had previously been banned by federal securities law but the new CROWDFUND Act overturns that prohibition.

This Article introduces the CROWDFUND Act and explains that it can be expected to have two primary effects on securities law and capital markets. First, it will liberate startup companies to use peer networks and the Internet to obtain modest amounts of capital at low cost. Second, it will help democratize the market for financing speculative startup companies and allow investors of modest means to make investments that had previously been offered solely to wealthy, so-called “accredited” investors.

This Article also offers two predictions as to how securities crowdfunding will play out in practice. First, it predicts that companies that sell equity via crowdfunding may find themselves the subject of hostile takeovers (though the founders of such companies can easily avoid that outcome if they act with a little foresight). Second, it predicts that issuers may prefer to crowdfund debt securities, such as bonds, rather than equity. The Article concludes with a few thoughts on the SEC’s implementation of the Act in light of the potential for fraud.

Rock on the New Shareholder-Centric Reality

Adapting to the New Shareholder-Centric Reality, by Edward B. Rock, University of Pennsylvania Law School, was recently posted on SSRN.  Here is the abstract:

After more than eighty years of sustained attention, the master problem of U.S. corporate law — the separation of ownership and control — has mostly been brought under control. This resolution has occurred more through changes in market and corporate practices than through changes in the law. This Article explores how corporate law and practice are adapting to the new shareholder-centric reality that has emerged.

Because solving the shareholder–manager agency cost problem aggravates shareholder–creditor agency costs, I focus on implications for creditors. After considering how debt contracts, compensation arrangements, and governance structures can work together to limit shareholder–creditor agency costs, I turn to available legal doctrines that can respond to opportunistic behavior that slips through the cracks: fraudulent conveyance law, restrictions on distributions to shareholders, and fiduciary duties. To sharpen the analysis, I analyze two controversies that pit shareholders against creditors: a hypothetical failed LBO, and the attempts by shareholders of Dynegy Inc. to divert value from creditors through the manipulation of a complex group structure. I then consider some legal implications of a shareholder-centric system, including the importance of comparative corporate law, the challenges to the development of fiduciary duties posed by the awkward divided architecture of U.S. corporate law, the challenges for Delaware in adjudicating shareholder-creditor disputes, and the potential value of reinvigorating the traditional "entity" conception of the corporation in orienting managers and directors.

Brown on Insurance Regulation Post-Dodd Frank

Will the Federal Insurance Office Improve Insurance Regulation?, by Elizabeth F. Brown, Georgia State University - Department of Risk Management and Insurance, was recently posted on SSRN.  Here is the abstract:

Prior to the financial crisis, insurance was the only financial service that did not have a federal regulator but relied almost exclusively on state insurance regulators. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) began a process to address this lack of federal oversight by creating the Federal Insurance Office (FIO) within the U.S. Treasury Department. Before the crisis, state regulation of insurance was sharply criticized for its lack of uniformity, its inefficiency, and the impediments that it posed for developing international insurance norms. In the wake of the financial crisis, questions have also been raised about whether state insurance regulation was equipped to deal with the potential systemic risks posed by the insurance firms, like American Insurance Group, Inc.

The Dodd-Frank Act contains provisions that begin to tackle each of these issues, primarily through the creation of FIO. This Article will look at the creation of FIO and the role that FIO is playing to address the systemic risks posed by insurance and insurance-like products and firms and the development of insurance norms. This Article will also examine the arguments raised by many within the insurance industry that greater federal oversight of insurance is unnecessary because the state regulation already provided adequate solvency protections, insurance companies do not pose the types of systemic risks posed by banks and investment firms, and market discipline is stronger in the insurance industry than in the banking industry.

Stipanowich on the Delaware Arbitration Program

In Quest of the Arbitration Trifecta, or Closed Door Litigation?: The Delaware Arbitration Program, by Thomas Stipanowich, Pepperdine University School of Law, was recently posted on SSRN.  Here is the abstract:

 The Delaware Arbitration Program established a procedure by which businesses can agree to have their disputes heard in an arbitration proceeding before a sitting judge of the state’s highly regarded Chancery Court. The Program arguably offers a veritable trifecta of procedural advantages for commercial parties, including expert adjudication, efficient case management and short cycle time and, above all, a proceeding cloaked in secrecy. It also may enhance the reputation of Delaware as the forum of choice for businesses. But the Program’s ambitious intermingling of public and private forums brings into play the longstanding tug-of-war between the traditional view of court litigation as a public venue for private dispute resolution and the and perception of courts as institutions that represent and are accountable to the public. A constitutional challenge based on third parties’ right of access to court proceedings resulted in a district court ruling that arbitration proceedings heard before sitting judges of the Delaware Chancery Court were “essentially” non-jury civil trials and thus were subject to public access. The case raises legitimate questions about the appropriateness of structuring a program in which sitting judges serve as arbitrators and preside over a procedure that is effectively shielded from public view. It also implicates issues regarding the use of public resources in ostensibly private disputes, and even the way our justice system is funded. This article explores the factors that provided the impetus for the Delaware Arbitration Program and analyzes the arguments and policy considerations for and against the district court’s decision

Alces on Legal Diversification

Legal Diversification, by Kelli A. Alces, Florida State University College of Law, was recently posted on SSRN.  Here is the abstract:

The greatest protection investors have from the risks associated with capital investment is diversification. This Essay introduces a new dimension of diversification for investors: legal diversification. Legal diversification of investment means building a portfolio of securities that are governed by a variety of legal rules. Legal diversification protects investors from the risk that a particular method of minimizing agency costs will prove ineffective and allows investors to own securities in a variety of firms, with each security governed by the most efficient set of legal rules given the circumstances of the investment. Diversification of investment by legal rules is possible because of the varied menu of legal rules firms can choose from when organizing and raising capital. The most recent addition to the securities laws, the JOBS Act, may compromise the diversity of legal rules that protects investors by pushing even more firms toward organizing as public corporations, thereby threatening to curtail or eliminate the variety that allows effective diversification.

This Essay makes several contributions to the literature. By introducing legal diversification, it reveals a new understanding of how investors, issuers, and society can benefit from maintaining a variety of legal rules to govern investment in businesses. The corporate law scholarship has long advocated preserving a variety of rules under which firms can organize, but it has yet to consider how investors can take advantage of that variety to protect themselves before market competition has revealed the “best” rules. Legal diversification also complements recent literature emphasizing the importance of diversity in financial regulation by highlighting another reason diversity of legal rules is important to healthy capital markets. Legal diversification fills gaps in the literature advocating regulatory diversity by offering an explanation for why that diversity is a valuable protection for investors and an indispensable mechanism for allowing firms to choose the most efficient legal rules to govern their organization and operation.

Sale on Public Governance

Public Governance, by Hillary A. Sale, Washington University in Saint Louis - School of Law, was recently posted on SSRN.  Here is the abstract:

This Article develops a theory of public governance as a form of publicness by exploring corporate governance and decision making, and developing them with a more textured understanding of the nature of corporations and their role. It does so through the lens of two recently enacted federal statues, Sarbanes-Oxley and Dodd-Frank, and by deconstructing the “private” zone and reconceiving it with an understanding of publicness.

Corporate actors who govern without this deeper understanding of their roles and relationships lose their self-regulation privileges. The most recent increase in the federalization of corporate governance occurred when corporate actors failed to exercise their choices with an understanding of the nature of publicness. They took private ordering for granted. They treated it as a right rather than a privilege. They failed to grasp the actual and potential roles of the media, stakeholders, politicians, and others who wanted changes in the distribution of corporate power and who could succeed after scandals. Publicness, both as a process and an outcome, grows when corporate actors are greedy, when they cheat, and when they fail. The resulting crises and scandals become the vehicle for publicness.

Simply put, corporate failures expose “private” choices. Actors outside of the corporation and Wall Street scrutinize the failures. Think Occupy Wall Street and bloggers more generally. The scrutiny and concomitant increase in publicness make transparent the privileged nature of the corporate private zone. They reveal the lawmakers’ choices about private ordering and self-regulation. They highlight the spaces not yet legally defined: those that were omitted. They create pressure for more reform and public governance. The result is more publicness.

Anabtawi & Schwarcz on Regulating Financial Failure

Regulating Ex Post: How Law Can Address the Inevitability of Financial Failure, by Iman Anabtawi, University of California, Los Angeles (UCLA) - School of Law, and Steven L. Schwarcz, Duke University - School of Law, was recently posted on SSRN.  Here is the abstract:

Unlike many other areas of regulation, financial regulation operates in the context of a complex interdependent system. The interconnections among firms, markets, and legal rules have implications for financial regulatory policy, especially the choice between ex ante regulation aimed at preventing financial failure and ex post regulation aimed at responding to that failure. Regulatory theory has paid relatively little attention to this distinction. Were regulation to consist solely of duty-imposing norms, such neglect might be defensible. In the context of a system, however, regulation can also take the form of interventions aimed at mitigating the potentially systemic consequences of a financial failure. We show that this dual role of financial regulation implies that ex ante regulation and ex post regulation should be balanced in setting financial regulatory policy, and we offer guidelines for achieving that balance.

 

Krawiec, et alia, on Board Diversity

The Danger of Difference: Tensions in Directors’ Views of Corporate Board Diversity, by Kimberly D. Krawiec, Duke University - School of Law; John M. Conley, University of North Carolina (UNC) at Chapel Hill - School of Law; and Lissa L. Broome, University of North Carolina (UNC) at Chapel Hill - School of Law, was recently posted on SSRN.  Here is the abstract:

 

This Article describes the results from fifty-seven interviews with corporate directors and a limited number of other persons (including institutional investors, search firm personnel, and the like) regarding their views on corporate board diversity. It highlights numerous tensions in these views. Most directors, for instance, proclaim that diverse boards are good, but very few directors can articulate their reasons for this belief. Some directors have suggested that diverse boards work better than non-diverse boards, but gave relatively few concrete examples of specific instances where a female or minority board member made a special contribution related to that director’s race or gender. Many directors noted the importance of collegiality and getting along in the boardroom, while simultaneously extolling the advantages of different perspectives in avoiding group think. Although all acknowledged the importance of fitting in, few considered whether this impeded the role of “outsiders” providing a diverse perspective. This Article also explores directors’ thoughts on why progress in improving board diversity has been so slow if most agree that diversity is an important goal.

Kaal on Dynamic Regulation of Financial Services Industry

Dynamic Regulation of the Financial Services Industry, by Wulf A. Kaal, University of St. Thomas, Minnesota - School of Law, was recently posted on SSRN.  Here is the abstract:

 Governance adjustments via stable rules in reaction to financial crises are inevitably followed by relaxation, revision, and retraction. The economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, suggesting that a different set of rules could be optimal. Despite the risk of future crises, anticipation of future developments and preemption of possible future crises do not play a significant role in the regulatory framework and academic literature. Dynamic elements in financial regulation as a supplemental optimization process for rulemaking could help facilitate rulemaking when it is most needed – ex-ante before crises – to curtail the effects of crises and suboptimal regulatory outcomes – ex-post after crises. By including dynamic elements, the regulatory sine curve of financial regulation could be optimized in relation to the phase-shifted first derivative (cosine curve) that describes common elements of financial crises. Dynamic regulation could help dampen the degree of volatility of both the cosine curve and the regulatory sine curve by creating an anticipatory regulatory response to financial crises.

Gelter on Pension System & Shareholder Primacy

The Pension System and the Rise of Shareholder Primacy, by Martin Gelter, Fordham University School of Law; European Corporate Governance Institute (ECGI), was recently posted on SSRN.  Here is the abstract:

This article explores the influence of the pension system on corporate governance, which has so far received little attention in the corporate law literature. While the shareholder-centric view of corporate governance is strong today, this is a relatively recent development. “Managerial capitalism” began to give way to shareholder capitalism over the past three decades. This Article argues that changes in the pension system, specifically the shift from defined-benefit plans to defined-contribution plans that began in the 1970s, have been a major force pushing the corporate governance system toward shareholder primacy. While in traditional pension plans, workers depended primarily on their employer’s ability to fund pensions, in today’s system retirement benefits strongly depend on capital markets. Shareholder wealth thus became more important for larger segments of society, and pro-shareholder policies became more important relative to pro-labor policies strengthening employees’ position vis-à-vis their employers. Consequently, shareholder primacy became the dominant factor in corporate governance debates. Managers today claim to focus on this objective and are less well positioned to take the interests of their firm’s employees or other groups into account. The political economy of corporate governance underwent a seismic shift. While it is not clear whether shareholders truly benefit from most reforms, these have been largely supported by the center-left given their apparent beneficial effects for shareholders and consequently the middle class. For the same reason, unions have been among the most eager proponents of shareholder activism.

Couture on the First Amendment and Securities Fraud

The Collision Between the First Amendment and Securities Fraud, by Wendy Gerwick Couture, University of Idaho College of Law, was recently posted on SSRN.  Here is the abstract:

This Article seeks to correct the imbalance that occurs when the First Amendment and securities fraud collide. Under current precedent, securities analysts, credit rating agencies, and financial journalists are subject to differing liability standards; depending on whether they are sued for defamation or for securities fraud. Under New York Times v. Sullivan, 376 U.S. 254, 279-80 (1964), First Amendment protections apply in the defamation context in order to prevent the chilling of valuable speech, yet courts have declined to extend these protections to the securities fraud context. This imbalance threatens to chill valuable speech about public companies. To prevent the dangerous chilling effect of potential securities fraud liability, this Article contends that the New York Times protections should apply equally in securities fraud cases. Therefore, under this Article’s recommendation, a securities fraud claim asserted against a non-commercial speaker for speech concerning a public company cannot prevail absent a showing of actual malice, by clear and convincing evidence, and subject to independent appellate review.

Schwartz on Disclosing Corporate Disclosure Policies

Disclosing Corporate Disclosure Policies, by Victoria L. Schwartz, University of Chicago - Law School; Pepperdine University School of Law, was recently posted on SSRN.  Here is the abstract:

Between Steve Jobs’ diagnosis of pancreatic cancer in 2003 and his death in 2011, Apple struggled to respect the privacy of its CEO while disclosing relevant information to its shareholders. The existing rules that govern corporate disclosure were of little help. They offer no mechanism for taking into account privacy considerations; nor do they provide any clear guidance regarding whether, when, and under what circumstances a corporation must disclose personal information about its executives. Existing privacy laws also fail to comprehensively address this problem. This legal void has created widespread uncertainty for executives, corporations, and shareholders. Scholars have also struggled to identify solutions that appropriately account for both privacy and disclosure. Their attempts have been hindered by the difficulty of estimating the respective values of disclosure to investors and of privacy to executives, especially to the extent that the value of privacy varies widely across individuals and depends on the type of personal information.

This Article offers one solution for accounting for this privacy-disclosure problem. First, corporations and executives should contract for a disclosure policy that takes into consideration the individual executive’s privacy preferences. The corporation should then be required to disclose the contracted-for disclosure policy to its shareholders. The use of a contractual menu approach would allow for the possibility of executives’ heterogeneous privacy preferences, while minimizing transaction and other costs of traditional default rules. At the same time, disclosure of the policy allows shareholders to indirectly exert influence on the corporation’s negotiations. In addition, the creation and disclosure of the disclosure policy increases certainty for all the parties involved.

Heminway on SEC Reform

Desire, Conservatism, Underfunding, Congressional Meddling, and Study Fatigue: Ingredients for Ongoing Reform at the Securities and Exchange Commission?, by Joan MacLeod Heminway, University of Tennessee College of Law, was recently posted on SSRN.  Here is the abstract:

This article suggests the use of program evaluation -- a branch of social science research designed to assess organizations and their activities -- to analyze continued reform efforts at the Securities and Exchange Commission ("SEC") under Section 967 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 967 compelled the SEC to retain an independent consultant to evaluate and issue a report on its structure and operations and mandated that the SEC engage in post-study reporting to Congress over a two-year period on its implementation of resulting reforms. The article concludes that program evaluation techniques are useful in this context and identifies, based on program evaluation literature, both positive and negative aspects of the study and reporting required under Section 967.

Colesanti on Plain English

Demanding Substance or Form? The SEC's Plain English Handbook as a Basis for Securities Violations, by Scott Colesanti, Hofstra University - Maurice A. Deane School of Law, was recently posted on SSRN.  Here is the abstract:

 
In 1998, the United States Securities and Exchange Commission (“SEC” or “Commission”) released a style manual titled “The Plain English Handbook.” The culmination of a drive by its Chairman, Arthur Levitt, the Handbook drew upon the rules of grammar, best industry practice, and even the support of billionaire Warren Buffett in calling for a layman’s translation of corporate disclosure documents.

To varying degrees, commentators noted the significance of the Handbook. Initial textual studies provided mixed results. The press marveled at its novelty, but securities regulation experts were less sanguine, chiding Commission members for naming themselves “language czars of the universe.”

Meanwhile, the cause of corporate disclosure – a mission long defined by federal case law – continued its second phase as the SEC, the courts, and stock issuers sought to strike a balance between financial expertise and consumer satisfaction. From this effort came the separate but related causes of evaluating substantive content and delivering it in good faith. These causes eventually morphed, however, forcing jurists to locate further authority animating the remedial securities laws. Consequentially the Handbook, at times, tipped this balance of corporate disclosure.

Accordingly, this Article traces the gradual yet impressive growth in importance of a nearly 15-year old exhortation. To be sure, the authoritative value of a style manual is a topic of great moment. In the Fall of 2012, changes implemented by the controversial federal healthcare law required insurers to publish marketing materials in “plain language.” Further, the Commission itself is gradually expanding the Handbook’s application to additional mutual fund disclosures, proxy materials, and investment adviser communications. Those commenting on the rule's primacy will undoubtedly note the lessons of indirect agency rulemaking. Of more immediate consideration, this Article seeks to examine the subtle means by which a call for simplicity may have become grounds for violations of securities law, in the eyes of the government and others. Ultimately, the SEC’s continuing emphasis on simplicity begs the question of which shareholder communications are being read at all.

Bullard on the 401(k) Plan Large Menu Defense

The Social Costs of Choice, Free Market Ideology and the Empirical Consequences of the 401(k) Plan Large Menu Defense, by Mercer Bullard, University of Mississippi - School of Law, was recently posted on SSRN.  Here is the abstract:

Regulatory reforms have recently improved 401(k) plan participation rates, but recent decisions by certain courts threaten to reverse that trend. These courts have substituted their free market ideology for fiduciary duties under ERISA in dismissing claims against plan sponsors on the ground that the menu offered was so large as to abrogate the sponsors’ ERISA duties. Under the “large menu defense,” courts have held that, even assuming a failure to exercise due care in selecting plan options, the employer can nonetheless claim the protection of the employee-control safe harbor under ERISA because, when the plan’s menu is sufficiently large, the plan participant is deemed to have exercised legal control over the relevant investment decision. The courts’ interpretation of the control safe harbor contradicts the plain meaning of the statute. Far worse, the courts’ free market assumption that large menus will increase participants’ wealth is empirically false. Research has shown that large 401(k) menus result in lower participation rates, overly conservative allocations, inferior investment options and other adverse effects that, collectively, cost workers billions of dollars every year.

Klausner et alia on D&O Insurance in Securities Class Actions

How Protective is D&O Insurance in Securities Class Actions? — An Update, by Michael Klausner, Stanford Law School; Jason Hegland, Stanford Law School; and Matthew Goforth, Stanford Law School, was recently posted on SSRN.  Here is the abstract:

Nearly all securities class actions that are not dismissed settle. Very few are tried to judgment. Who pays into settlements — the corporation, its directors and officers, or its D&O carrier? Companies buy D&O insurance in order to protect themselves and their directors and officers from liability. But D&O policies have exclusions, limits, retentions, and other terms that might result in the carrier paying less than the full amount of a settlement. So, as an empirical matter, who pays when a company settles? We provide some basic statistics on that question, which reveal that in fact D&O insurance is quite protective. Focusing on individual officers’ contributions to settlements, we find that these are quite rare, even in cases in which the SEC has imposed a serious penalty on the same individuals for the same misconduct.

Branson on Proposals for Corporate Governance Reform

Proposals for Corporate Governance Reform: Six Decades of Ineptitude and Counting, by Douglas M. Branson, University of Pittsburgh School of Law, was recently posted on SSRN.  Here is the abstract:

This article is a retrospective of corporate governance reforms various academics have authored over the last 60 years or so, by the author of the first U.S. legal treatise on the subject of corporate governance (Douglas M. Branson, Corporate Governance (1993)). The first finding is as to periodicity: even casual inspection reveals that the reformer group which controls the "reform" agenda has authored a new and different reform proposal every five years, with clock-like regularity. The second finding flows from the first, namely, that not one of these proposals has made so much as a dent in the problems that are perceived to exist. The third inquiry is to ask why this is so? Possible answers include the top down nature of scholarship and reform proposals in corporate governance; the closed nature of the group controlling the agenda, confined as it is to 8-10 academics at elite institutions; the lack of any attempt rethink or redefine the challenges which governance may or may not face; and the continued adhesion to the problem as the separation of ownership from control as Adolph Berle and Gardiner Means perceived it more than 80 years ago.

Langevoort on Contemporary Law of Insider Trading

'Fine Distinctions' in the Contemporary Law of Insider Trading, by Donald C. Langevoort, Georgetown University Law Center, was recently posted on SSRN.  Here is the abstract:

William Cary’s opinion for the SEC in In re Cady, Roberts & Co. built the foundation on which the modern law of insider trading rests. This paper — a contribution to Columbia Law School’s recent celebration of Cary’s Cady Roberts opinion, explores some of these — particularly the emergence of a doctrine of “reckless” insider trading. Historically, the crucial question is this: how or why did the insider trading prohibition survive the retrenchment that happened to so many other elements of Rule 10b-5? It argues that the Supreme Court embraced the continuing existence of the “abstain or disclose” rule, and tolerated constructive fraud notwithstanding its new-found commitment to federalism — which I call the (fictional) “Cary-Powell compromise” — because it accepted the central premise on which the expressive function of insider trading regulation is based: manifestations of greed and lack of self-restraint among the privileged, especially fiduciaries or those closely related to fiduciaries, threaten to undermine the official identity of the public markets as open and fair. But enough time may have passed that we may have lost sight of the compromise associated with this fiction and started acting as if insider trading really is the worst kind of deceit. The result is pressure on doctrine to expand, using anything plausible in the 10b-5 toolkit. The aim is to tie this concern more clearly to the uneasy deceptiveness of insider trading, first using somewhat familiar examples such as the debate over whether possession or use is required for liability and the supposed overreach of Rule 10b5-2. Each of these settings brings us back to the centrality of intent, reminding us that the Cary-Powell compromise has in mind a form of purposefulness that is closely tied to greed and opportunism, making insider trading a sui generis form of securities fraud. That takes us to the most jarring recent development in insider trading law, the emergence (particularly in SEC v. Obus) of recklessness as an alternative basis for liability.

Bebchuk, et alia on Pre-Disclosure Acquisitions by Activist Investors

Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy, by Lucian A. Bebchuk, Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Alon P. Brav, Duke University - Fuqua School of Business; Robert J. Jackson Jr., Columbia Law School;and Wei Jiang, Columbia Business School - Finance and Economics, was recently posted on SSRN.  Here is the abstract:

 

A rulemaking petition recently submitted to the Securities and Exchange Commission by the senior partners of a prominent law firm urges the SEC to accelerate the timing of the disclosure of accumulations of large blocks of stock in public companies. Relying upon a few recent anecdotes, the petition argues that existing rules have been rendered obsolete by changes in trading technology that enable activist investors to accumulate increasingly large blocks of stock before disclosing.

In this Article, we provide the first systematic evidence on all disclosures by activist investors and the first empirical analysis of this subject. We find that key factual premises underlying the petition, including the assumption that pre-disclosure accumulations have increased considerably over time, are not supported by the evidence. Moreover, we show that accelerating the timing of disclosure could have adverse effects on public-company investors and identify important but overlooked consequences of the considered reform of disclosure rules. Our analysis provides empirical evidence that should inform the SEC’s consideration of this issue — and a foundation on which subsequent empirical and policy analysis can build.

Padfield on Concession Theory

Rehabilitating Concession Theory, by Stefan J. Padfield, University of Akron School of Law, was recently posted on SSRN.  Here is the abstract:

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.