Corporations

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Martin Gelter & Geneviève Helleringer posted “Constituency
Directors and Corporate Fiduciary Duties” on SSRN a few weeks ago, and I’m
finally getting around to passing on the abstract:

In this chapter, we identify a fundamental contradiction in
the law of fiduciary duty of corporate directors across jurisdictions, namely
the tension between the uniformity of directors’ duties and the heterogeneity
of directors themselves. Directors are often formally or informally selected by
specific shareholders (such as a venture capitalist or an important
shareholder) or other stakeholders of the corporation (such as creditors or
employees), or they are elected to represent specific types of shareholders
(e.g. minority investors). In many jurisdictions, the law thus requires or
facilitates the nomination of what has been called “constituency” directors.
Legal rules tend nevertheless to treat directors as a homogeneous group that is
expected to pursue a uniform goal. We explore this tension and suggest that it
almost seems to rise to the level of hypocrisy: Why do some jurisdictions
require employee representatives that are then seemingly not allowed to
strongly advocate employee interests? Looking at US, UK, German and French law,
our chapter explores this tension from the perspective of economic and
behavioral theory.

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

…

The Economist has an interesting piece on how “[a] mutation in the way companies are financed and managed will change the distribution of the wealth they create.”  You can read the entire article here.  A brief excerpt follows.

The new popularity of the [Master Limited Partnership] is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works…. Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised…. [The] beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer….

Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and…

In 2011, I met with members of the SEC and Congressional staffers as part of a coalition of business people and lawyers raising concerns about the proposed Dodd-Frank whistleblower provision. Ten days after leaving my compliance officer position and prior to joining academia, I testified before a Congressional committee about the potential unintended consequences of the law. The so-called “bounty-hunter” law establishes that whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act are eligible for ten to thirty percent of the amount of the recovery in any action in which the SEC levies sanctions in excess of $1 million dollars. The legislation also contains an anti-retaliation clause that expands the reach of Sarbanes-Oxley. Congress enacted the legislation to respond to the Bernard Madoff scandal. The SEC recently awarded $14 million dollars to one whistleblower. To learn more about the program, click here.

I argued, among other things, that the legislation assumed that all companies operate at the lowest levels of ethical behavior and instead provided incentives to bypass existing compliance programs when there are effective incentive structures within the existing Federal Sentencing Guidelines for Organizations.  Although they…

As noted over at the Family Law Prof Blog, Stanford Graduate School of Business recently issued a report, “Separation Anxiety: The Impact of CEO Divorce on Shareholders” (pdf),  in which a study considered the impact CEO divorces have on the CEO’s corporation.  The report indicates that recent events “suggest that shareholders should pay attention to matters involving the personal lives of CEOs and take this information into account when making investment decisions.” 

The study found that a CEO’s divorce has the potential to impact the corporation and shareholders in three primary ways. First, is a possible reduction in influence or control if a CEO as to sell or transfer stock in the company as part of the divorce settlement. Second, divorce can negatively impact “the productivity, concentration, and energy levels of the CEO” or even result in premature retirement.  Third, the sudden change in wealth because of the divorce could lead to a change in the CEO’s appetite for risk, making the CEO either more risk averse or more willing to take risks.  

The report argues that this matters because:

1. Divorce can impact the control, productivity, and economic incentives of an executive—and therefore corporate value.

…

Omri Y. Marian has posted “Jurisdiction to Tax Corporations”
on SSRN.  Here is the abstract:

Corporate tax residence is fundamental to our federal income
tax system. Whether a corporation is classified as “domestic” or “foreign” for
U.S. federal income tax purposes determines the extent of tax jurisdiction the
United States has over the corporation and its affiliates. Unfortunately, tax
scholars seem to agree that the concept of corporate tax residence is
“meaningless.” Underlying this perception are the ideas that corporations
cannot have “real” residence because they are imaginary entities and because
taxpayers can easily manipulate corporate tax residence tests. Commentators try
to deal with the perceived meaninglessness by either trying to identify a
normative basis to guide corporate tax residence determination, or by
minimizing the relevance of corporate tax residence to the calculation of tax
liabilities. This Article argues that both of these approaches are misguided.
Instead, this Article suggests a functional approach, under which corporate tax
residence models are designed to support the policy purposes of corporate
taxation. This Article concludes that the U.S. should reform the way it defines
“domestic” corporations for tax purposes by adopting a two-pronged tax
residence test: the place where the

We are very excited to welcome Haskell Murray to the BLPB as a contributing editor.  Many of our readers will already be familiar with Haskell’s work, particularly in the area of benefit corporations, but just in case, you can view his profile here, his SSRN page here, and some related past blog posts here and here.  As a contributing editor, Haskell is not committed to posting on any particular day (or, for that matter, to post at all)–but given what I’ve seen from him in the past, I doubt we’ll have to wait too long for one of his excellent contributions.  So, from all of us here at the BLPB–welcome, Haskell, and thanks for coming on board!

Grant M. Hayden & Matthew T. Bodie have posted “Larry
from the Left: An Appreciation” on SSRN. 
Here is the abstract:

This essay approaches the scholarship of the late Professor
Larry Ribstein from a progressive vantage point. It argues that Ribstein’s
revolutionary work upended the “nexus of contracts” theory in
corporate law and provided a potential alternative to the regulatory state for
those who believe in worker empowerment and anti-cronyism. Progressive
corporate law scholars should look to Ribstein’s scholarship not as a hurdle to
overcome, but as a resource to be tapped for insights about constructing a more
egalitarian and dynamic economy.

Although I blog
on business issues, I spent most of my professional life as a litigator and
this semester I teach civil procedure. A few weeks ago I asked my students to
draft a forum selection clause and then discussed the Boilermakers v. Chevron forum selection bylaw case, which at the
time was up on appeal to the Delaware Supreme Court.  The bylaws at issue required Delaware to be
the exclusive venue for matters related to derivative actions brought on behalf of the corporation;
actions alleging a breach of fiduciary duties by directors or officers of the
corporation; actions asserting claims pursuant to the Delaware General
Corporation Law; and actions implicating the internal affairs of the
corporation.  

While I was not
surprised that some institutional investors I had spoken to objected to
Chevron’s actions, I was stunned by the vitriolic reactions I received from my
students. I explained that Chevron and FedEx, who was also sued, were trying to
avoid various types of multijurisdictional litigation, which could be
expensive, and I even used it as a teachable moment to review what we had
learned about the domiciles of corporations, but the students weren’t buying
it.

Perhaps in
anticipation of…

Bill Black takes down claims of a “victory for the
government in its aggressive effort to hold banks accountable for their role in
the housing crisis.”  (HT: naked
capitalism.)  The full piece is available here, and
I highly recommend you go read the whole thing. 
What follows is a brief excerpt:

The author of the most brilliantly comedic statement ever
written about the crisis is Landon Thomas, Jr…. 
Everything worth reading is in the first sentence, and it should trigger
belly laughs nationwide. “Bank of America, one of the nation’s largest banks,
was found liable on Wednesday of having sold defective mortgages, a jury
decision that will be seen as a victory for the government in its aggressive
effort to hold banks accountable for their role in the housing crisis.” … Yes,
we have not seen such an aggressive effort since Captain Renault told Rick in
the movie Casablanca that he was “shocked” to discover that there was gambling
going on (just before being handed his gambling “winnings” which were really a
bribe)…. The jurors found that BoA (through its officers) committed an orgy of
fraud in order to enrich those

…