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September 11, 2019, will mark the one-year anniversary of a clearinghouse-related event reported on in the NYT as: How a Lone Norwegian Trader Shook the World’s Financial System.  Ironically, the story unfolded during the ten-year anniversary week of Lehman Brothers’ collapse and AIG’s $180B+ rescue by the U.S. government.  Global policymakers’ clearinghouse mandates, implemented in the U.S. in Title VII of Dodd-Frank, were supposed to be the solution to the AIG problem, not potentially the next big problem.    

And speaking of the financial crisis, resolving the ownership status of Fannie Mae and Freddie Mac is once again in the news.  These institutions have been in government conservatorship for over 10 years.  I’m skeptical that a long-term, viable solution has been found to return the housing GSEs to private ownership that will not return us right back to where we are now the next time these institutions get into trouble.          

I’m no expert in housing finance, but I do know a good deal about clearinghouses.  Important parallels exist between the housing GSEs and systemically-significant clearinghouses.  Most such clearinghouses are privately-owned, publicly-traded corporations.  Yet here too, the government holds the tail risk of these institutions.  As I’ve argued…

Just after I posted my paper, Not Everything is About Investors: The Case for Mandatory Stakeholder Disclosure, arguing for a stakeholder-focused corporate disclosure system, the conversation about corporate obligations to noninvestor interests exploded.  That’s because the Business Roundtable released a new “statement on the purpose of a corporation” which Marie Kondo-ed the traditional focus on shareholder interests, in favor of, well:

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

– Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.  

– Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.

– Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. – Supporting the communities in which we work. We respect the people in our communities and protect the

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Elizabeth Chamblee Burch has a new book out, Mass Tort Deals: Backroom Bargainin in Multidistrict Litigation.  At this point, I’ve only made it through the introduction, but I’m getting the sense that, like her academic papers, it’s going to be good.  She seems to have zeroed in on the big problem–the system works well for all repeat players (lawyers, courts, and defendants) but does not seem to do much for class members.  Looking forward to reading the rest of it!  I’ll do a series of posts on it in the coming weeks.  Stay tuned.

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In a previous post, I plugged a short piece that was published in the Georgetown Online Journal, and at that time, I explained it was a preview of a longer, in-progress article about the need for a corporate disclosure system intended for non-investor audiences.  I have now posted a draft of that longer paper to SSRN.  Here is the abstract:

Not Everything is About Investors: The Case for Mandatory Stakeholder Disclosure

Corporations are constantly required to disclose information, but only the federal securities laws impose generalized public disclosure obligations that offer a holistic overview of corporate operations.  Though these disclosures are intended to benefit investors, they are accessible by anyone, and thus have long been relied upon by regulators, competitors, employees, and local communities to provide a working portrait of the country’s economic life.

Today, that system is breaking down.  Congress and the SEC have made it easier for companies to raise capital without becoming subject to the securities disclosure system, allowing modern businesses to grow to enormous proportions while leaving the public in the dark about their operations.  Meanwhile, the governmentally-conferred informational advantage of large investors allows them to tilt managers’ behavior in their favor, at the

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Milton Friedman, shareholder primacy’s true north, wrote:

In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.

Much judicial, political, and academic ink has been spilled over the first part of this pronouncement, but the second part has always baffled.  What ethics?  Whose ethics?  How do we identify ethical customs that are not instrumental in generating higher profits (because if they were, there would be no need for the qualification; we would simply recognize that pursuit of profits may include pursuit of community goodwill because in its absence it may be hard to sell one’s product).

The recent tragedies in El Paso and Dayton have raised these questions anew.  Cloudflare, which provides various website and internet security services, dropped 8chan (a breeding ground for violent white supremacist content and the site where the El Paso shooter posted a racist screed) as a…

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In the next few weeks, I’ll be blogging about my article, “Incomplete Clearinghouse Mandates,” forthcoming in the American Business Law Journal (ABLJ).  The ABLJ is a triple-blind peer review journal published quarterly “on behalf of the Academy of Legal Studies in Business (ALSB).”   Its articles explore a range of business and corporate law topics, and it is a great resource for academics, industry professionals, and others.  Its “mission is to publish only top quality law review articles that make a scholarly contribution to all areas of law that impact business theory and practice…[and it] search[es] for those articles that articulate a novel research question and make a meaningful contribution directly relevant to scholars and practitioners of business law.”

One aspect of publishing with the ABLJ that I found invaluable was the reviewers’ feedback.  Their comments were tremendously helpful, and addressing issues in my article that they highlighted substantially increased the quality of the finished product.  I want to send a big THANK YOU to those reviewers!

I’m also an ad hoc reviewer for the ABLJ.  This too has been a very worthwhile experience.  Just as interviewing others can improve your interviewing abilities, reviewing the articles of others can improve your…