A central goal of corporate law is to make managers accountable to shareholders. So it may come as a surprise that America’s federal government frequently compels companies to “effectively exclude the Shareholder from . . . influence over the Corporation’s business or management [.]” Indeed, there is a federal agency whose principal is to ask companies to entrench the board of directors, waive the duty of loyalty, and hire individuals with little business experience to run the company.
That agency is located in the Pentagon. The managers hired and entrenched are former spies, military officers, and law enforcement officials. … Read more
Scholars and practitioners of the law generally agree that any large enterprise must be run through a legal entity such as a corporation. Entities reduce transaction costs to coordinate an enterprise’s many patrons, limit liability for shareholders, and protect a business from untimely dissolution. The widespread consensus is it would be “effectively impossible” to obtain these benefits without entities, and therefore that legal entities are essential to economic life as we know it.
So it may be surprising to learn about a domain of mass-commerce in which legal entities are substantially absent. In this domain, millions of people exchange trillions … Read more
The following post comes to us from Andrew Verstein, Assistant Professor of Law at Wake Forest University School of Law. It is based on his recent article, “The Law and Economics of Benchmark Manipulation,” which is forthcoming in the Boston College Law Review and is available here.
This is a period of unremitting market manipulation. Allegations have rocked the markets in interest rates, foreign currency, gold, palladium, milk, oil, biofuels, natural gas, and aluminum, to say nothing of the inexorably rising tide of stock price manipulation. By all accounts, manipulation … Read more
It’s tempting to think that we might be seeing the end of potential manipulation of financial benchmarks and rates, such as Libor.
The story would go like this: the Libor rate was an anomaly – humorous in retrospect – that was structured in a way prone to manipulation because it relied on the subjective (and objectively unverifiable) judgments of bank personnel who were subject to conflicts of interest. Having weathered that scandal, we have now grown wiser. The FSA’s recent reforms of the rate-setting process have constrained the opportunities for ex ante human discretion in Libor: they treat Libor panel … Read more