They say that one should not look a gift horse in the mouth. We decided to go against this proverb and look carefully in the mouth of one such gift horse. After all, we still remember from high school reading that in addition to the shirt of Nessus, the Trojan horse as being not such a tantalizing gift. In this blog, we examine corporate executives’ gifts of common stocks to see they resemble the shirt of Nessus or the Trojan horse.
We find that corporate executives’ gifts of stock while not quite poisonous, do have a dark side. We find … Read more
Plaintiffs sometimes have significant financial interests in their opponents, interests that extend beyond the boundaries of the lawsuits themselves. In some situations, plaintiffs maintain a “long” financial position. For instance, in securities litigation or direct or derivative litigation alleging a breach of fiduciary duties under state corporate law, the plaintiffs are typically a subset of the firm’s current shareholders. When the defendant-firm loses at trial and pays damages—or, more commonly, avoids trial by retaining defense counsel and/or making a settlement payment to plaintiffs and their counsel—while the plaintiff-shareholders may receive a direct monetary benefit, they also suffer an indirect loss … Read more
One of the primary rationales in favor of regulating disclosure is that more information may create positive externalities, or spillover effects, by helping investors learn about industry- or economy-wide trends and growth opportunities. In this way, a firm’s public disclosures informs investors not only about that specific firm’s prospects, but also about the prospects of related, peer firms. Thus, the more firms within an industry disclosing regular, publicly available information, the less uncertainty exists among investors regarding the value of all firms in that industry. Although the idea is intuitive, it has been difficult to empirically examine the existence of … Read more
The work of Columbia Law School Professor Kate Judge appears in the list of twelve best corporate and securities law articles in 2015, based on a poll conducted by the Corporate Practice Commentator. Teachers in corporate and securities law were asked to select the best corporate and securities articles from a list of articles published and indexed in legal journals during 2015. More than 540 articles were on the list. Professor Judge was selected for her article Intermediary Influence appearing in the University of Chicago Law Review.… Read more
In April of 2012, President Obama signed into the law the J.O.B.S. (Jumpstart Our Business Startups) Act. The law’s intent and design was to make it easier for small businesses to raise money by easing their regulatory burdens both on raising capital and operating as publicly traded companies on an ongoing basis. This article focuses on the J.O.B.S Act’s Title IV. Title IV revises an exempt offering provision referred to as Regulation A. Prior to its revision, Regulation A was a seldom used offering exemption because companies felt that the steps necessary to complete a Regulation A offering far outweighed … Read more
In an article recently posted on SSRN.com, I explain why the law requires agents to act with single-minded devotion to their principals. For example, a lawyer must do what is best for a client and may not subordinate a client’s interest to that of anyone else. This is true even when a lawful act beneficial to a client would subject a third party to serious harm. When representing a landlord who wants a derelict tenant evicted, for example, a lawyer must prosecute the eviction expeditiously even if the tenant has nowhere else to go.
In the parlance of legal … Read more
Work/life balance has been described as the issue of our age, but attainment of a balance, or the ‘good life’, is increasingly elusive. This is borne out by a study of Australian male and female corporate lawyers, the findings from which are explored in my recently-published article, “Work/Life or Work/Work? Corporate Legal Practice in the Twenty-First Century.”
Following the global financial crisis, a desire for capital accumulation led to the amalgamation of many of Australia’s largest national firms with elite northern hemisphere firms. The preoccupation with profitmaking in these global firms has seen the aggressive embrace of the long-hours … Read more
Whether one ascribes to the agency theory of shareholder primacy or the contractarian theory of director primacy, boards of directors have great discretion in determining whether, when, and how to sell the corporation. Defensive tactics, like poison pills, can be tools in wielding that discretion in the service of creating shareholder value. However, a poison pill designed either to oppress a minority shareholder, as in eBay v. Newmark, or to minimize the impact of activist shareholders, as in Versata Enterprises, Inc. v. Selectica, Inc., seems to exceed the “maximum dosage” of the pill. The “tax benefits preservation … Read more
To achieve a growing number of public, social, civic goals, we draw on the power of financial markets. Parents who can afford to save for the cost of their children’s college education rely on the market when they put money into college savings plans like New York’s 529 College Savings Program, for example, and so do workers counting on pension funds to provide income in retirement.
As long as these investments produce the needed return, all is well, but when they do not, they undermine the public end they were supposed to serve. The riskiness of investments made in service … Read more
Because most outsiders learn about a firm from news articles written about it, firms have incentives to manage how they are covered by media so that they are presented in the most favorable light possible. Our study examines whether the composition of a firm’s board of directors affect the way the firm is covered by media. Specifically, we investigate whether a board member with media expertise enhances the firm’s ability to manage how the firm is portrayed in the news.
We define an individual with past experience in a news organization as an owner, top executive, board member, editor, journalist, … Read more
A corporate inversion involves the relocation of a corporation’s legal domicile to a lower-tax nation (host country) while retaining its material operations in its higher-tax country of origin (home country). Corporations have been engaging in inversions for over three decades. The first inversion in 1982 occurred when Louisiana-based construction firm McDermott International converted one of its cash-rich Panama-based subsidiaries into the new parent firm, thereby paying much lower income taxes.
Corporate inversions have become headline news again in the US. Last year, US-based pharmaceutical company Pfizer announced a merger with Ireland-based Allergan. Pfizer expected to reduce its effective tax rate … Read more
Regulators demand the impossible when they require issuers to design and implement an effective compliance program to guard against insider trading, a crime that neither Congress nor the SEC has defined with any specificity. This problem is then compounded by the threat of heavy civil and criminal sanctions for noncompliance. Placed between this rock and hard place, issuers adopt over-broad insider trading compliance programs that come at a heavy price in terms of corporate culture, cost of compensation, share liquidity, and cost of capital. The irony is that, since all of these costs are passed along to the shareholders, insider … Read more
There has been a recent surge in scholarship on the issue of concentration of power in the CEO, and the subsequent consequences for shareholder wealth maximization and board primacy. There is a general consensus among scholars that, in general, more powerful CEOs (relative to the board as representative of the corporate shareholders) can exacerbate agency conflict, resulting in suboptimal corporate strategies that are detrimental to corporate performance, and as a result, damaging to shareholder interests as well. The basic cause of this excessive power with CEOs lies in the outside board members being dependent on the CEO for their selection, … Read more
The equitable doctrine in pari delicto provides that a plaintiff who participated equally with a defendant in wrongdoing cannot pursue a claim against the defendant. In pari delicto is a shortened version of the phrase in pari delicto potior est conditio defendantis, which means “[i]n a case of equal or mutual fault . . . the position of the [defending] party . . . is the better one.”
Lawyers invoke in pari delicto when sued for malpractice for failing to protect a client from legal liability. A common scenario involves a lawyer advising a client to lie under oath; … Read more
In our recent paper forthcoming in The Financial Review (2016), we highlight the role of venture capital (VC) in spawning new ventures. That is, after acquisitions, IPOs and other successful exits, entrepreneurs backed by venture capitalists (VCs) tend to form new companies or become angels coaching and investing in entrepreneurs. In our recent paper, we examine for the first time the specific conditions under which entrepreneurs actually stick with entrepreneurship in the form of starting a new company or becoming an angel. We address the question of when does entrepreneurial finance spawn the creation of new ventures by examining detailed … Read more
Global business puts pressure on geographically limited courts. U.S. courts, for instance, can reach only defendants with contacts with the forum territory, usually the specific U.S. state in which the court is located. But litigation may be brought against part of a multinational business that has separately organized entities in different countries. Often the local subsidiary has direct contacts, but the plaintiffs want to sue the absent parent as well. Can they? The somewhat unsatisfactory answer is that it depends. Often it depends on whether the local subsidiary’s contacts with the forum territory “count” as those of the parent company. … Read more
Corporate governance scholarship has long considered the problems that arise in public companies with dispersed ownership. But the automaker Volkswagen does not suffer from a dispersed ownership structure. In fact, it has several strong and highly active owners. The Porsche and Piëch families have been involved with the company for many years and own 31.5% of Volkswagen’s equity. The German state where the company is headquartered, Lower Saxony, holds 12.4%, and an outside investor, Qatar Holding, owns 15.4%. With such powerful economic incentives in not one but three actors, management should have been subject to the kind of exacting oversight … Read more
Last week, the Basel Committee on Banking Supervision (Basel) proposed floors and other constraints on the use of internal models for calculating credit risk capital. The proposal aims to reduce complexity and variation in the calculation of regulatory capital among banking institutions, thus improving comparability. To that end, the proposal generally discourages (and in some instances prohibits) the use of internal ratings-based (IRB) approaches in calculating risk weighted assets (RWA) related to credit risk. The proposal’s objective is consistent with Basel’s other recent issuances, i.e., the re-proposed standardized approach for credit risk (issued last December),1 revised final capital requirements … Read more
In a recent paper, I considered the strength of securities fraud charges asserted in several computer hacker cases filed in mid-2015. Some of the defendants in the cases were the hackers who used computer methods to obtain unauthorized access to corporate press releases before they were released to the public. Other defendants were the traders who paid for the stolen information and used it to buy and sell securities. The press cast the scheme as an insider trading ring tied to computer hackers, but the SEC and criminal authorities asserted general securities fraud charges under Rule 10b-5.… Read more