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 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
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
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
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
Hedge fund activism is the latest rave in corporate governance. Activist hedge funds build stakes in target firms in order to press management for various changes. When managers are uncooperative, they may just be forced to step down. Lest you think only managers of small, not well-established firms have reason to fear, some of the most powerful managers in corporate America, for example the CEOs of Bob Evans, Hertz, Sotheby’s, Yahoo, etc., have all failed to avoid such fate. It appears that no firm is immune to the threat of HFA.
Managers, needless to say, have great incentive to avoid … Read more
Just six months ago, when the Supreme Court’s current term opened in October, things looked bleak for the class action. Three major cases were on the Court’s docket, and each seemed handpicked as a vehicle for the Court’s conservatives to curb the availability of the class action. Nonetheless, it has now become clear that this assault has fallen short. The high water mark in this hostile tide was probably reached in 2011 when the Court decided both Wal-Mart Stores, Inc. v. Dukes and AT&T Mobility LLC v. Concepcion. In these cases, the Court both tightened the standards … Read more
On January 7th 2016, Thomson Reuters and the National Venture Capital Association (NVCA) published their Exit Poll Report, which stated that in the U.S. 77 venture capital (VC)-backed initial public offerings (IPOs) raised $9.4 billion in 2015. Over the same period, 93 non-VC-backed U.S. companies went public, raising $23.9 billion (Ernest & Young – IPO Global Trends 2015). For experts in the field of VC investments these numbers cannot appear surprising: the contribution by VCs to the growth of American stock exchanges is a well-documented phenomenon (e.g., Megginson and Weiss, 1991; Lee and Wahal, 2004; Nahata, 2008). … Read more
The “meh” economy that accounts for some of the sourness in the American electorate is partly due to a design flaw in the US corporate governance system. One proffered diagnosis is that companies invest for the short term and are too quick to return cash to shareholders through stock repurchases. Why? It’s the attack of hedge funds, shareholder activists looking for short term gain even at the expense of investments that would produce higher returns over the long run, and, along the way, would lead to employment gains and then wage gains. What follows, then, is a prescription for changes … Read more
Columbia Law School is looking for an Editor-at-Large to oversee and administer the Columbia Law School Blue Sky Blog. The Blog, now completing its third year, has grown rapidly and become one of the most read sources of current information and opinion on corporate law, securities law, and financial regulatory issues, including white collar crime, enforcement, antitrust, restructuring and kindred topics. The Blog’s content presents legal developments and insights from a range of sources, including practitioners, academics and regulatory bodies. A new post is generally published at least once every weekday and the Blog also highlights important news developments in … Read more
Why do we memorialize some bargains in dozens of related contracts, rather than just one? Mergers and acquisitions deals, for example, are often formed through constellations of agreements that I call “unbundled bargains.” At the center of an unbundled bargain, there is a heavily negotiated acquisition agreement. Surrounding it, there are dozens of ancillary agreements that buttress the deal.
In a paper forthcoming in the University of Pennsylvania Law Review, and available here, I argue that unbundled bargains help parties design better deals ex ante and enforce deals more effectively ex post. I also argue that recognizing deals … Read more
The world of corporate governance is undergoing two intense, inter-related debates. One is a debate as to whether profit-maximization in the short term is really different from profit-maximization in the long term, and if so whether American corporations are currently too short-termist. The second debate is whether shareholder profit maximization is and should be the exclusive goal for corporate managers. The debates are inter-related because corporations focused on long term rather than short term profits are likely to more fully take into account the interests of other stakeholders, although even a robust focus on the long term will not fully … Read more
Today, in addition to our usual offering, we present three student posts from the Columbia Business Law Review:
- David Markewitz on The SEC’s Appointment Problem and Its Likely Solution;
- Penina Moisa on The Perils, Protections and Proliferation of Pre-IPO Options; and
- Abigail Hathaway on Buyer’s Remorse and “MAC Outs” in M&A Agreements.
Feeling some buyer’s remorse after your latest big purchase? Well, this happens to companies involved in multi-billion dollar mergers and acquisitions, too, in the time between signing an agreement and closing the deal. This is one reason that a material adverse change (“MAC”) clause is a standard feature in M&A agreements—to allow the buyer to exit the merger if certain adverse changes befall the target company, but to prevent the seller from backing out because it simply changed its mind. MAC clauses are a highly negotiated part of such agreements because they are the mechanism by which the buyer and … Read more
In recent years, the stockholder’s appraisal remedy in Delaware has transformed from a little-noted feature of stock ownership to a potent option for dissenting shareholders. It’s also become a topic of heated debate. In our prior work, we have documented the recent increase in appraisal activity, largely driven by a group of specialist funds that have been called appraisal arbitrageurs. We have shown that these appraisal specialists focus their resources on a small number of transactions and that those transactions exhibit proxies for legal merit: abnormally low merger premia and insider involvement.
Many prominent business executives and legal scholars are convinced that the American economy will suffer unless hedge fund activism with its perceived “short-termism” agenda is significantly restricted. Conversely, shareholder activists and their proponents claim they function as a “disciplinary mechanism” to provide management oversight and are instrumental in mitigating the potential agency conflict between managers and shareholders.
Earlier studies have shown that when institutional investors, particularly mutual funds and pension funds, follow an activist agenda, they do not achieve significant benefits for shareholders. Nevertheless, hedge funds have increasingly engaged in shareholder activism and management supervision that differs fundamentally from previous … Read more
Many large firms – Google, Alibaba and Fitbit to name a few — have multiple voting share structures (MVS) in which the firm issues two or more classes of shares, one to the public and the other to insiders (typically founders, promoters, management, private investors or board members). The shares that are issued publicly have limited voting rights while the class issued to insiders carries more voting rights, allowing them to control the company. The one-to-one ratio of votes per share prevalent in non-MVS firms does not exist.
MVS undermine corporate governance standards because outside shareholders carry a disproportionate share … Read more
The Committee on Foreign Investment in the United States (CFIUS) is an interagency organization charged with identifying potential national security risks posed by foreign acquisitions of U.S. businesses and mitigating those risks as necessary. If CFIUS determines that the national security risks cannot be mitigated adequately, it recommends that the U.S. president block the transaction. CFIUS’s authority extends both to proposed transactions and to transactions that have already been completed.
On February 19, 2016, CFIUS issued the unclassified version of its annual report to Congress. The report, which focuses on CFIUS activity during calendar year 2014, identifies key developments relating … Read more
Until 1870, corporate elections in the United States were generally conducted under a system of straight voting. In that year, the State of Illinois adopted a new constitution requiring that cumulative voting be used to elect directors to the boards of Illinois corporations. Over the next eighty years, a number of states followed suit and adopted laws mandating the use of cumulative voting in corporate elections. As one scholar has written:
The high water mark of mandatory cumulative voting as a force in American corporate law was probably the late 1940s. At that point, twenty-two states had mandatory provisions. The … Read more