Print Archive
A circuit split exists on whether the Supreme Court limited the Dormant Commerce Clause’s extraterritoriality doctrine to price affirmation statutes in Pharmaceutical Research & Manufacturers of America v. Walsh. This Comment argues that the Supreme Court has never drawn this limiting principle—in Walsh or otherwise—such that the Ninth Circuit incorrectly characterized Walsh in National Pork Producers Council v. Ross, and it should have held that the district court’s dependence on this reading constituted clear error in North American Meat Institute v. Becerra.
Easterbrook and Fischel’s seminal book The Economic Structure of Corporate Law has taught us the crucial role of markets in shaping the corporate contract. With the rise of ESG, the nature of that contract is changing, but the importance of markets (and of their limitations) is not. In this piece, building on our previous work that traces the remarkable growth of ESG to a shift in demand, primarily, but not solely, among millennials, we discuss the role of markets in shaping ESG, as well as their limitations.
Written for a symposium issue celebrating the thirty-year anniversary of the publication of The Economic Structure of Corporate Law by Frank Easterbrook and Daniel Fischel (“E&F”), this Essay discusses the interaction of my research over the years with their writings. During the period in which the book and articles were written, and in the many years since then, I have paid close attention to E&F’s writings in my research in the economics of corporate governance.
The U.S. securities laws allow security-holders to bring a class action suit against a public company and its officers who make materially misleading statements to the market. The class action mechanism allows individual claimants to aggregate their claims. This procedure mitigates the collective action problem among claimants, and also creates potential economies of scale. Despite these efficiencies, the class action mechanism has been criticized for being driven by attorneys and also encouraging nuisance suits.
Approaches to calculating fraud on the market 10b-5 damages have evolved substantially from the 1970s to the present. In this Essay I discuss the various approaches used over this span of time, including the rise of the event study approach.
Repurposing the corporation is the hot issue in corporate governance. Commentators, investors, and increasingly issuers, maintain that corporations should shift their focus from maximizing profits for shareholders to generating value for a more expansive group of stakeholders. Corporations are also being called upon to address societal concerns—from climate change and voting rights to racial justice and wealth inequality.
Despite being a cumbersome principle of corporate governance, the “one share, one vote” principle à la Easterbrook and Fischel is constantly challenged by several attempts to circumvent the original structure of capitalism democracy, based on the provision (often a default provision) that no more and no less than one vote is attributed to each share.
In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses.
We present a simple model of common ownership in which an investor chooses its stake in competing firms in light of the effects on firm behavior and firm profits. Two firms compete in Cournot duopoly, and ownership affects a firm’s objective function in the manner posited by Bresnahan & Salop (1986) and Salop & O’Brien (2000).
If a company misbehaves, lawsuits are one way of providing a remedy and encouraging that company and others to behave in the future. If the misbehavior is securities fraud, there are two potential plaintiffs—traders allegedly injured by the fraud may bring a private suit, and the government (through the SEC or DOJ) may sue to enforce the public interest in truthful disclosures of corporate information. If the misbehavior is violations of corporate governance rules, however, only private suits are available.
This project explores side letters in private market funds. Side letters, separate agreements between a fund and an investor, act as an invisible amendment to the main contract. This article introduces a new use case for side letters: impact investments, where funds target social, as well as financial, returns. Using a hand-collected data set, we examine the scope and role of side letters in this growing space.
Easterbrook and Fischel’s work suggests that society as a whole would achieve the best results if corporate leaders focused only on raising stock prices, leaving other institutions to tend to all other interests. But the idea that making societally important corporations govern to the whims of the stock market would be a win-win for investors, other corporate stakeholders, and our society as a whole has proven incorrect.