Category: Corporate Finance


Young Business Law Scholar Call for Papers

The Center for Law, Economics & Finance (C-LEAF) at The George Washington University Law School has announced its third annual Junior Faculty Business and Financial Law Workshop and Junior Faculty Scholarship Prizes.  This year’s Workshop will be held on April 5-6, 2013 at GW in Washington.

The Workshop supports and recognizes the work of young legal scholars in accounting, banking, bankruptcy, corporations, economics, finance and securities, while promoting interaction among them and selected senior faculty. By providing a forum for the exchange of creative ideas in these areas, C-LEAF aims to encourage new and innovative scholarship.

I’ve participated in both previous Workshops and can attest that participants have benefited from the exchange of ideas and getting acquiainted with newer scholars.  About 100 papers are submitted and the C-LEAF faculty select about 10 for presentaiton.  At the Workshop, senior scholars comment on each paper, followed by a general discussion.

Three papers receive Junior Faculty Scholarship Prizes of $3,000, $2,000, and $1,000, respectively. All prize winners will be invited to become Fellows of C-LEAF.  C-LEAF makes no publication commitment, but chosen papers are featured on its website as part of the C-LEAF Working Paper series.   Read More


Amazing New Corporate Law & Econ Book

If you are interested in corporate law, especially economic analysis of it, you likely will enjoy an impressive new book collecting original pieces by 30 prominent corporate law scholars. Edited by Claire Hill and Brett McDonnell of the University of Minnesota, the book canvases every important topic in corporate law.

After an overview that traces the history of the economic analysis of corporate law, the book addresses corporate constituencies, governance, gatekeepers, government oversight and a few other hot topics not classified.

Within constituencies, topics consider the directors’ role, the roles of other corporate actors, including shareholders, creditors, employees, and other stakeholders along with broader notions of the public interest. 

Internal governance looks at fiduciary duties, shareholder litigation, outside directors, shareholder activism and executive compensation.  

Gatekeeper pieces address lawyers and auditors, as well as rating agencies,  research analysts, D&O insurers and investment banks.

Jurisdiction looks at both domestic federalism as well as comparative perspective.

Unclassified topics address self-dealing, behavioral economics, and market efficiency.

The scholars are the following professors:

Ahdieh,   Atanasov, Bainbridge, Black, Blair, Bodie,  Ciccotello,  Clarke, Cunningham, Darbellay, Davidoff, Fairfax,  Ferri, Fisch,  Frankel, Gilson, Griffith, Hill, Kraakman, Langevoort, Lee, McDonnell, Painter, Partnoy, Smith,  Thomas,  Thompson, Walker, and Whitehead.  

The table of contents to this impressive volume follows. Get it while it’s hot!!

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The Corporate University: Recent Developments

There are many memorable images in Rob Nixon’s book Slow Violence and the Environmentalism of the Poor. Describing the “risk relocation” that is a prime function of the global economy, he offers this vision of Nigeria:

Often, as a community contends with attritional assaults on its ecological networks, it isn’t granted equitable access (or any access at all) to modernity’s basic infrastructural networks . . . . Like those Niger Delta villages where children for decades had no access to electricity for studying at night, while above their communities Shell’s gas flares created toxic nocturnal illumination. Too dark for education, too bright for sleep: modernity’s false dawn. (42)

Exxon is now “a corporation so large and powerful — operating in some 200 nations and territories — that it really has its own foreign policy.” As Steve Coll observes, the US “gives Chad only a few millions dollars a year in aid, while Exxon’s taxes and royalties can be worth as much as $500 million.” Had Exxon directed only 10% of its 2008 profits to political expenditures that year, it would have spent “more than every candidate for President and every candidate for Senate spent at the last election.” In a surprising number of contexts, corporations enjoy far more freedom of action, and secrecy, than states.

Is it any wonder, then, that universities are beginning to shift allegiance, to pursue the agenda of corporate donors instead of public values? Conferences like EduFactory have chronicled the long history of the corporate university; Philip Mirowski has critiqued it in books and edited collections. But it feels like we are on the verge of a phase change, an irreversible acceleration of dynamics once muted and slowed by the ancient cultural identity of the university. Consider these developments:

1) Martha McCluskey has described “economics scholars simultaneously acting as academic experts on the public interest and as sellers of this expertise to the highest private bidder.” She has chronicled a number of troubling aspects of a recent report on fracking issued by the “Shale Resources and Society Institute” (SRSI) of SUNY Buffalo:
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Stanford Law Review, 64.4 (2012)

Stanford Law Review

Volume 64 • Issue 4 • April 2012

The Tragedy of the Carrots:
Economics and Politics in the Choice of Price Instruments

Brian Galle
64 Stan. L. Rev. 797

“They Saw a Protest”:
Cognitive Illiberalism and the Speech-Conduct Distinction

Dan M. Kahan, David A. Hoffman, Donald Braman, Danieli Evans & Jeffrey J. Rachlinski
64 Stan. L. Rev. 851

Constitutional Design in the Ancient World
Adriaan Lanni & Adrian Vermeule
64 Stan. L. Rev. 907

The Copyright-Innovation Tradeoff:
Property Rules, Liability Rules, and Intentional Infliction of Harm

Dotan Oliar
64 Stan. L. Rev. 951

Testing Three Commonsense Intuitions About Judicial Conduct Commissions
Jonathan Abel
64 Stan. L. Rev. 1021

Derivatives Clearinghouses and Systemic Risk:
A Bankruptcy and Dodd-Frank Analysis

Julia Lees Allen
64 Stan. L. Rev. 1079


Stanford Law Review, 64.3 (2012)

Stanford Law Review

Volume 64 • Issue 3 • March 2012

The Material Foundations of Corporate Culture: Goldman’s Lessons for Silicon Valley

Two resignation letters rocked Wall Street and Silicon Valley this week. Greg Smith elegized a once-great Goldman Sachs, now reduced to “ripping eyeballs out” of clients. (The industry sure has changed since the 90s, when the goal was to rip off the whole face of the client. I guess Dodd-Frank is working.)

On the West Coast, James Whittaker explains “Why I Left Google.” His complaints are more measured than Smith’s: “The old Google made a fortune on ads because they had good content. It was like TV used to be: make the best show and you get the most ad revenue from commercials. The new Google seems more focused on the commercials themselves.” Whittaker laments that the company has become obsessed, Ahab-like, with the social web’s whale, Facebook.

On one level, it’s not fair to compare the companies: the engineers at Google have contributed far more to society than finance’s “money-massagers.” Goldman represents the terminal phase of a liquidationist capitalism unmoored from social value. But its culture did not rot overnight. Rather, legal and material factors accelerated decay. Silicon Valley’s managers and regulators should take notice: the same process could happen there.
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Stanford Law Review, 64.2 (2012)

Stanford Law Review

Volume 64 • Issue 2 • February 2012

National Security Federalism in the Age of Terror
Matthew C. Waxman
64 Stan. L. Rev. 289

Incriminating Thoughts
Nita A. Farahany
64 Stan. L. Rev. 351

Elective Shareholder Liability
Peter Conti-Brown
64 Stan. L. Rev. 409

Harrington’s Wake:
Unanswered Questions on AEDPA’s Application to Summary Dispositions

Matthew Seligman
64 Stan. L. Rev. 469

Boumediene Applied Badly:
The Extraterritorial Constitution After Al Maqaleh v. Gates

Saurav Ghosh
64 Stan. L. Rev. 507


Veil Piercing Is Probably Not the Most Litigated Issue in Corporate Law

I was reading through Bob Thompson’s excellent year-in-review list of corporate law scholarship, and was struck the number of articles discussing veil piercing.  With a few exceptions, each of those articles claims, based on Bob’s opus, that veil piercing is the “most litigated issue in corporate law.”  Heck, even Wikipedia’s page on the veil makes that assertion.

In Disputing Limited Liability,* Christy Boyd and I disagree that veil piercing is really dominates corporate litigation.  As we noted:

“[Robert] Thompson [in his Cornell Law Review Article] compared the incidence of the term “veil piercing” in opinions to the incidence of terms like “hostile takeover,” declining to broaden the search to more common terms like “fiduciary duty” Id. at 1036 n.1. But, as this Article will show, “litigated” cases begin with complaints. Westlaw‘s pleadings database contains 2071 federal and state complaints potentially making veil piercing allegations between 2000 and 2005. A similar search for “(loyalty disloyalty) /s (director* officer)” returned 2405 complaints.”

Now, as Bob kindly wrote me in response, our argument is somewhat unfair.  After all,we’re counting different things, at different times, before different courts.  But still, I don’t think there’s much evidence at all that the veil is really the most litigated issue in cases that generally deal with corporate law problems.  (I say “generally” because a truly narrow definition of “corporate law” would, in my view, be limited to problems that the internal affairs doctrine covers, and in some states would consequently would exclude veil piercing altogether).  On the other hand, I don’t think Christy and I have made the case that classic loyalty claims are the most commonly litigated issue either.  The problem of generalizing to find the “most litigated issue” turns out to be complex.

The problem, as always, turns on sample selection. Most state court dockets are plainly inaccessible – and state court opinions are collected in a much more biased way than federal opinions.  As a Westlaw representative told me in 2009, they tend to collect non-Supreme state court opinions from urban centers, focusing on material that they believe will be of interest to lawyers, or when the court clerk has brought an opinion to their attention. The result is that our understanding of the practice of an individual state’s corporate law are biased by the black-sheep opinions we can see.  Why would we think that drawing any inferences from that dataset could let us answer the question of “what is the most litigated corporate law issue”?  I’d prefer to trust practice bulletins – trying to track what corporate lawyers believe to be common problems.  In those materials, veil piercing is relatively rarely discussed.  However, since practice bulletins may be dominated by the defense bar, one has to account for the fact that most veil piercing cases are actually brought against very small companies, who might not be represented, and certainly are unlikely to be represented by an attorney with sufficient time on her hands to contribute to a Bar newsletter.  Thus, in general I think we can learn very little from veil piercing’s relative presence in opinions, or relative absence in the Bar literature.

An exception is Delaware, which has a robust docketing system, a court practice of writing opinions in almost every case, and thorough Westlaw coverage of both the Chancery’s and Supreme Court’s outputs.  Now I’m not the most attentive reader of that stream of data, but my sense is that corporate litigation in Delaware is heavily biased toward fiduciary & M&A claims, while veil piercing almost never comes up.  Here again we have to be careful about generalizing: Delaware, being notoriously hostile to veil piercing allegations, probably isn’t the place we’d want to go to know how most state courts act.  But if Delaware & Nevada host the majority of corporations in this country which will generate corporate litigation (arguably, they do), and if both jurisdictions are veil friendly, I don’t see how it’s possible to conclude that veil piercing litigation is all that common.  Or to put it another way: we have no idea what the most common litigated corporate law issue is, but it probably is not veil piercing.

Veil piercing cases are, however, highly colorful, which may explain the doctrine’s continuing attraction for scholars.


[Update: Steve Bainbridge writes about this post “A better question might be “who gives a sh*t?”.  Nice.  Very nice. I suppose I care, mildly, because it might be that attention better spent on other issues in corporate law, like someone’s … nontraditional … theories of director primacy, has instead been diverted to veil piercing on the theory that piercing is more practically important than it is.  And because if if you search the web, you’ll find dozens of companies puffing this exact claim to sell you their incorporation products and advice.  Or it might be that the question is worth asking simply for love of the game.]

* DLL happens to be on Bob’s corporate law articles of 2011 list.  In case you were wondering if I am trying to bias the electoral pool by blogging about the article, shame on you. I would never stoop so low.


Does the Secured Transactions Course Make Sense?

I’ve never taught Secured Transactions, so I’ll start by saying that the following is purely speculative and subject to correction.

We had a job candidate come through at some point this Fall who generally is interested in the field of commercial law.  That person mentioned in passing that although they were more than willing to teach the traditional secured transactions course, in their opinion it wasn’t well structured.  Why? Not, as the navel-gazer might imagine, because the field of commercial law is supposedly intellectually dead.  Rather because the traditional secured transaction course is too narrowly conceived — it usually is limited in coverage to personal property security interests under Article 9.  But many security interests that matter to lawyers aren’t held on movable property.  Since secured is ordinarily the foundational course for the commercial curriculum, students are left starting on too narrow a footing in understanding bankruptcy and bank regulation.  It’s even worse than having a corporations course that excludes LLCs.  Because of its technicality, ST is traditionally so difficult to teach that many students are turned off to the idea of commercial law practice at all.

Again, I don’t know much about this area of law.  I never took ST in law school, I haven’t taught it, and (worse) I haven’t even read a ST syllabus at my current institution.  But it struck me as an interesting thought, at least worth airing.  It’s related to concerns I have about the general corporate curriculum — is “corporations” really a subject that ought to be taught in a single course, or is it really a merger of too many (or too few) legal principles that have glommed together over time.  It’s also related to concerns that one might have about continuing to use the increasingly outdated, purportedly uniform, UCC to teach when States’ adopted versions are moving ever-further-away from that ideal.


Buffett and B of A

In today’s Financial Times, Dan McCrum cites one of my books and quotes me when portraying Warren Buffett as the investor of last resort in the US.  Inspired by Buffett’s investment in preferred stock and warrants of Bank of America (in which I have owned stock for 20 years, through predecessors), it is interesting to think of Buffett as rescuer of troubled American financial institutions: from Salomon Brothers in the late 1980s through Goldman Sachs in the 2008 crisis and B of A today. 

But please note that it is not altruism or patriotism that induces the rescues.  Instead, Buffett’s value investing philosophy leads him to show up when the chips are down.  Value investing means to commit private capital only when the price you may is substantially below the value you get.  “Be greedy when others are fearful and fearful when others are greedy,” Buffett has written.

In the depths of the 2008 crisis, Buffett shrewdly negotiated great investment deals at Goldman Sachs, with a 10% dividend rate, and at General Electric. He made a calculation that what he paid was way less than what he got. (And he was correct.)

Buffett, a friend of mine for 15 years whom I admire greatly,  also turned down other opportunities presented to him during the crisis, including at AIG. He found the price insufficiently below the value.

He also proposed an investment opportunity in 1997 in Long Term Capital Management, giving the firm an hour to accept, but they balked. He offered a steep discount, which he insisted on and they could not accept.

The Bank of America position today is likewise a shrewd value proposition: preferred stock with a hefty 6% dividend, along with warrants (options) to buy common shares at the bargain basement price of $7.14.  Notably, that price was above the trading price when the deal was inked but, foreseeably, the market shot up on news of Buffett’s investment and is now in the money—an instant profit.

So Berkshire is certainly a fortress (a kind of Fort Knox in American folklore) and Buffett, a patriot and altruist, is as beloved as Will Rogers for all his folksy home-spun wisdom and “tax me and other billionaires” populism. But Buffett is an investor first and foremost and you see him stepping up in these big ways in times of stress because that’s where value investing takes him.

Photo Credit: Cardozo Law School (Buffett guest teaching my class in 1998).