Author: Charles Whitehead


Theseus’s Paradox – Form and Substance in Evolving Capital Markets

Living in Beijing underscores the importance of change and adaptation.  There is a noticeable drop in the amount of processed sugar in foods, reflecting local (and healthier) tastes.  Virtually every restaurant delivers, including McDonald’s (which raises the ques­tion, if you’re going to order delivery, why McDonald’s?).  And, most parti­cularly, I recently joined the thousands of Chinese students and pensioners who weave in-and-around traffic on electric battery-powered mopeds.  It is a great way to get around the city (even if some of the pensioners have a tendency to cut you off).

The same focus on change arises in the capital markets.  A person who owns or sells a security is presumed to own or sell the financial risk of that security.  By selling shares, for example, the costs and bene­­­fits of those shares—the rise or fall in share price—are understood to run with the instru­­ments being sold.  Changes in the capital markets, how­­ever, have begun to call that pre­sump­tion into question.  Increasingly, market partici­pants can use new trading methods to sell instru­­­­­ments to one person, but transfer their financial risk to someone else.  The result is greater complexity and new chal­lenges to regulation and the regu­lators.

To what extent should the securities laws adjust to reflect those changes?  The answer largely turns on the question of “identity.”  Moving from modern-day Chinato to ancient Greece, the Greek historian Plutarch identified the question in his story of Theseus, the mythical king of Athens.  For many, Theseus is known for slaying the Mino­taur, a half-man, half-bull monster that devoured children sent to Cretein tribute to King Minos.  According to Plutarch, after Theseus returned to Greece, his boat remained in Athensharbor for centuries as a memo­­rial to his bravery.

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Board Composition—Old Wine in New(er) Bottles

It’s a pleasure to join Concurring Opinions this month. The internet can be a little touch-and-go in China—I was in central China last week, with only limited access—but I hope to contribute some thoughts as the “Beijing correspondent” over the next few weeks.

For those who have not yet been to Beijing, let me commend it to you. Beyond the tourist attractions (and there are many), there is much going on in China as the country begins to lower the cost of central government, enhance domestic consump¬tion (and inward investment), and promote a deeper capital market. Every day brings something new.

Perhaps as surprising is the ubiquity of U.S. corporate governance—in particular, the director-monitor model—as a standard against which domestic alternatives are measured, notwithstanding some fundamental differences in corporate structure and financial markets.

As some may be aware, my co-authors and I recently addressed the role of directors beyond monitoring in a working paper, entitled Lawyers and Fools: Lawyer-Directors in Public Corporations (available here; forthcoming, The Georgetown Law Journal). Read More