Woke Capital and the Ownership of Enterprise

We are in the midst of an unusually strong flare-up of the perennial debate over corporate purpose. Prominent voices in business, finance, and politics are once again challenging the view that boards and executives should manage corporations for the exclusive, or even primary, benefit of the stockholders. Most striking, however, is that powerful institutional investors—and a growing cadre of individual investors—are also endorsing the view that returns to stockholders should sometimes take a backseat to environmental, social, and governance concerns. This has led to the rise of “woke capital”—or “ESG” investing—where investors may pressure corporate management to behave in socially responsible ways or refuse to invest in certain companies altogether on ESG grounds. At the same time, an increasing number of large issuers have begun taking outspoken positions on polarized political issues they would have undoubtedly tried to avoid in the past. Whether these developments are net positive or negative is hotly debated. Some argue that ESG investors will lead to more sustainable development and encourage corporate managers to make progress on social problems where political solutions have not been forthcoming. Others argue that ESG is primarily empty talk, a cynical marketing ploy to attract gullible customers. Still others suggest it is an affirmatively harmful development— that corporate managers are ill-equipped to tackle broad social problems and that giving them license to do so will serve only to provide cover for managerial opportunism. Lost in these debates, however, is the more fundamental question of what ESG investing portends for how large-scale enterprise will be owned and governed in the future. In short, commentators have taken for granted that large enterprises will continue to be owned—in the sense of electing the controlling managers and receiving the residual cash flows—by traditional public stockholders who provide equity capital. But the increasing salience of politics in investment decisions, by creating divergent interests among stockholders, has potentially dramatic implications for the ownership structure of enterprise. This Article is the first to explore these implications. In his pathbreaking work, Henry Hansmann showed that perhaps the most important reason for the modern dominance of stockholder ownership of large enterprises is that, out of all the potential owners, stockholders—united in their pursuit of financial returns—are typically the group least likely to be plagued by conflicts of interest that impair the ability of the enterprise to function. As alternative considerations like environmental sustainability or diversity and inclusion become more important to at least some investors, political divisions will inevitably emerge, increasing the conflicts among stockholders. These developments will tend to degrade the efficiency of widely-held stockholder-owned firms, thereby increasing the relative efficiency of alternative ownership structures, such as private, workerowned, producer-owned, or consumer-owned enterprise. As such, while the triumph of woke capital need not imperil free enterprise as such, it may herald a sharp decline in the kind of financial capitalism that has dominated large-scale business for over a century

Red Codes, Blue Codes? Factors Influencing the Formulation of Criminal Law Rules

The U.S. appears to be increasingly politically divided between “red states” and “blue states,” to the point that many public voices on both sides are urging that the country seriously consider separating along a red-blue divide. A range of stark public disagreements over criminal law issues have fed the secession movement. Consider obvious examples such as abortion, decriminalization of marijuana, “stand your ground” statutes, the death penalty, and concealed weapon carry laws. Are red and blue values so fundamentally different that we ought to recognize a reality in which there exists red codes and blue codes? To answer that question, this Article examined the criminal codes of the six largest deep red states and the six largest deep blue states – states in which a single political party has held the governorship and control of both legislative bodies for at least the past three elections. It then identified 93 legal issues on which there appeared to be meaningful difference among the 12 states’ criminal law rules. An analysis of the patterns of agreement and disagreement among the 12 states was striking. Of the many thousands of issues that must be settled in drafting a criminal code, only a handful – that sliver of criminal law issues that became matters of public political debate, such as those noted above – show a clear red-blue pattern of difference. If not red-blue, then, what does explain the patterns of disagreement among the 12 states on the 93 criminal law issues? What factors have greater influence on the formulation of criminal law rules than the red-blue divide? The Article examines a range of possible influences, giving specific examples that illustrate the operation of each: state characteristics, such as population; state criminal justice characteristics, such as crime rates; model codes, such as the ALI’s Model Penal Code; national headline events, such as the attempted assassination of President Reagan; local headline cases that over time grow into national movements, such as Tracy Thurman and domestic violence; local headline cases that produced only a local state effect; the effect of legislation passed by a neighboring state; and legislation as a response to judicial interpretation or invalidation. In other words, not only is the red-blue divide of little effect for the vast bulk of criminal law, but the factors that do have effect are numerous and varied. The U.S. does not in fact have red codes and blue codes. More importantly, the dynamics of criminal law formulation suggest that distinctive red codes and blue codes are never likely to exist because the formulation of most criminal law rules are the product of a complex collection of influences apart from red-blue partisanship

To Block or Not to Block: The State Action Problem with Government Social Media

Social media has provided an unprecedented level of constituent access to their government representatives. While this comes with many benefits to both constituents and representatives, there are many drawbacks to it as well. There are times when comments from a particularly angry or annoying constituent may tempt a government official to hit the block button. But such action has obvious First Amendment implications. At the same time, officials are still private individuals who have their own private right and ability to speak on government matters without implicating state action. The Supreme Court has accepted certiorari in two cases to resolve an alleged circuit split on this issue. But the idea that there are two competing views and tests to evaluate misses the full picture. While the Circuits have articulated different vocabulary, they are all truly examining the same criteria. In this Comment, I will examine how the cases presented before each circuit will have the same result regardless of which articulation of the test is utilized

Major Questions about International Agreements

The Supreme Court’s recent expansion of the major questions doctrine has rocked administrative law, throwing into doubt executive agencies’ statutory authority for numerous regulations. Some Justices have suggested that they want to go further and reinvigorate the nondelegation doctrine as a constitutional limit on Congress’s authority to delegate power to the executive branch. This Article is the first to consider how these developments might put at risk the United States’ international commitments. The Article first identifies the role of congressional delegations to the executive branch with respect to the formation and implementation of ex ante congressional– executive agreements, executive agreements pursuant to treaties, sole executive agreements, and nonbinding agreements. It then explains how the Supreme Court’s recent decisions might spark challenges to the agreements themselves or to the executive’s authority to implement them. Turning from the diagnostic to the prescriptive, the Article takes the Supreme Court’s recent cases as a given (problematic though they are) and argues that delegations involving international agreements differ from purely domestically focused delegations in material ways that counsel against applying the major questions doctrine or nondelegation doctrines to them. In particular, the existence of foreign state counterparties with whom the executive must negotiate means that Congress cannot simply direct the executive branch on international agreements with the same specificity that it can in domestically focused legislation. Moreover, declaring an existing international agreement or its implementing legislation invalid based on a domestic statutory interpretation doctrine risks causing the United States to violate international law, as well as harming its reputation as a reliable agreement partner. Treating international agreement-related delegations identically to domestically focused ones would also run counter to long-standing historical gloss from the Supreme Court itself that treats foreign-relations-related issues in exceptional ways. After arguing against using the major questions and nondelegation doctrines to police delegations related to international agreements, the Article proposes steps that the courts, Congress, and the executive branch can each take to ensure that existing and future international agreements are well-grounded in constitutional and statutory law

Adventure Capital

This symposium Article traces the history and rise of venture capital and venture-backed startups in the United States from a business law perspective and explores the current big questions in the field. This examination highlights that after lawmakers shaped the enabling environment for venture capital to flourish, corporate and securities law has responded to the rise of venture-backed startups incrementally but with profound effect. Although business law has not always fit easily with the distinctive features of venture backed startups, it has provided an enormous space in the private realm for them to order their governance and maneuver with relative freedom. This private realm is a good fit for the needs of startups that drive economic growth and innovation, but their activity can also create lingering issues of social costs and policy that are difficult to address. Grappling with this reality is essential to continuing to foster a vibrant venture capital ecosystem while also developing a coherent business law response to the current wild era of “adventure capital.

Grid Reliability in the Electric Era

The United States has delegated the weighty responsibility of keeping the lights on to a self-regulatory organization called the North American Electric Reliability Corporation (NERC). Despite the fact that NERC is one of the largest and most important examples of industry-led governance—and regulates in an area that is central to our economy and basic human survival—this unusual institution has received scant attention from policymakers and scholars. Such attention is overdue. To achieve deep decarbonization, the United States must enter a new “electric era,” transitioning many sectors to run on electricity while also transforming the electricity system itself to run largely on clean but intermittent renewable resources. These new resources demand new approaches to electric grid reliability—approaches that the NERC model of reliability governance may inadequately deliver. This Article traces NERC’s history, situates NERC in ongoing debates about climate change and grid reliability, and assesses the viability of reliability self-regulation in the coming electric era. It may have made sense to delegate the task of maintaining U.S. electric grid reliability to a self-regulatory organization in prior decades, when regulated monopolies managed nearly every segment of electricity production. But many of the criteria that NERC used to justify self-regulation earlier in its history—electric utilities’ expertise, widespread agreement about the organization’s goals, and an industry structure in which regulated parties’ interests align with the public’s—no longer hold. The climate crisis creates a need for expertise beyond NERC’s domain, while the introduction of competition to large parts of the electricity sector blurs lines of accountability for reliability failures. NERC’s structure also perpetuates an incumbency bias at odds with public goals for the energy transition. These shifting conditions have caused NERC to fail to keep pace with the reliability challenges of the electric era. Worse still, outdated NERC standards often help entrench fossil fuel interests by justifying electricity market rules poorly suited to accommodate renewable resources. We therefore suggest a suite of reforms that would increase direct government oversight and accountability in electricity reliability regulation

The Surprising Culprit Behind Declining US Antitrust Enforcement

In contrast to a recent paper that argues the decline in antitrust enforcement over recent decades is due largely to the political influence of big business, Herbert Hovenkamp argues that small businesses and trade associations have historically had more influence over antitrust policy, often lobbying for less competition and higher prices