Anti-Primacy: Sharing Power in American Corporations

Prominent theories of corporate governance frequently adopt primacy as an organizing theme. Shareholder primacy is the oldest and most used of this genre. Director primacy has grown dramatically, presenting in at least two distinct versions. A variety of alternatives have followed—primacy for CEOs, employees, creditors. All of these theories can’t be right. This article asserts that none of them are. The alternative developed here is one of shared power among the three actors named in corporations statutes with judges tasked to keep all players in the game. The debunking part of the article demonstrates how the suggested parties lack legal or economic characteristics necessary for primacy. The prescriptive part of the article suggests that we can better understand the multiple uses of primacy if we recognize that law is not prescribing first principles for governance of firms, but rather providing a structure that works given the economic and business environment in place for modern corporations where there is separation of function and efficiencies of managers as a starting point. Thus the familiar statutory language putting all power in the board must be read against the reality of the discontinuous nature of the board (and shareholder) involvement in governance. Corporate governance documents of the largest American corporations, as discussed in the article, are consistent with this reality, assigning management to officers and using verbs like oversee, review and counsel as the director functions. The last part examines dispute resolution and the role of judges in such a world, with a particular focus on the shareholder/director boundary. At this boundary there are two distinct judicial roles, the traditional role focusing on use of fiduciary duty to check conflict and other director incapacity and the less-recognized role of protecting shareholder self-help. In this more modern context shareholders, because of market and economic developments, are able to effectively participate in governance in a way that wasn’t practical three decades ago, when the key Delaware legal doctrines were taking root. What is particularly interesting here is how courts, commentators and institutional investors act in a way that is consistent with a shared approach to power, as opposed to the primacy of any of the theories initially suggested

The Case for Iterative Statutory Reform: Appraisal and the Model Business Corporation Act

Appraisal may be the Model Business Corporation Act\u27s (MBCA) most distinctive and creative corporate law product in its sixty year history. Through a series of changes, beginning in the late 1970s and early 1980s, and continuing through revisions in 1999 and 2006, the MBCA has shown the value that can come from an ongoing revision process of corporate law. Thompson examines the challenges that have long plagued appraisal statutes, and then evaluating the product that has resulted from the MBCA approach

Preemption and Federalism in Corporate Governance: Protecting Shareholder Rights to Vote, Sell, and Sue

Thompson examines the changed roles of the state and federal governments since the enactment of the Securities Litigation Uniform Standards Act of 1998. He notes that these changes have created a greater dependence on federal law, a greater emphasis on the voting function of shareholders, and the likelihood of additional argument over traditional corporate issues

IPOs and the Slow Death of Section 5

Since its enactment, Section 5 of the Securities Act of 1933 has restricted sales-based communications with investors, but that effort is nearly dead even with respect to the most sensitive of offerings, the IPO. Our paper traces that devolution, which began almost as soon as the ’33 Act came into existence, though the SEC’s 2005 deregulatory reforms and Congress’ intervention in the JOBS Act of 2012. We show how much of this related to an embrace of “book-building” as the industry’s preferred method of price discovery, which requires private two-way communications between underwriters and potential sophisticated investors. But book-building (and the predictable IPO underpricing that results) has a retail dimension as well, and we point to ways in which the otherwise sensible deregulation may enable an over-stimulation of retail investor demand. We then explore two main justifications that have been given for the aggressive deregulation. The first is that any loss in prophylactic protection can be made up for by the threat of liability, particularly with an enhanced Section 12(a)(2). We find this unpersuasive for a variety of reasons. The other—amply visible in the long history of Section 5—is a faith in the “filtration” process, that retail investors gain protection because of the availability of the preliminary prospectus during the waiting period, to those involved in the selling process if not the investors themselves. Putting aside the biased incentives that affect filtration, much of what is most important—and conveyed privately to the institutions in the course of book-building—is forward-looking information that probably need not appear in the formal disclosure, whether preliminary or final. None of this is an argument for returning to the old prophylactics of Section 5. But it is cause for the SEC and FINRA to pay close attention to the retail investor effects of the IPO selling practices, especially in the post-JOBS Act era

“Publicness” in Contemporary Securities Regulation after the JOBS Act

The JOBS Act of 2012 reflects the largest deregulatory change to the Securities Exchange Act of 1934 over its more than 75 year history. It contracts the coverage of those companies subject to the obligations of ‘publicness” and it introduces an “on ramp” that will permit most newly-public companies to meet a lesser set of disclosure, internal control and governance obligations for up to five years. We set these changes against a larger discussion of when a private enterprise should be forced to take on public status in securities regulation, a topic that has been entirely under theorized. We conclude that the change from 500 to 2000 shareholders of record made by the JOBS Act, while entirely clear in its deregulatory thrust, misses a key point: “record” ownership is an antiquated metric for any measuring of publicness and Congress needs to find a better one, such as public trading. More broadly, we observe that Congress increasingly has defined public obligations in securities regulation less by the traditional touchstone of investor protection and more by ways that our largest companies affect constituencies beyond their investor base. Our boundary-setting thus should include two tiers of public companies with the smaller tier limited to core disclosure and governance obligations. Finally, our review of these boundary questions reveals a larger pattern that ought to inform how we understand securities regulation. Entrepreneurs and their advisors regularly occupy new unregulated space created in the wake of technological change or by gaps in regulation revealed as markets evolve. Government response, seemingly inevitably, is piecemeal and reactive. The result is a regulatory process that is more informal than administrative law theory usually suggests and more opaque than we might want in contemplating regulatory change

Land Use Regulation and Access to Amenities: Exploring Spatial Equity Using GIS

Land use regulation in the United States is common practice. For the last century, following the precedent of the City of New York Zoning Ordinance of 1916 and the US Supreme Court ruling in Village of Euclid, Ohio v. Ambler Realty which legitimized zoning as an appropriate and effective tool for land use regulation, most municipalities have adopted zoning as a tool for regulating land use (Levy, 2012). Municipalities use zoning to preserve the character of communities, protect residences against undesirable land uses, and guard against land use incompatibility; thus, zoning is largely seen as leaving a positive impact on the community as a whole (Sussna, 1961; Shlay and Rossi, 1981; Levy, 2012). However, critics note that there are often unintended consequences of land use management and separating residential areas from commercial and industrial areas: excessive land use separation, dependence on automobiles, separation of peoples, and an uneven distribution of resources, services, and amenities may result (Fischel, 1978; Shlay and Rossi, 1981; Pogodzinski and Sass, 1990; Clingermayer, 1993; Fernandez and Rogerson, 1997; Conley and Dix, 2004)

Corporate Dissolution and Shareholders\u27 Reasonable Expectations

Within the last decade the highest appellate courts in a half dozen states have adopted the reasonable expectations standard as the basis for determining whether involuntary dissolution, a court-ordered buyout of a shareholder, or some other relief is appropriate in a corporation wracked with dissension. Lower appellate courts in other states have also adopted this approach, and two states include a reasonable expectation standard in their statutes. This article analyzes the historical development of the reasonable expectations standard and the implications for its continued use in resolving conflicts within corporations