Does Sarbanes-Oxley Foster the Existence of Ethical Executive Role Models in the Corporation?

If compliance with, or the efficacy of, Sarbanes-Oxley and other corporate governance initiatives requires that executives (or other firm leaders) be good ethical role models, then it is important to ask whether Sarbanes-Oxley - or any other attribute of existing corporate governance regulation - in fact promotes or permits the production or preservation of ethical role models in the executive ranks of public companies. An absence of support for ethical role models in public companies may signal the failure of broad-based federal corporate governance initiatives like Sarbanes-Oxley. This Article assumes that ethical roles models may be important to the maintenance of good corporate governance (in general) and the success of Sarbanes-Oxley as a corporate governance initiative (in specific). With that in mind, the Article preliminarily analyzes, using legal and social sciences literature, whether Sarbanes-Oxley may encourage or discourage the existence of ethical role models in the corporation

The Best of Times, the Worst of Times: Securities Regulation Scholarship and Teaching in the Global Financial Crisis

This short piece is an annotated version of remarks that I gave to introduce a roundtable discussion on securities regulation scholarship at the University of Maryland School of Law program on “Corporate Governance and Securities Law Responses to the Financial Crisis” held on April 17, 2009. The piece represents my current thoughts about what it is like to teach, research, and write in the area of securities regulation. Ultimately, the message I deliver is a positive one; there is much opportunity for securities regulation teachers and scholars in an environment like the one we have been wrestling with since at least the fall of 2008. The text is quite short, but I have offered many citations in support of my ideas in the hope that they may be helpful to those exploring aspects of the areas I cover

What Is a Security in the Crowdfunding Era?

With the advent of the crowdfunding era, financial interests in business enterprises may look less like investment instruments commonly known as common stock or debentures, and more like loans, gambling bets, rights to consumable products or services or charitable or other nonprofit donations. A closer look at innovations in interests, instruments and offerings in the crowdfunding era preceding the enactment of the Jumpstart Our Business Startups Act (JOBS Act) offers a basis for comparisons and contrasts that raises questions about the categorization of instruments regulated as securities. These and other questions are important to a rethinking of the structure of financial and financially related regulation in and outside the realm of U.S. securities law. Specifically, innovations in financial interests and instruments that immediately preceded the JOBS Act raise a number of important questions about regulatory authority and interpretation. How do we classify the instruments that represent complex or hybrid financial interests in business enterprises? What area of regulation should apply to them? Why? What do the answers to those questions tell us, if anything, about the current (and possible future) structure and function of domestic and international financial regulation? This essay preliminarily explores the features of certain financial instruments in an effort to begin to answer these questions by focusing on what a security — a statutory and regulatory category including specific financial instruments — is and should be under federal securities law

Teaching Business Associations Law in the Evolving New Market Economy

Over the past ten years, the doctrinal rules governing business associations have become more complex (with, e.g., the addition of significant federal law on corporate governance and corporate finance and the recent enactment of social enterprise forms of entity). Moreover, a number of us have added experiential learning to the business associations course (or another similarly titled foundational course on business entity law) and have increased the number and types of assessment tools used in our business associations pedagogy. This has made the task of teaching business associations somewhat overwhelming. Law faculty respond to the challenges of teaching introductory business associations courses in many different, valid ways. This essay, originally written as a discussion session paper for the 2012 annual conference of the Southeastern Association of Law Schools, identifies these trends and describes my ways of contending with them. My goal in publishing this work is to offer some help to faculty members interested in developing or revamping a business associations course offering

How Congress Killed Investment Crowdfunding: A Tale of Political Pressure, Hasty Decisions, and Inexpert Judgments that Begs for a Happy Ending

In April 2012, President Obama signed into law the Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act (the “CROWDFUND Act”) as Title III of the Jumpstart Our Business Startups Act. The U.S. Securities and Exchange Commission (“SEC”) was compelled to promulgate enabling regulation to effectuate the CROWDFUND Act. That rulemaking has been slow in coming. During this period of delay, commentators have routinely denounced the postponement and expressed fear that the SEC’s rulemaking would unduly limit investment crowdfunding. This Article demonstrates, however, that it is principally the U.S. Congress that has limited the capacity of the CROWDFUND Act to foster capital formation for small businesses through investment crowdfunding. The provisions of the CROWDFUND Act, as enacted by Congress, create a significant cost structure that is not likely to be outweighed by the benefits of a crowdfunded offering conducted under the Act. Building on earlier work by Professors C. Steven Bradford and Stuart Cohn, this article explains the history and current status of the regulation of investment crowdfunding under the Securities Act of 1933, as amended (the “1933 Act”), identifies and describes reasons for despair about the current regulatory environment, and suggests a way forward. The way forward assumes, without further analysis, that the CROWDFUND Act demonstrates the inevitability — even if not the desirability — of a viable 1933 Act registration exemption for investment crowdfunding

Female Investors and Securities Fraud: Is the Reasonable Investor a Woman?

Let\u27s face it. Women and men are different in more than just the biological sense. These differences play themselves out in a variety of contexts. Some of them are meaningful in theory or in reality; others are not. Given an increase in women\u27s involvement in business and finance, it is unsurprising that a multidisciplinary literature is emerging at the intersection of sex or gender differences and corporate governance. Much of the work in this area has centered on women and boards of directors and women in the executive ranks. However, it is important to focus on women not only as corporate directors and officers, but also as investors in firms. Among other things, the identification and analysis of sex-based or gender-related differences in investment behavior may help explain or predict market phenomena and may illuminate defects or gaps in regulatory frameworks or provisions. For example, the investment attributes of female investors may indicate that women are better or less well protected from changes in firms, laws, or the market than their male investor counterparts. Research along these lines is especially relevant at present in light of ongoing allegations of securities fraud and significant volatility in securities markets. With all of this in mind, this article extends scholarship that questions the existing materiality standard used under Rule 10b-5 (and elsewhere in U.S. securities regulation) and its touchstone notion of the reasonable investor. Specifically, the article asks and answers a seemingly straightforward, yet provocative, question: Is the reasonable investor a woman? The article then explores the potentialsignificance of its key findings - women and men exhibit different investment behaviors and achieve different investment outcomes, and the resulting female investor profile is closer to existing conceptions of the reasonable investor than the resulting male investor profile. As women become bigger players in the securities markets, it may be comforting to know that they are relatively well protected by existing conceptions of the reasonable investor. The knowledge that women are not completely protected by these existing conceptions and that men are less well protected than women under the current reasonable investor paradigm, however, gives us pause and forces us to reconsider inaction. To that end, this article continues an ongoing academic and practical conversation about when changes in investor protection should be undertaken and how those changes are best made if they are to be undertaken - not just for the benefit of women or men, but for the benefit of all underprotected investors

The Last Male Bastion: In Search of a Trojan Horse

Numerous legal scholars and commentators have written about the paucity of women in the boardroom at influence-wielding U.S. public companies. Fewer have written about the scarcity of female Chief Executive Officers, and fewer yet have written about the relatively low numbers of female executive officers, at U.S. public companies. This brief essay (an edited version of my remarks offered at the University of Dayton School of Law’s symposium on Perspectives on Gender and Business Ethics: Women in Corporate Governance ) does not endeavor to add to the collective understanding of observed gender disparities in boardrooms and the C-suite — the senior executive team in the firm. Rather, it urges a different approach to thinking about the issue of gender disparities at the executive-level ranks of U.S. corporations. Specifically, the essay reflects on the ways that different corporate governance theories may inform the way that we frame women’s roles in the corporate executive leadership structure. In short, it suggests that by looking at women as team members rather than as part of a binary relationship within the firm, we may normalize the presence of female executives in U.S. public companies

Corporate Purpose and Litigation Risk in Publicly Held U.S. Benefit Corporations

With the likely prospect of publicly held U.S. benefit corporations in mind, this Article engages in a thought experiment. Specifically, the Article views the publicly held U.S. benefit corporation from the perspective of litigation risk. It first situates, in Part I, the U.S. benefit corporation in its structural and governance context as an incorporated business association. Corporate purpose and the attendant managerial authority, responsibilities, and fiduciary duties are the key points of reference. Then, in Part II, the Article seeks to identify and describe the salient, unique litigation risks that may be associated with publicly held corporations with the structural and governance attributes of a benefit corporation. These include both state litigation under the ultra vires doctrine and similarly situated statutory causes of action, as well as actions for breach of a corporate law fiduciary duty, and federal law causes of action for securities fraud and misstatements. The reflections in Part III draw conclusions from the synthesis of the observations made in Parts I and II. Specifically, Part III links the importance of a publicly held benefit corporation’s public benefit purpose to litigation risk management from several perspectives. The commentary in Part III is intended to be of use to government officials, policymakers, legal advisors of corporations, benefit corporation management, and academic observers, among others