The CTS Gambit: Stanching the Federalization of Corporate Law

This Article sets out a federalism perspective on CTS and explores the wisdom of the Court\u27s federalism gambit, comparing the current incorporation- based antitakeover regime with the likely product of a federal response. Part I considers the regulatory, market, and political landscape of corporate law and state antitakeover statutes. It explores the facilitative nature of state corporate law and its unique federalism implications, of which the relevant federal and state players have been acutely aware. Part II summarizes the CTS preemption and dormant commerce clause analysis, highlighting the Court\u27s analytical and doctrinal foibles. It criticizes the Court\u27s refusal to inquire meaningfully into the Indiana statute\u27s political genesis or its effects, which the Court downplays in its preemption analysis and virtually disregards under the dormant commerce clause. This part asserts that CTS constitutionalizes the internal affairs doctrine-the state choice of law rule that the manager-shareholder relationship is governed by the law of the chartering state-and considers the extent to which the Court reserves a federalism gatekeeping role. Part III considers and rejects a variety of suggested hypotheses that explain CTS\u27s blindness and its curious doctrinal results. In addition to exploring how the Court sought to preserve incorporation-based private ordering of corporate governance, it discusses the Court\u27s attempts to minimize the possibility of any federal response. Part IV summarizes the current state of corporate federalism, in particular the response following CTS by the relevant players. It reaches some conclusions about the legality of the current and evolving antitakeover regime, conclusions that readily flow from a federalism perspective of CTS. Part V evaluates the forces that constrain antitakeover statutes at the state level and considers the wisdom of CTS, comparing the corporate political economy at the federal and state levels. It concludes that far more forces than recognized constrain state antitakeover statutes-for example, the threat of federal intervention (always looming in the wings) and the rhetoric of populism. It then considers the political stalemate that broad-based representation at the federal level has produced and, in the face of congressional paralysis, the Court\u27s role as a catalyst for ensuring a legitimate federalism

ESSAY: Corporate Triplespeak: Responses by Investor-Owned Utilities to the EPA’s Proposed Clean Power Plan

During the year following the EPA’s proposed Clean Power Plan to regulate CO2 emissions in the power sector, the largest investor-owned electric utilities engaged in a curious triplespeak. Employing the moral language of political conservatives, the utilities focused on whether and how the EPA had transgressed its “traditional” regulatory role, thus altering the “structure” of energy federalism and potentially “degrading” orderly power supplies. In disclosure filings with the Securities and Exchange Commission, the utilities used the moral language of political libertarians, focusing on the “financial risks” that federal government “intervention” poses to efficient power “markets” and to the “freedom” of utilities to match energy supplies and customer demand. Meanwhile, in their Corporate Social Responsibility reports, the utilities used the moral language of political progressives. In many instances the same utility company took all of these seemingly inconsistent stances at about the same time. In some respects this triplespeak is unremarkable. Investors tend to believe in free markets and are more libertarian; regulators tend to believe in the status quo and are more conservative; and the socially-responsible public is more concerned about consumer welfare and environmental damage and is more progressive. But these explanations are incomplete. This essay suggests an answer: the utilities engaged in triplespeak as an adaptive measure. Faced with unprecedented business, regulatory, and technological change—not to mention the changes to climate wrought by carbon-generated electricity—the utilities used triplespeak as a way to begin a process of self-transformation. The utilities’ different moral takes on the EPA proposal—each a moral mutation—prepare the industry to respond to an uncertain, volatile future. Whether the power sector’s future is market-based, regulation-dependent, or ecology-driven (or even, and more likely, a combination of these forces), the large utilities responded to the EPA’s proposal by honing their vocabulary to explain their moral choices—whatever they might be

Mutual Fund Performance Advertising: Inherently and Materially Misleading?

Mutual fund companies routinely advertise the pastreturns of their strong-performing, actively-managedequity funds. These performance advertisements implythat the advertised high past returns are likely tocontinue. Indeed, investors flock to these funds despitehigh past returns being a poor predictor of high futurereturns. Thus, fund performance advertising is inherentlyand materially misleading and violates federal securitiesantifraud standards. In addition, the SEC-mandatedwarning in these advertisements that past performancedoes not guarantee future results fails to temper investors\u27focus on past returns.The SEC should do more to prevent investors from beingmisled by fund performance advertisements. It should atleast require a stronger warning that makes clear thathigh returns by actively-managed mutual funds generallydo not persist. The SEC should also seriously considerreinstating its prior prohibition of performanceadvertisements. Such a ban would help investors focus onmore important fund characteristics,such a fund\u27s costs,risk, and the extent to which the fund\u27s investmentobjective matches that of the investor

Full of Questions and Wonder: Roberta Karmel\u27s Legacy

Roberta Karmel has been perhaps the keenest observer and commentator on the securities industry and its regulation for the past five decades. Her observations about securities regulation—during the SEC’s precocious adolescence and into its young adulthood—have framed the academic inquiry of all of us who have written on the subject during this period. But more valuable to us than her observations have been her questions, full of wonder and penetrating insight. We securities academics, the enterprise of securities regulation, and especially market capitalism, all owe an enormous debt of gratitude to Professor Karmel