Category: Articles

Is a defendant entitled to a new trial when his counsel has repeatedly spouted ugly racial stereotypes and used racial epithets in referring to his clients? Or should a reviewing court require the defendant to show how he was “prejudiced” by that lawyer’s racial antagonism? In June of 2018, Ellis v. Harrison held that unless defense counsel had expressed his racist views to the defendant himself, no conflict will be presumed. The defendant must show both deficient performance and prejudice to establish a Sixth Amendment violation. In January of 2019, the Ninth Circuit granted rehearing en banc.

Countless high-profile abuses of user data by leading technology companies have raised a basic question: should firms that traffic in user data be held legally responsible to their users as “information fiduciaries”? Privacy legislation to impose fiduciary-like duties on data collectors enjoys bipartisan support but faces strong opposition from scholars. First, critics argue that the information-fiduciary concept flies in the face of fundamental corporate law principles that require firms to prioritize shareholder interests over those of consumers. Second, it is said that the overwhelming self-interest of large technology companies makes fiduciary loyalty impossible as a practical matter from the outset.

This Essay finds neither objection convincing. The first objection rests on a mischaracterization of corporate law, which in reality would require compliance with user-regarding fiduciary obligations—the opposite of what critics fear. The second objection fails to convince because fiduciary law has proven itself adaptable enough to survive such challenges in other settings, such as in the asset management industry. The second objection nevertheless reveals a need for greater specificity of the scope and intensity of fiduciary duties that would be imposed under the information fiduciary model. Even so, neither objection plausibly undermines the model.

This Article responds to recent proposals calling for the SEC to adopt a mandatory ESG-disclosure framework. It illustrates how the breadth and vagueness of these proposals obscures the important—and controversial— policy questions that would need to be addressed before the SEC could move forward on the proposals in a principled way. The questions raised include some of the most contested in the field of corporate and securities law, such as the value of interjurisdictional competition for corporate charters, the right way to conceptualize the purpose of the corporation, the proper allocation of managerial power as between the board and shareholders, and the social desirability of fraud-on-the-market class actions.

Fiduciary duties in the vicinity of insolvency form a notoriously murky area where legal space warps. Courts openly acknowledge that it is difficult to identify its boundaries, and the content of these duties is equally uncertain and inconsistent across jurisdictions. This Article expands the theoretical basis for a special legal regime in virtually or liminally insolvent firms. In addition to the conventional rationale of opportunistic risk shifting, lawmakers should be mindful of managers’ tendency to unjustifiably continue failing projects, known as escalation of commitment. Second, this Article addresses the substantive content of a duty to protect creditors, either as in the form of a duty to consider creditors’ interest or as the statutory rule against wrongful (or insolvent, or reckless) trading. Specifically, it argues that when these duties are enlivened at the very edge of the zone of insolvency, the mission of directors should transform from entrepreneurial to custodial and should include a trustee-like duty of caution.

Whistleblowers are not among the actors who populate academic accounts of corporate governance. Nor are whistleblowers visible in formal governance frameworks consisting of legal and non-legal elements that enable a firm to operate, all traceable to a corporation’s charter and bylaws adopted in compliance with the law of the state of incorporation. Within a corporation, whistleblowers may be lower-rank employees, not directors or officers; they may report their perceptions of wrongdoing to others within the corporation or inform governmental or other actors who are externally

What role does corporate law play in holding directors accountable for compliance failures? Until recently, the answer has been “very little.” The prevalent standard for director oversight duties (Caremark duties) was set high, effectively demanding that plaintiffs show scienter without having access to discovery. As a result, derivative actions over directors’ failure of oversight were routinely dismissed at the pleading stage, and many commentators considered Caremark duties largely irrelevant. Yet starting in June 2019, a string of successful Caremark cases have signaled a new era of enhanced oversight duties. This Article contributes to our understanding of the new Caremark era along three dimensions. First, the Article delineates the contours of the shift in Delaware courts’ approach to oversight duties. The courts now increasingly apply the “mission critical compliance” exception to justify enhanced duties, and lower the threshold for receiving information in order to investigate potential failure-of-oversight claims. Second, the Article identifies the drivers of this “new Caremark era,” with special emphasis on the role of a seemingly disparate development in shareholders’ right to information from the company. Shareholders now enjoy much better pre-filing discovery powers, which they can utilize to plead with particularity facts about how the board never even discussed a critical compliance issue, or how they knew about critical problems but chose to ignore them. Armed with these newfound pre-filing investigatory tools, shareholders can overcome what once seemed insuperable pleading hurdles. Finally, the Article evaluates the desirability of the new Caremark era, spotlighting its likely positive effects on information flows inside companies and the ability of the market to discipline corporate misbehavior (better reputational discipline), as well as the ways in which it nicely compensates for the blind spots of other enforcement mechanisms.

Comparative corporate governance has focused either on prevailing differences across legal systems or on spontaneous legal transplants of foreign institutions in response to global competition. This Essay argues that corporate law today is not only a product of the invisible hand of the market but also of the soft (and not-so-soft) hands of international organizations and standard setters. By tracing the emergence of international corporate law (ICL) since the Asian crisis of the late 1990s, it shows how the IMF, the OECD, the World Bank, and the United Nations, among several other international players, have helped shape legal reforms and corporate governance developments around the world. The observed influence of ICL ranges from the impulse for independent directors and the control of related-party transactions to the growth of ESG investment factors and human rights policies.

The rise of ICL responds to interjurisdictional externalities and nationalist bias of domestic regimes that have been largely neglected by prevailing theories, which failed to predict and notice the strong push for international coordination and standard setting in the field. ICL has also gone beyond merely prescribing an Anglo-Saxon model of corporate governance to promote legal innovations that place the United States on the receiving end of international pressure. Legal implants from ICL, rather than legal transplants from a foreign jurisdiction, are an increasingly relevant force behind corporate governance change. While ICL has been influential, its efficacy and normative vision face challenges. The time has come to move beyond an exclusively comparative focus to also scrutinize the potential and limits of corporate lawmaking at the international level.

A 1970 New York Times essay on corporate social responsibility by Milton Friedman is often said to have launched a shareholder-focused reorientation of managerial priorities in corporate America. The essay correspondingly is a primary target of a rapidly growing group of critics of the present shareholder-centric approach to corporate governance. This article argues that it is erroneous to blame (or credit) Milton Friedman for the rise of shareholder primacy in American corporations. In order for Friedman’s views to be as influential as has been assumed, his essay should have constituted a fundamental break from prevailing thinking that changed minds with some alacrity. In fact, what Friedman said on corporate purpose was largely familiar to readers in 1970 and his essay did little to change managerial priorities at that point in time. The shareholder-first mentality that would come to dominate in corporate America would only take hold in the mid-1980s. This occurred due to an unprecedented wave of hostile takeovers rather than anything Friedman said and was sustained by a dramatic shift in favor of incentive-laden executive pay. Correspondingly, the time has come to stop blaming him for America’s shareholder-oriented capitalism.

Ownership is commonly regarded as a powerful tool for environmental protection and an essential solution to the tragedy of the commons. But conventional property analysis downplays the possibility of negative-value property, a category which includes contaminated, depleted, or derelict sites. Owners have little incentive to retain or restore negative-value property and much incentive to alienate it. Although the law formally prohibits the abandonment of real property, avenues remain by which owners may functionally abandon negative-value property, as demonstrated recently by busts in certain coal and oil & gas markets. When negative-value property is abandoned, whether formally or functionally, the rehabilitation of such property typically requires public expenditure—an externality which cuts against property’s general and salutary tendency to internalize spillovers at a low social cost. The existence of negative-value property, as well as its increasing abundance, reveals an underdeveloped aspect of property theory and a pressing need to fortify legal mechanisms that prevent abandonment and enforce owners’ financial responsibility for severely degraded property.