Yearly Archives: 2008

Board of Directors’ Responsiveness to Shareholders

Posted by Fabrizio Ferri, Columbia University, on
Friday, July 25, 2008
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This post is from Fabrizio Ferri of Columbia University.

In a recent working paper entitled Board of Directors’ Responsiveness to Shareholders: Evidence from Shareholder Proposals, Yonca Ertimur, Stephen Stubben and I investigate the frequency, determinants and consequences of boards’ responses to advisory shareholder proposals. Our sample consists of 620 non-binding, MV shareholder proposals between 1997 and 2004.

In recent years, there has been a significant increase in shareholder activism through shareholder proposals submitted for a vote at the annual meeting. Proposals pushing for the adoption or removal of certain governance features (e.g. classified boards, poison pills) are filed by activists in record numbers every year and, in spite of boards’ opposition, sometimes they win a majority vote. Boards face a tough decision. While shareholder votes on these proposals are advisory, ignoring them may have negative consequences, particularly if the proposal wins a majority vote. Directors failing to implement majority-vote (MV) proposals are often the target of “vote-no” campaigns and receive a “withhold vote” recommendation by ISS. Firms ignoring MV proposals end up on CalPERS’ “focus list”, receive lower ratings from governance services and attract negative press coverage. On the other hand, if boards truly believe the proposal is not in the interest of the company, they should not adopt it, in spite of the majority support by shareholders.

We find that, while proposals failing to achieve a majority vote are almost always ignored by the boards, about 30% of the MV proposals are implemented within a year from the vote. Strikingly, the frequency of implementation of MV proposals has almost doubled after 2002, from approximately 20% (1997-2002) to more than 40% (2003-2004), consistent with an increase in the cost of ignoring MV resolutions in the post-Enron environment. The likelihood of implementation seems to depend on the degree of shareholder pressure – in particular, the voting outcome and the influence of the proponent. For example, a MV proposal supported by 70% of the votes cast has a 10% higher chance of implementation than one supported by 55% of the votes cast. The behavior of peer firms and the type of proposals also have an effect, while traditional governance indicators do not seem to matter.

We then focus on the labor market for outside directors to evaluate the consequences of the implementation decision. We find that the implementation of a MV shareholder proposal is associated with approximately a one-fifth reduction in the probability of director turnover at the targeted firm. In addition, implementing a MV proposal is associated with approximately a one-fifth reduction in the probability of losing directorships held in other firms. These “rewards” for responding to MV proposals are higher when the proposal was supported by a higher percentage of votes. If the labor market for directors correctly reflects the quality of their performance, then the presence of reputation rewards (penalties) for responsive (unresponsive) directors may suggest that, on average at least, MV shareholder proposals are viewed as beneficial.

The full paper is available for download here.

Delaware Bankruptcy Court Expounds on Directors’ Duties in Financially Distressed Situations

Posted by John F. Olson, Gibson, Dunn & Crutcher LLP and Georgetown Law Center, on
Thursday, July 24, 2008
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This post is based on a memorandum issued by John F. Olson’s firm, Gibson, Dunn & Crutcher LLP.This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The United States Bankruptcy Court for the District of Delaware recently issued a memorandum opinion in which it refused to dismiss breach of fiduciary duty claims against corporate directors who approved the sale of a financially distressed company’s assets on the eve of bankruptcy.[1] The Court’s opinion sheds light on directors’ duties, and what they can and should do to protect themselves from liability, in such situations.

In Bridgeport, a bankruptcy liquidating trust filed a complaint against the officers and directors of the debtor, traded as “Micro Warehouse,” alleging that they breached their duties to the company, its shareholders and its creditors in connection with a sale of the company’s assets. The complaint alleged that Micro Warehouse began experiencing financial difficulty in 2000. After several years of declining financial performance, in early August 2003, the company concluded that its best option was to execute a sell strategy. At that point, one of the directors called upon an acquaintance at another company, CDW Corporation (“CDW”), to talk about purchasing Micro Warehouse.

In late August 2003, the company formally retained a restructuring advisor and appointed him to the position of Chief Operating Officer. Within 72 hours of commencing work, the restructuring advisor determined to sell the company’s assets. However, instead of hiring an investment bank and commencing a competitive bidding process, the complaint alleged that the restructuring advisor immediately continued the sale process with CDW and reached a handshake deal with CDW on September 2, 2003. During this time, the restructuring advisor made contact with only one other potential acquiror, but provided it with limited due diligence materials. On September 9, 2003, Micro Warehouse sold to CDW a substantial portion of its North American assets. The next day, Micro Warehouse filed for chapter 11 bankruptcy protection.

The liquidating trust sought to recover damages from the officer and director defendants for breaches of the fiduciary duties of loyalty, care and good faith as a result of: (1) failing to put the assets up for sale earlier, (2) failing to hire a restructuring professional earlier in 2003, (3) abdicating all responsibility to the restructuring professional after he was hired, and (4) acquiescing in the decision to sell the assets quickly, immediately before filing a chapter 11 petition, rather than in a court-supervised sale under the Bankruptcy Code.

The complaint made no allegations of self-dealing. As a result, the defendants argued that the breach of duty of loyalty claim must fail. The Court disagreed, pointing out that the Delaware Supreme Court had recently clarified that a claim for breach of loyalty may be premised on a failure to act in good faith. The Court concluded that the liquidating trust had alleged sufficient facts to support a claim that the officer and director defendants breached the duty of loyalty and acted in bad faith by consciously disregarding, or abdicating, their duties to the company. Specifically, the Court said, “the allegations support the claim that the D&O Defendants breached their fiduciary duty of loyalty and failed to act in good faith by abdicating crucial decision-making to [the restructuring advisor], and then failing adequately to monitor his execution of the ‘sell strategy,’ resulting in an abbreviated and uninformed sale process; and approving the sale to CDW for grossly inadequate consideration.”[2]

The defendants argued that the breach of duty of care claim must fail because of the exculpation provision in Micro Warehouse’s certificate of incorporation and the business judgment rule. The Court again disagreed, noting that “‘[w]hen a duty of care breach is not the exclusive claim, a court may not dismiss [the duty of care claim] based upon an exculpatory provision.'”[3] Therefore, because the liquidating trust had alleged facts supporting a claim for breach of the duty of loyalty as well as lack of good faith, the exculpatory provision was not cause to dismiss the duty of care claim.

With respect to the business judgment rule, the Court said that to invoke its protections “‘directors have a duty to inform themselves, prior to making a business decision, of all material information reasonably available to them.'”[4] If directors fail to do so, then a court will scrutinize the challenged transaction under the “entire fairness” standard of review. The complaint had alleged that the director and officer defendants had approved an uninformed fire sale of the company’s assets because they had not hired an investment banker to shop the deal or value the assets, they had not obtained a fairness opinion, and they failed to seek offers from other purchasers. As a result, the defendants lost the protection of the business judgment rule.

Plaintiffs will certainly seize upon the Bridgeport decision to press their claims against the directors and officers of financially distressed companies. In particular, plaintiffs will be sure to allege any facts they can to support the inference that officers and directors abdicated their responsibilities and failed to inform themselves of material facts before making decisions. By doing so, under Bridgeport, plaintiffs will hope to make out claims for breach of the duty of loyalty even in the absence of any self-dealing. In turn, by making out such claims, plaintiffs will argue that exculpatory provisions and the business judgment rule will not act to defeat claims for breach of the duty of care.

To limit such claims, directors and officers of financially distressed companies should:

• assume all actions will be scrutinized and second guessed;

• avoid actions that could cause loss of protection of business judgment rule (e.g., conflicts of interest or conflicting loyalties; insider issues; preferential treatment of certain stakeholders, failing to keep informed);

• act with care after obtaining all necessary information (directors, members and managers can rely in good faith on reports prepared by officers or outside experts);

• obtain adequate professional and expert advice on a timely basis;

• in consultation with the company’s advisors, establish and follow a deliberate decision-making process;

• document the decision-making process;

• disclose all material facts;

• in connection with potential transactions, hire investment bankers, obtain fairness opinions and/or seek offers from potential purchasers;

• do not freeze up–no decision is a decision and will likely lead to an argument that duties were abdicated.

[1] See Bridgeport Holdings Inc. Liquidating Trust v. Boyer (In re Bridgeport Holdings, Inc.), 2008 WL 2235330 (Bankr. D. Del. May 30, 2008).

[2] Id. at *13.

[3] Id. at *16 (quoting Alidina v. Internet.com Corp., 2002 WL 31584292, at * 8 (Del. Ch. Nov. 6, 2002)).

[4] Id. at *17 (quoting Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 367 (Del. 1993)).

 

Delaware’s Compensation

Posted by Michal Barzuza, University of Virginia School of Law, on
Wednesday, July 23, 2008
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This post is from Michal Barzuza of University of Virginia School of Law. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

My article entitled “Delaware’s Compensation,” which was published in the Virginia Law Review, focuses on the compensation that Delaware­ – the state in which most public companies are incorporated – is getting from the firms it attracts. For its corporate law – and related services it offers­ – firms pay Delaware an annual franchise tax. The aggregate collections from this tax amount to approximately 20% of Delaware’s annual revenue. It has long been argued that this compensation provides Delaware with incentives to provide corporate law that maximizes shareholder value.

This article points out that the structure of the tax is not optimally designed to provide Delaware with incentives to maximize shareholder value. Delaware’s franchise tax is not based on firm income, market value, or any other measure of performance, but rather functions much like a lump-sum tax. Nearly half of Delaware’s revenue comes from firms who pay the maximum tax rate. For most of the rest of the firms, Delaware’s franchise tax is based primarily on the number of authorized shares. For a small group of firms, the tax is based on, among other things, their assets. Yet, if the tax increases as a result of an increase in assets, Delaware law allows firms to switch to the authorized shares method.

The current tax does not provide Delaware with incentives to improve corporate governance terms that correlate significantly with firm value – such as staggered boards or liability protection for directors and officers – even if improving them could result in an increase of several percentage points, or hundreds of billions of dollars, to the value of Delaware’s firms. Because its tax is not tied to firm performance, even those corporate law amendments that could increase firm value significantly would not increase the amount of tax per firm that Delaware would generate. And since they may antagonize some managers, resulting in some firms reincorporating outside the state, Delaware could even lose revenue from adopting them.

The paper argues that adding a tax component based on changes to corporate value or income on top of the current tax would improve the current system. It would align Delaware’s incentives with those of shareholders and induce it to offer corporate law that maximizes shareholder value. It could have this effect even if Delaware faces no competition from other states over incorporations and even if shareholders are passive.

The paper also argues that Delaware does not have sufficient incentives to change its franchise tax to a more incentive based compensation for several reasons. First, risk aversion and lack of information make Delaware officials reluctant to make any changes to the structure of its franchise tax. Second, the current tax, even though suboptimal, serves Delaware’s interests by creating a commitment that the state will cater to managers’ needs on an ongoing basis, inducing managers to incorporate in Delaware.

For the longstanding debate over the market for corporate law the analysis suggests that it should not result in a race to the bottom or to the top. While the tax that it charges restrains Delaware from racing to the bottom, it does not push it to the top either, but rather to the middle–to produce corporate law that is superior to that of other states, but that falls short of being optimal.

The full paper is available for download here.

Managerial Ownership Dynamics and Firm Value

Posted by René Stulz, Ohio State University Fisher College of Business, on
Tuesday, July 22, 2008
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This post is from René Stulz of Ohio State University.

In our forthcoming Journal of Financial Economics paper, Managerial Ownership Dynamics and Firm Value, Rüdiger Fahlenbrach and I examine the dynamics of managerial ownership for American firms from 1988 through 2003 and their relation to changes in firm value. We find that the average and median annual change in managerial ownership during that period is negative. Further, we show that a firm that experiences a large change in ownership is substantially more likely to experience a decline in ownership than an increase. High past and concurrent stock returns make it more likely that a firm will experience a large decrease in managerial ownership. In contrast, there is little evidence that low past and concurrent stock returns increase the probability of large increases in managerial ownership. Strikingly, firm characteristics other than stock returns and stock liquidity, such as proxies for information asymmetry, are mostly unrelated to large decreases in managerial ownership driven by sales of shares by insiders.

The widely held view that higher managerial ownership is valuable for shareholders because it aligns the interests of managers better with those of shareholders would make one concerned about the implications of our finding of decreasing ownership for firm value. However, controlling for the determinants of ownership changes, we find no evidence that large decreases in managerial ownership reduce Tobin’s q. In contrast, we show that large increases in managerial ownership can be interpreted, in our experimental design, to cause increases in q. Using insider trading data and a decomposition of changes in managerial ownership, we show further that the positive relation between large increases in managerial ownership and changes in q is driven by increases in shares owned by officers rather than increases in shares owned by directors or changes in the number of shares outstanding.

Our findings suggest the following interpretation. Managers own shares to maximize their welfare subject to constraints and firms start their life with highly concentrated ownership. The highly concentrated ownership of young firms is partly explained by the fact that early in the life of the firm managerial ownership is a cheap form of financing for financially constrained firms. Later in the life of the firm, when the firm is doing well and their reputation has increased, managers start to reduce their stake to diversify. They do so in a way that does not endanger their position or reduce the value of their remaining shares. As a result, sales have little impact on firm value. By buying shares, managers bond themselves to pursuing policies that benefit minority shareholders more – at least as long as their ownership does not become so high that they become safe from removal. Managers buy shares when this bonding effect is valuable to them because it enables the firm to raise funds on better terms and reduces threats to their position. Managers also increase their holdings when the firm is financially constrained and they prevent the firm from becoming more constrained by receiving shares instead of cash.

The full paper is available for download here.

CA, Inc. v. AFSCME Employees Pension Plan

Posted by Robert J. Giuffra, Jr., Sullivan & Cromwell LLP, on
Monday, July 21, 2008
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The author of this post, Robert Giuffra, argued on behalf of CA in the Delaware Supreme Court. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

My firm has recently issued a memorandum on the Delaware Supreme Court’s decision in CA, Inc. v. AFSCME Employees Pension Plan. The Supreme Court’s decision addressed a proposed stockholder bylaw that would have required the Board of Directors of CA, Inc. to reimburse the reasonable expenses incurred by stockholders in conducting successful “short-slate” proxy contests. The Court held that, while the proposed bylaw related to director elections and, thus, was a proper subject for stockholder action under Delaware law, the proposed bylaw “mandates reimbursement of election expenses in circumstances that a proper application of fiduciary principles could preclude” and, thus, if adopted, could cause CA to violate Delaware law.

The Delaware Supreme Court’s decision has numerous implications. It reaffirms the bedrock principle of Delaware corporate law that the directors of a corporation, not the shareholders, manage the business and affairs of the corporation. The decision confirms that shareholder bylaws may not prevent the directors from fulfilling their fiduciary duties. To attempt to address the concerns articulated by the Court with the proposed bylaw, stockholders may attempt to modify their proposed bylaws in ways that leave boards with discretion to discharge their fiduciary duties. In addition, the decision makes clear that bylaws may not “mandate how the board should decide specific substantive business decisions,” but may “define the process and procedures by which those decisions are made.” Where the line will be drawn between those bylaws that mandate substantive decisions and bylaws that are procedural likely will be decided by the Delaware courts on a case-by-case basis in the future. Finally, under the Court’s reasoning, a binding shareholder bylaw proposal to prohibit a board of directors from adopting or implementing a “poison pill” likely would be deemed improper under Delaware law.

Our memorandum is available here.

SEC Bars Naked Short Sales of Major Financial Firms; More is Needed

Posted by Edward D. Herlihy, Wachtell, Lipton, Rosen & Katz, on
Friday, July 18, 2008
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This post is from Edward D. Herlihy, Wachtell, Lipton, Rosen & Katz. SEC Release No. 34-55970 (2007), under which the SEC abolished the “Uptick” rule, is available here. In making its decision, the SEC considered its own economic analysis, available here, and four academic studies, three of which are available here, here and here.

In response to the SEC’s emergency rule, issued Tuesday evening, barring short sales of stock in Fannie Mae, Freddy Mac and seventeen primary dealers, my colleagues Theodore A. Levine, Caitlin S. Hall and I have issued a memorandum entitled “SEC Bars Naked Short Sales of Major Financial Firms; More is Needed.” The emergency rule, which takes force July 21 and will be in effect for thirty days, comes on the heels of a week in which Fannie Mae and Freddie Mac stocks were battered by unsubstantiated rumors. In the memorandum, available here, we urge the SEC to take immediate strong action, including expanding the temporary rule beyond its initial thirty-day period and extending its coverage to all publicly traded securities.

The emergency rule follows the unusual statement on Sunday evening by the SEC that it, FINRA and NYSE Regulation would immediately begin examinations of broker-dealer and investment adviser supervisory and compliance controls, with the goal of stemming the spread of false rumors intended to manipulate security prices. Our memorandum on this development, entitled “SEC Takes First Step to Address Manipulative Rumor-Mongering; More Aggressive Action Still Needed,” is available here.

Although these regulatory developments are commendable, we believe that the SEC should immediately re-impose the “Uptick” Rule, a 70-year-old regulation that constrained short selling in declining markets by requiring that listed securities be sold short only at a price above their last different sale price. In a memorandum on July 1, available here, we discussed the rationale for the Uptick Rule, the Commission’s reasons for abolishing it, and the limitations of the pilot program undertaken by the Commission prior to its decision to abandon the rule. On an urgent basis, we urged the SEC to consider re-imposing the Uptick Rule, or to take alternative measures, in these extraordinary times to dampen volatility and address abusive and manipulative short selling.

Delaware Supreme Court Issues Opinion on Shareholder-adopted Bylaws

Posted by Andrew Tuch, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, July 18, 2008
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The Delaware Supreme Court has issued its opinion in the AFSCME/CA matter. The opinion is available here. We have earlier posted on this important case here, here, and here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

We have received communications from several of our guest contributors.

Ted Mirvis of Wachtell, Lipton, Rosen & Katz writes:

The Delaware Supreme Court much-awaited decision on the AFSCME stockholder bylaw proposal did not disappoint. It is a thoughtful and important treatment of the intersection of stockholder and director authority. The director-centric view won. Here is our memo on the decision.

John F. Olson of Gibson, Dunn & Crutcher LLP offered a different perspective:

While the Delaware Supreme Court’s unanimous opinion, responding to the SEC’s two certified questions, is a clear victory for CA, Inc., and the SEC has already issued the requested no action release, the opinion of the Court provides a road map for different mandatory by-laws dealing with the election of directors that can be adopted by shareholders without offending Delaware law, even if some corporate expense is involved. The key is to leave room for director fiduciary discretion to prevent abuses. Thus, there is something for both sides to cheer about and, in Delaware, the fun has just begun.

J.W. Verret of George Mason University School of Law, who posted with us on the case here, offered the following comments:

For more analysis on this issue, see my essay on SEC Certification to the Delaware Supreme Court here. The verdict is in. First, let’s review the issues. The SEC certified two questions to the Delaware Supreme Court:

1) Is the AFSCME Proposal a proper subject for action by shareholders as a matter of Delaware law?

2) Would the AFSCME Proposal, if adopted, cause CA to violate any Delaware law to which it is subject?

The Court’s ruling is an affirmative answer to both questions. Shareholder proposals like the one at issue in this case are a proper subject of shareholder action, and are not invalid encroachments on Board authority merely because they mandate a payment of money. Yet, as the Court could conceive of a way in which mandated payment could cause the Board to violate its fiduciary duty to the shareholders, the bylaw is illegal under Delaware Corporate Law for lack of a “fiduciary-out” exception.

My prior post, and an analysis from Professor Bainbridge here, describes the recursive loop between DGCL 141 and DGCL 109(a). More commentary from Larry Ribstein, and his compilation of links to other commentators, can be
found here. Rather than avoiding the question, as both counsel invited them to do, the Court faced this paradox head on. Boards and shareholders are both granted the right to amend the bylaws in the DGCL. Shareholder authority to amend bylaws is limited by 141, but the extent of that limitation has been mired in uncertainty. The Court also rejected CA’s argument that any limitations on Board’s authority must be contained in the Certificate of Incorporation.

The Court has given us its first look into the contours of 141’s limit on 109(a). The Court rested in a process/substance distinction outlined in previous Court of Chancery opinions. Bylaws mandating substantive business decisions are impermissible, but bylaws altering the process whereby Boards make decisions are permitted. In analyzing this bylaw, the Court announced “We conclude that the Bylaw, even though infelicitously couched as a substantive-sounding mandate to expend corporate funds, has both the intent and the effect of regulating the process for electing directors of CA.”

As to the second question, the Court held that, because of conceivable circumstances in which the bylaw could require the Board to reimburse insurgents running solely for personal reasons, there are conceivable situations in which the bylaw would require the Board to violate its fiduciary duty. This relied on similar holdings in Quickturn and Paramount v. QVC. The Court was unconvinced that the fact that limitation was shareholder adopted reduced the impact on the board’s ability to discharge its fiduciary duties. (Though including this mandate in the Certificate of Incorporation would be permissible.) The Court relied on its prior holding in Hibbert v. Hollywood Park for the proposition that only reimbursement for contests involving substantive differences about corporation policy are permitted.

Technically this is a loss for AFSCME, but the opinion should be considered a measured victory for the shareholder activist community. A reimbursement bylaw with a fiduciary duty out exception does not eliminate all of the risk associated with funding a proxy campaign. Only proxy access to the corporate ballot can do that. But such a bylaw would significantly reduce the risk associated with funding a proxy campaign. There is a good chance that a Board’s decision to withhold reimbursement through claims that its fiduciary duty requires it would be subject to heightened review under Blasius, since the Court has accepted that this bylaw is intimately connected with the election process and candidate’s incentives to run for election.

FedEx Corporation Agrees to Adopt a Pill-Limiting Bylaw

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Thursday, July 17, 2008
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Editor’s Note: This post is from Lucian Bebchuk of Harvard Law School.

FedEx Corporation became the fourth major company this proxy season to reach an agreement with me under which it adopted a pill-limiting bylaw. Under the new bylaw, any poison pill plan adopted by the board without prior stockholder approval shall expire no later than one year following its adoption if not ratified by a stockholder vote.

The agreement followed my submission of a shareholder proposal to amend FedEx’s bylaws. Following the agreement, the board of FedEx adopted the new bylaw and I withdrew the shareholder proposal. While the bylaw’s limitation on poison pills not approved by stockholders is consistent with Fed Ex’s preexisting policy statement on poison pills, the board’s action incorporates this limitation in the company’s legally binding bylaws.

In addition to Fed Ex, other companies that, following my shareholder proposals, agreed to amend their bylaws to incorporate pill-limiting provisions are JCPenney, Safeway, CVS Caremark, Disney, and Bristol-Myers Squibb. I hope that other public companies will follow the example set by these six companies.

I would like to express my appreciation again to Michael Barry and Ananda Chaudhuri from the law firm of Grant & Eisenhofer for their valuable legal advice and legal representation in connection with my shareholder proposals in general and the pill bylaw proposals in particular. I also wish to thank again Greg Taxin and Julie Gresham of Spotlight Capital Management for advising me on engagement with companies.

The amended bylaws of FedEx, filed yesterday with the SEC, and containing the new Section 13 of Article III, are available here.

Regulatory Show and Tell: Lessons from International Statutory Regimes

Posted by the Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Wednesday, July 16, 2008
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Editor’s Note: The post below comes to us from Jennifer G. Hill of the University of Sydney, Australia, who has a continuing position as Visiting Professor at Vanderbilt Law School.

In Unocal Corp v Mesa Petroleum Co (493 A. 2d 946, 957 (Del SC, 1985), the Delaware Supreme Court stated that “our corporate law is not static. It must grow and develop in response to, indeed in anticipation of, evolving concepts and needs”. Historically, however, this evolution and growth has occurred with only limited and sporadic attention to international corporate governance regimes.

In my recent paper, Regulatory Show and Tell: Lessons from International Statutory Regimes, which was recently presented at a recent Symposium at Widener University to mark the 40th anniversary of major revisions to the Delaware General Corporation Law, I examine reasons for the relative lack of attention in the US to international corporate regimes. One possible reason is the influence of competition for corporate charter theory in the US. Another is the fact that it is often assumed that a standardized Anglo-US model of corporate governance exists, and that US corporate law reflects the law in other common law jurisdictions.

The paper challenges the assumption that there is a harmonized common law model of corporate law, by reference to differences between the approach of the US and some other common law jurisdictions in the topical area of shareholder rights. The paper argues that, at a time when there is growing skepticism about the influence today of the competition for corporate charters, it makes sense for the US to examine and test how international jurisdictions address common problems in corporate regulation. One recent event reflecting growing interest in this regard was the announcement by the SEC in March 2008 that it had entered into a pilot mutual recognition program with Australia in relation to securities market regulation.

The paper is available here.

Harvard’s Contribution to the Year’s Ten Best Corporate Articles

Posted by Andrew Tuch, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, July 15, 2008

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Writings by three Harvard Law School professors — Lucian Bebchuk, Mark Roe, and Guhan Subramanian – were selected to be among the 10 Best Corporate and Securities Articles of 2007 in the annual poll of corporate and securities law faculty around the country. This is a repeat appearance on the top ten list for each of these authors.

Bebchuk’s articles appeared on the top-ten list of the year’s best corporate and securities articles in each of the last six years. The 2007 top ten list included his article The Myth of the Shareholder Franchise. In addition, he had seven articles in the top-ten lists of the preceding five years:

• Letting Shareholders Set the Rules in the 2006 top-ten list;

• The Case for Increasing Shareholder Power in the 2005 top-ten list;

• Firms’ Decisions Where to Incorporate (with Alma Cohen) in the 2004 list;

• Does The Evidence Favor State Competition In Corporate Law? (with Alma Cohen and Allen Ferrell) and The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants (with John Coates and Guhan Subramanian) in the 2003 list; and

• Managerial Power and Rent Extraction in the Design of Executive Compensation (with Jesse Fried and David Walker) and Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy (with John Coates and Guhan Subramanian) in the 2002 list.

Roe’s article in the 2007 top-ten list is Legal Origins, Politics, and Modern Stock Markets. He has three other articles in the top-ten lists of the preceding five years:

• Delaware’s Politics in the 2005 list;

• Delaware’s Competition in the 2003 list; and

• Corporate Law’s Limits in the 2002 list.

Subramanian’s article selected for the 2007 top-ten list is Post-Siliconix Freeze-outs: Theory and Evidence. His prior contributions to the top-ten lists are:

• Fixing Freezeouts in the 2005 list;

• Bargaining in the Shadows of Takeover Defenses and The Disappearing Delaware Effect in the 2004 list;

• The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants (with Lucian Bebchuk and John Coates) in the 2003 list; and

• The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy (with Lucian Bebchuk and John Coates) in the 2002 list.

The full list of the best corporate and securities law articles of 2007 is available here.

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