Directors' independence at controlled companies is an intriguing corporate governance conundrum. Recently, Bebchuk and Hamdani have shed new light on it by providing an analytical framework which seeks to make independent directors more effective in performing their oversight role. They convincingly argue that some independent directors should be accountable to public investors who, in order to achieve this aim, should have the power to influence the election or retention of several "enhanced-independence" directors. Starting from this persuasive outcome, and adopting a comparative and functional analysis, this Article will further extend the Bebchuk and Hamdani framework in several directions, with the aim of rendering it more effective and adaptable to different jurisdictions around the world. First, reliance only on the initiative of activist hedge funds might raise some concerns with regard to the effectiveness of enhanced-independence directors as monitors as well as to the cohesiveness of the board. This Article will therefore argue that the involvement of non-activist institutional investors in the selection and election of enhanced-independence directors should be enhanced. It will further argue that the refinement of the election and retention process for independent directors might not be enough in order to tangibly enhance their independence, as the "human nature" of corporate boards must be taken into consideration as well. Pursuing this line of thought, it will develop an in-depth analysis of strategies available in order to limit the distorting effects of the board’s relational dimension and to induce enhanced-independence directors to perform their oversight role in a truly independent way.
{"title":"How to Enhance Directors’ Independence at Controlled Companies","authors":"G. Strampelli","doi":"10.2139/SSRN.3257432","DOIUrl":"https://doi.org/10.2139/SSRN.3257432","url":null,"abstract":"Directors' independence at controlled companies is an intriguing corporate governance conundrum. Recently, Bebchuk and Hamdani have shed new light on it by providing an analytical framework which seeks to make independent directors more effective in performing their oversight role. They convincingly argue that some independent directors should be accountable to public investors who, in order to achieve this aim, should have the power to influence the election or retention of several \"enhanced-independence\" directors. Starting from this persuasive outcome, and adopting a comparative and functional analysis, this Article will further extend the Bebchuk and Hamdani framework in several directions, with the aim of rendering it more effective and adaptable to different jurisdictions around the world. First, reliance only on the initiative of activist hedge funds might raise some concerns with regard to the effectiveness of enhanced-independence directors as monitors as well as to the cohesiveness of the board. This Article will therefore argue that the involvement of non-activist institutional investors in the selection and election of enhanced-independence directors should be enhanced. It will further argue that the refinement of the election and retention process for independent directors might not be enough in order to tangibly enhance their independence, as the \"human nature\" of corporate boards must be taken into consideration as well. Pursuing this line of thought, it will develop an in-depth analysis of strategies available in order to limit the distorting effects of the board’s relational dimension and to induce enhanced-independence directors to perform their oversight role in a truly independent way.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"44 1","pages":"103-150"},"PeriodicalIF":0.0,"publicationDate":"2018-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.3257432","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43502370","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article connects the Supreme Court’s decision in Burwell v. Hobby Lobby to the history of “corporate paternalism.” It details the history of employer efforts to restrict the freedom of employees, and legislative attempts to ensure worker freedom. It also highlights the role of employment in healthcare coverage, and situates the Affordable Care Act’s “minimum essential guarantees” in a historical and global context. The article also discusses how Hobby Lobby combines with the Supreme Court’s earlier decisions in Citizens United and National Federation of Independent Business v. Sebelius to constrain the government’s ability to extend the social safety net, and shows how those decisions put pressure on corporate law itself.
这篇文章将最高法院在Burwell v. Hobby Lobby一案中的判决与“企业家长式作风”的历史联系起来。它详细介绍了雇主努力限制雇员自由的历史，以及立法努力确保工人自由的历史。它还强调了就业在医疗保险中的作用，并将《平价医疗法案》的“最低基本保障”置于历史和全球背景下。这篇文章还讨论了Hobby Lobby如何与最高法院早期在“联合公民”和“全国独立企业联合会诉西贝利厄斯案”中做出的裁决相结合，限制政府扩大社会保障网络的能力，并展示了这些裁决如何对公司法本身施加压力。
{"title":"A Job Is Not a Hobby: The Judicial Revival of Corporate Paternalism and Its Problematic Implications","authors":"L. Strine","doi":"10.2139/SSRN.2555816","DOIUrl":"https://doi.org/10.2139/SSRN.2555816","url":null,"abstract":"This article connects the Supreme Court’s decision in Burwell v. Hobby Lobby to the history of “corporate paternalism.” It details the history of employer efforts to restrict the freedom of employees, and legislative attempts to ensure worker freedom. It also highlights the role of employment in healthcare coverage, and situates the Affordable Care Act’s “minimum essential guarantees” in a historical and global context. The article also discusses how Hobby Lobby combines with the Supreme Court’s earlier decisions in Citizens United and National Federation of Independent Business v. Sebelius to constrain the government’s ability to extend the social safety net, and shows how those decisions put pressure on corporate law itself.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"41 1","pages":"71"},"PeriodicalIF":0.0,"publicationDate":"2015-09-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68201574","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Following the contraction in demand for law firms’ services during the Great Recession, “Big Law” was widely diagnosed as suffering from several maladies that would spell its ultimate demise, including excessive fees, excessive size, increased competition from in-house counsel, the commoditization of legal work, and the decline in demand for “relationship firms.” While each of these market pressures is only too real for certain segments of the law-firm population, their threat to the most elite U.S. law firms has been largely misunderstood. Even as many firms reduce their fees and contract in size, we should expect certain firms to continue to charge more and grow bigger. The current prescriptions for fixing Big Law fail to recognize that the top-tier firms within the group serve a unique market function. Focusing on a particular type of legal work – major corporate transactions – this Article proposes a novel theory of the value created by elite law firms: their private information about “market” deal terms, acquired through repeated exposure to the same types of transactions, provides clients with a significant bargaining advantage in deal negotiations. By aggregating expertise in the ever-changing and ever-increasing set of deal terms for certain transactions, law firms help their clients price such terms more accurately and thereby maximize their surplus from the deal. This pricing function – traditionally thought to be limited to investment banks – is one that cannot be replicated or subsumed by in-house counsel, other service providers, or commoditized contracts.
{"title":"Law Firm Selection and the Value of Transactional Lawyering","authors":"Elisabeth de Fontenay","doi":"10.2139/ssrn.2642299","DOIUrl":"https://doi.org/10.2139/ssrn.2642299","url":null,"abstract":"Following the contraction in demand for law firms’ services during the Great Recession, “Big Law” was widely diagnosed as suffering from several maladies that would spell its ultimate demise, including excessive fees, excessive size, increased competition from in-house counsel, the commoditization of legal work, and the decline in demand for “relationship firms.” While each of these market pressures is only too real for certain segments of the law-firm population, their threat to the most elite U.S. law firms has been largely misunderstood. Even as many firms reduce their fees and contract in size, we should expect certain firms to continue to charge more and grow bigger. The current prescriptions for fixing Big Law fail to recognize that the top-tier firms within the group serve a unique market function. Focusing on a particular type of legal work – major corporate transactions – this Article proposes a novel theory of the value created by elite law firms: their private information about “market” deal terms, acquired through repeated exposure to the same types of transactions, provides clients with a significant bargaining advantage in deal negotiations. By aggregating expertise in the ever-changing and ever-increasing set of deal terms for certain transactions, law firms help their clients price such terms more accurately and thereby maximize their surplus from the deal. This pricing function – traditionally thought to be limited to investment banks – is one that cannot be replicated or subsumed by in-house counsel, other service providers, or commoditized contracts.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2015-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68237063","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In setting the pay of their CEOs, boards invariably reference the pay of the executives at other enterprises in similar industries and of similar size and complexity. In what is described as “competitive benchmarking”, compensation levels are generally targeted to either the 50th, 75th, or 90th percentile. This process is alleged to provide an effective gauge of “market wages” which are necessary for executive retention. As we will describe, this conception of such a market was created purely by happenstance and based upon flawed assumptions, particularly the easy transferability of executive talent. Because of its uniform application across companies, the effects of structural flaws in its design significantly affect the level of executive compensation. It has been observed in both the academic and professional communities that the practice of targeting the pay of executives to median or higher levels of the competitive benchmark will naturally create an upward bias and movement in total compensation amounts. Whether this escalation has been dramatic or merely incremental, the compounded effect has been to create a significant disparity between the pay of CEOs and what is appropriate to the companies they run. This is not surprising. By basing pay on primarily external comparisons, a separate regime which was untethered from the actual wage structures of the rest of the organization was established. Over time, these disconnected systems were bound to diverge. The pay of a chief executive officer, however, has a profound effect on the incentive structure throughout the corporate hierarchy. Rising pay thus has costs far greater than the amount actually transferred to the CEOs themselves. To mitigate this, boards must set pay in a manner in which is more consistent with the internal corporate wage structures. An important step in that direction is to diminish the focus on external benchmarking. We argue that: (I) theories of optimal market-based contracting are misguided in that they are predicated upon the chimerical notion of vigorous and competitive markets for transferable executive talent; (II) that even boards comprised of only the most faithful fiduciaries of shareholder interests will fail to reach an agreeable resolution to the compensation conundrum because of the unfounded reliance on the structurally malignant and unnecessary process of peer benchmarking; and, (III) that the solution lies in avoiding the mechanistic and arbitrary application of peer group data in arriving at executive compensation levels. Instead, independent and shareholder-conscious compensation committees must develop internally created standards of pay based on the individual nature of the organization concerned, its particular competitive environment and its internal dynamics.
{"title":"Executive Superstars, Peer Groups and Overcompensation: Cause, Effect and Solution","authors":"Charles m. Elson, Craig K. Ferrere","doi":"10.2139/SSRN.2125979","DOIUrl":"https://doi.org/10.2139/SSRN.2125979","url":null,"abstract":"In setting the pay of their CEOs, boards invariably reference the pay of the executives at other enterprises in similar industries and of similar size and complexity. In what is described as “competitive benchmarking”, compensation levels are generally targeted to either the 50th, 75th, or 90th percentile. This process is alleged to provide an effective gauge of “market wages” which are necessary for executive retention. As we will describe, this conception of such a market was created purely by happenstance and based upon flawed assumptions, particularly the easy transferability of executive talent. Because of its uniform application across companies, the effects of structural flaws in its design significantly affect the level of executive compensation. It has been observed in both the academic and professional communities that the practice of targeting the pay of executives to median or higher levels of the competitive benchmark will naturally create an upward bias and movement in total compensation amounts. Whether this escalation has been dramatic or merely incremental, the compounded effect has been to create a significant disparity between the pay of CEOs and what is appropriate to the companies they run. This is not surprising. By basing pay on primarily external comparisons, a separate regime which was untethered from the actual wage structures of the rest of the organization was established. Over time, these disconnected systems were bound to diverge. The pay of a chief executive officer, however, has a profound effect on the incentive structure throughout the corporate hierarchy. Rising pay thus has costs far greater than the amount actually transferred to the CEOs themselves. To mitigate this, boards must set pay in a manner in which is more consistent with the internal corporate wage structures. An important step in that direction is to diminish the focus on external benchmarking. We argue that: (I) theories of optimal market-based contracting are misguided in that they are predicated upon the chimerical notion of vigorous and competitive markets for transferable executive talent; (II) that even boards comprised of only the most faithful fiduciaries of shareholder interests will fail to reach an agreeable resolution to the compensation conundrum because of the unfounded reliance on the structurally malignant and unnecessary process of peer benchmarking; and, (III) that the solution lies in avoiding the mechanistic and arbitrary application of peer group data in arriving at executive compensation levels. Instead, independent and shareholder-conscious compensation committees must develop internally created standards of pay based on the individual nature of the organization concerned, its particular competitive environment and its internal dynamics.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"38 1","pages":"487"},"PeriodicalIF":0.0,"publicationDate":"2012-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.2125979","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"67927516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The global financial crisis has led to calls for greater corporate accountability and heightened controls over public corporations. As a result, the past year has seen a marked increase in regulatory initiatives that give shareholders a greater voice in corporate affairs. While debate continues to rage in the academy and beyond over the promise and pitfalls of shareholder empowerment, an important undercurrent in the controversy is the potential impact of "shareholder democracy" on corporate stakeholders. This Article urges a vision of the corporation and its purpose that transcends the shareholder-stakeholder divide. Under this "enlightened shareholder value" approach, which has been introduced statutorially in the United Kingdom, attention to corporate stakeholders, including the environment, employees, and local communities, is seen as critical to generating long-term shareholder wealth. This Article observes that a similar paradigm is now being advanced in the U.S. by leading institutional investors who also identify stakeholder interests as key to long-term firm financial performance and effective risk management. It moves beyond prior literature by articulating a statement of the corporate purpose that is consistent with an investor-driven enlightened shareholder value approach and presents normative arguments in its favor. The Article then considers how enlightened shareholder value intersects with existing corporate governance rules in the U.S. context and the extent to which it in fact represents a departure from the standard shareholder wealth maximization norm. In so doing, it offers a response to some of the concerns surrounding corporate stakeholders that have been raised by skeptics of greater shareholder voice.
{"title":"'Enlightened Shareholder Value': Corporate Governance Beyond the Shareholder-Stakeholder Divide","authors":"Harper Ho, E. Virginia","doi":"10.2139/SSRN.1476116","DOIUrl":"https://doi.org/10.2139/SSRN.1476116","url":null,"abstract":"The global financial crisis has led to calls for greater corporate accountability and heightened controls over public corporations. As a result, the past year has seen a marked increase in regulatory initiatives that give shareholders a greater voice in corporate affairs. While debate continues to rage in the academy and beyond over the promise and pitfalls of shareholder empowerment, an important undercurrent in the controversy is the potential impact of \"shareholder democracy\" on corporate stakeholders. This Article urges a vision of the corporation and its purpose that transcends the shareholder-stakeholder divide. Under this \"enlightened shareholder value\" approach, which has been introduced statutorially in the United Kingdom, attention to corporate stakeholders, including the environment, employees, and local communities, is seen as critical to generating long-term shareholder wealth. This Article observes that a similar paradigm is now being advanced in the U.S. by leading institutional investors who also identify stakeholder interests as key to long-term firm financial performance and effective risk management. It moves beyond prior literature by articulating a statement of the corporate purpose that is consistent with an investor-driven enlightened shareholder value approach and presents normative arguments in its favor. The Article then considers how enlightened shareholder value intersects with existing corporate governance rules in the U.S. context and the extent to which it in fact represents a departure from the standard shareholder wealth maximization norm. In so doing, it offers a response to some of the concerns surrounding corporate stakeholders that have been raised by skeptics of greater shareholder voice.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"36 1","pages":"59"},"PeriodicalIF":0.0,"publicationDate":"2010-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.1476116","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68185666","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The usual reaction if one mentions bankruptcy as a mechanism for addressing a financial institution's default is incredulity. Those who favor the rescue of troubled financial institutions, and even those who prefer that their assets be promptly sold to a healthier institution, treat bankruptcy as anathema. Everyone seems to agree that nothing good can come from bankruptcy. Indeed, the Chapter 11 filing by Lehman Brothers has been singled out by many as the primary cause of the severe economic and financial contraction that followed, and proof that bankruptcy is disorderly and ineffective. As a result, ad hoc rescue lending to avoid bankruptcy has been the preferred solution. In this Article, we seek to provide the first careful assessment of the belief that governmental rescues are preferable to bankruptcy. While the interaction of financial firms, systemic risk, and Chapter 11 is complex, our analysis suggests that the widespread belief that bankruptcy should not be used to resolve the distress of financial firms is misguided, and that it has had serious costs in the recent crisis. Although bankruptcy is not always the optimal response to financial distress, it is more effective than is generally realized. In Parts I and II of the Article, we describe the principal problems created by financial distress - debt overhang and creditor runs - and the mechanisms bankruptcy provides for addressing these problems. We then provide historical context in Part III, looking to Drexel Burnham's bankruptcy in 1990 for further lessons about the efficacy of bankruptcy. In Part IV, we turn to firm-specific bailouts, describing this strategy's benefits and the distortions it causes. We then shift our focus back to bankruptcy, considering the (legitimate) concern that it may not adequately counteract systemic risk in Part V, and exploring its treatment of derivatives, one of the chief new habitats of systemic risk, in Part VI. Part VII is a brief conclusion.
{"title":"Bankruptcy or Bailouts","authors":"Kenneth M. Ayotte, D. Skeel","doi":"10.2139/SSRN.1362639","DOIUrl":"https://doi.org/10.2139/SSRN.1362639","url":null,"abstract":"The usual reaction if one mentions bankruptcy as a mechanism for addressing a financial institution's default is incredulity. Those who favor the rescue of troubled financial institutions, and even those who prefer that their assets be promptly sold to a healthier institution, treat bankruptcy as anathema. Everyone seems to agree that nothing good can come from bankruptcy. Indeed, the Chapter 11 filing by Lehman Brothers has been singled out by many as the primary cause of the severe economic and financial contraction that followed, and proof that bankruptcy is disorderly and ineffective. As a result, ad hoc rescue lending to avoid bankruptcy has been the preferred solution. In this Article, we seek to provide the first careful assessment of the belief that governmental rescues are preferable to bankruptcy. While the interaction of financial firms, systemic risk, and Chapter 11 is complex, our analysis suggests that the widespread belief that bankruptcy should not be used to resolve the distress of financial firms is misguided, and that it has had serious costs in the recent crisis. Although bankruptcy is not always the optimal response to financial distress, it is more effective than is generally realized. In Parts I and II of the Article, we describe the principal problems created by financial distress - debt overhang and creditor runs - and the mechanisms bankruptcy provides for addressing these problems. We then provide historical context in Part III, looking to Drexel Burnham's bankruptcy in 1990 for further lessons about the efficacy of bankruptcy. In Part IV, we turn to firm-specific bailouts, describing this strategy's benefits and the distortions it causes. We then shift our focus back to bankruptcy, considering the (legitimate) concern that it may not adequately counteract systemic risk in Part V, and exploring its treatment of derivatives, one of the chief new habitats of systemic risk, in Part VI. Part VII is a brief conclusion.","PeriodicalId":83094,"journal":{"name":"The Journal of corporation law","volume":"35 1","pages":"469"},"PeriodicalIF":0.0,"publicationDate":"2009-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2139/SSRN.1362639","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68169870","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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