Spring 2020 Workshop Series Schedule

January 27, 2020 (Monday) 4:20 PM - 6:10 PM

Edward Rock

• Martin Lipton Professor of Law, NYU Law School
• Director, Institute for Corporate Governance & Finance

Author: Edward Rock

For Whom is the Corporation Managed in 2020?: The debate over corporate purpose

Abstract

A high profile public debate is taking place over one of the oldest questions in corporate law, namely, “For whom is the corporation managed?”  In addition to legal academics and lawyers, high profile business leaders and business school professors have entered the fray and politicians have offered legislative “fixes” for the “problem of shareholder primacy.”  In this article, I take this debate to be an interesting development in corporate governance and try to understand and explain what is going on.  I argue that, analytically and conceptually, there are four separate questions being asked. First, what is the best theory of the legal form we call “the corporation”?  Second, how should academic finance understand the properties of the legal form when building models or engaging in empirical research?  Third, what are good management strategies for building valuable firms? And, finally, what are the social roles and obligations of large publicly traded firms?  I argue that populist pressures emerging from the financial crisis, combined with political dysfunction, has led to the confusion of these different questions, with regrettable results.

February 10, 2020 (Monday) 4:20 PM - 6:10 PM

Anne Tucker

• Professor of Law, Georgia State College of Law

Authors: Christopher Geczy, Jessica S. Jeffers, David K. Musto, Anne Tucker

Contracts with (Social) Benefits: The Implementation of Impact Investing

Abstract

We draw on new data and theory to examine how private equity contracts adapt to serve multiple goals, particularly the social-benefit goals that impact funds add to their financial goals. Counter to the intuition from multitasking models (Holmstrom and Milgrom 1991), few impact funds tie compensation to impact, and most retain traditional financial incentives. Funds contract on impact in other ways, using a combination of flexible and rigid terms consistent with Hart and Moore (2008). They also prioritize the formal oversight that fuels the braiding dynamic of Gilson, Sabel and Scott (2010). In the cross-section of impact funds, those with higher profit goals contract more tightly around both goals. We propose an explanatory framework where this results from hidden differences between agents’ utilities from impact.

February 24, 2020 (Monday) 4:20 PM - 6:10 PM

Albert Choi

• Professor of Law, University of Michigan Law School

Author: Albert Choi

Deal Protection Devices

Abstract

In mergers and acquisitions transactions, a buyer and a seller will often agree to contractual mechanisms (deal protection devices) to deter third parties from jumping the deal. This paper analyzes two commonly used devices: target termination fees and match rights. A match right gives the buyer a right to “match” a third party’s offer so as to prevent the third party from snatching the target away, while a termination fee allows the buyer to get compensated when a third party acquires the target. Such mechanisms raise a number of important corporate and contract law questions. How effective are they in preventing third parties from competing for the target? Do they steer the target to be sold to the buyer who values the target less? Are the devices harmful to the target shareholders? To what extent can the negotiated deal price represent the target’s “fair value” when such devices reduce or eliminate the competition? The paper attempts to answer these question with the help of auction theory. The paper shows, foremost, that, contrary to the common understanding, these devices can actually increase the target and the buyer’s joint return and possibly the target’s stand-alone return. In particular, the paper shows that an unlimited match right—which puts no limit on how many times the buyer can “match” third parties’ offers—will be more beneficial for the target than a limited match right. The paper argues that answering the corporate law questions ultimately turns on the question of how and why the target directors are utilizing the devices. If the devices are being deployed with the objective of maximizing the target shareholders’ return, not only can they be beneficial for the target shareholders, but their presence can also make the deal price a more reliable indicator of target’s fair value. With an improper objective, not only do the devices undermine target shareholders’ return, but the court also should not use the deal price as evidence of fair value. The paper also examines the devices through the lens of contract law and argues that a large termination fee, rather than an unlimited match right, is more likely to harm competition for the target and should be subject to stronger judicial scrutiny.
 

March 9, 2020 (Monday) 4:20 PM - 6:10 PM Canceled

Brian Broughman

• Professor of Law, Indiana University Maurer School of Law

Author: Brian Broughman

Relational Contracting and Business Norms in Entrepreneurial Finance

Abstract

Contracts between parties who have an on-going relationship often rely on informal norms, rather than formal legal rights, to resolve disputes and reduce transaction costs. Investors financing startup firms, however, may need to look outside of their existing network to find an entrepreneur with an innovative business plan. The search for innovation poses a challenge for relational models of contracting and may limit the effectiveness of social norms in entrepreneurial settings. Recognizing a tension between innovation and social embeddedness, one might expect to see greater use of arms-length contracting, especially when an investor finances an unknown entrepreneur. By contrast, I argue – using examples from angel/VC financing arrangements – that the tension between innovation and social embeddedness is resolved not through arms-length contracting, but rather by bolstering the network position of the unconnected entrepreneur through third-party intermediaries and staged financing. Third-party intermediaries – such as lawyers, board members, managers, scientists, and other entrepreneurs – are able to transform the relationship between the entrepreneur and investor by serving as ‘matchmakers’, ‘chaperones’, and ‘arbitrators’. These mechanisms allow entrepreneurs and investors to commit to informal business norms, even though the parties may have no pre-existing relationship. This study extends the literature in relational contracting and in entrepreneurial finance. Furthermore, my analysis suggests that studies of financial contracts, which focus exclusively on formal terms may overstate the relevance of holdup problems in the allocation of control rights.

March 23, 2020 (Monday) 4:20 PM - 6:10 PM Canceled

Bobby Bartlett

• Faculty Director, Berkeley Center for Law Business and the Economy
• I. Michael Heyman Professor of Law, University of California Berkeley School of Law

April 6, 2020 (Monday) 4:20 PM - 6:10 PM VIA ZOOM

Yonathan Arbel

• Assistant Professor of Law, The University of Alabama Law School

Author: Yonathan Arbel

Payday

Abstract

Legislation lags behind technology all too often. While trillions of dollars are exchanged in online transactions—safely, cheaply, and instantaneously—workers still must wait two weeks to a month to receive payments from their employers. In the modern economy, workers are effectively lending money to their employers, as they wait forearned wages to be paid.

The same worker who taps a credit card to pay for groceries in semi-automated checkout lines depends on dated payroll systems that only transfer payments on a “payday.” Workers, especially those living paycheck-to-paycheck, are hard-pressed to meet their daily needs and turn to expensive, short-term credit—notably, payday lenders. These credit solutions may address a real need, but they also exact a heavy price, often culminating inendless debt spirals. So, why does the payday still exist?

This Article studies various explanations—economic, historical, behavioral, and legal. It concludes that the payday is a software problem, not a hardware problem. The hardware—i.e., money and payroll technology—is here; indeed, gig economy workers in developing countries will often be paid more quickly than an American employee for the same work. What holds us back is our legal software: Dated Eisenhower-era legislation that failed to anticipate technological change. Surprisingly, even pro-worker legislation, such as minimum wage laws,inadvertently encourage the practice.

By revealing the overlooked and dated legal infrastructure that sustains the payday, the Article suggests a path for legal reform. Daily streams of payment to workers are feasible, practical, and far more efficient than most people realize. A focused reform could effectively bring an end to the puzzling and pernicious practice of having workers lend money to their employers while they wait for their payday.

April 20, 2020 (Monday) 4:20 PM - 6:10 PM VIA ZOOM

Florencia Marotta-Wurgler

• Professor of Law, New York University School of Law
• Co-Faculty Director, Birnbaum Women’s Leadership Network
• Faculty Director, NYU Law in Buenos Aires

Authors: Samuel Issacharoff and Florencia Marotta

The Hollowed Out Common Law

Abstract

The electronic marketplace poses novel issues for contract law. Contracts created through browsewrap, clickwrap, and shrinkwrap (contracts whose embedded terms are only available after purchase) poorly fit doctrines that emerged from face-to-face offer and acceptance, the mutual execution of a common set of documents, or the rituals of mass market transactions involving physical fine print. Not surprisingly, these contracts of the new electronic marketplace require doctrinal elaboration.

Our Article asks not about the specific resolution of new doctrinal challenges, but about how the common law of contracts will be elaborated. Specifically, the Article begins with empirical observations about the domain of all electronic and shrinkwrap contract cases and makes four critical findings.

First, we document two shifts: One arises from a steady decline in the number of cases adjudicated in state court relative to federal courts, which by 2015 adjudicate the vast majority of cases in this area. The other stems from a rise in class actions, which is intimately tied to the migration of cases to federal court. The result is that today the vast majority of cases are class actions brought in federal court. The increase in class actions is not surprising given the relatively small stakes of most transactions and the little incentive that creates for individual consumer litigation. We hypothesize that the increased dominance of the federal forum is in part likely a reflection of the federalization of class action law under the Class Action Fairness Act (CAFA).

Second, the consequence of the dominance of the federal forum is that the common law is being elaborated in federal court in suits arising under diversity jurisdiction. In turn, those federal courts are largely bereft of any state law moorings as they develop the common law of the electronic marketplace. Erie Railroad v. Tompkins notwithstanding, the common law is driven by federal court decisions, building incrementally on each other rather than state law.

Third, the development of common law in federal court means that there is no apex court that can define conclusively the law of any jurisdiction. Diversity jurisdiction allows federal courts to predict how they believe state common law would develop, but binds no state courts in the affected jurisdiction, and does not even bind federal courts in the same Circuit putatively applying the law of another state. Rather than the law resolving hierarchically, we identify a “tournament effect” in which the law settles on one or a few influential decisions, regardless of the state law that the case may have arisen under.

Finally, we conjecture that the use of contractual clauses compelling arbitration and forbidding claim aggregation may have affected the number of cases being adjudicated in court and, consequently, depressed the development of publicly-available law in this area.