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Abstract:
The Sarbanes-Oxley Act of 2002 added numerous costs to the burden of being a public company. The most onerous of these, requiring inside and outside assessment of internal controls, is only now affecting the costs of remaining a public company. After reviewing the reports of increased compliance costs for larger companies, this paper reports on the increasing numbers of companies choosing to terminate reporting under the securities laws, and focuses on the costs reported for those (generally smaller) companies that disclose their actual compliance costs.

Corporation, securities, disclosure, Sarbanes-Oxley, going private, regulation

Abstract:
The Sarbanes-Oxley Act of 2002 added numerous costs to the burden of being a public company. The most onerous of these, requiring inside and outside assessment of internal controls, is only now affecting the costs of remaining a public company. After reviewing the reports of increased compliance costs for larger companies, this paper reports on the increasing numbers of companies choosing to terminate reporting under the securities laws, and focuses on the costs reported for those (generally smaller) companies that disclose their actual compliance costs.

Sarbanes-Oxley, Securities, Corporation, Regulation

Abstract:
This paper describes the operation of the standard preferred stock rights plan with a flip-in feature. Rather than a static look at the initial dilution of a bidder's investment when the flip-in rights become exercisable, we examine a dynamic model, where the bidder then proceeds to acquire the remaining shares of the target corporation in a hostile acquisition. We find surprisingly modest levels of dilution from the standard rights plan, amounting to less than 10% of the total value of the target. This modest dilution is primarily a function of the fact that rights provide a one-time dilution when a bidder's investment in the target is relatively modest - no more than 15% of its stock in most cases. While rights plans can destroy part of this value, they generally do not destroy it all. We explore the reasons for the limits of such plans, and the reasons why no one has deliberately swallowed a pill.

takeover, takeover defenses, poison pill, hostile bid

Abstract:
This paper describes the operation of the standard preferred stock rights plan with a flip-in feature. Rather than a static look at the initial dilution of a bidder's investment when the flip-in rights become exercisable, we examine a dynamic model, where the bidder then proceeds to acquire the remaining shares of the target corporation in a hostile acquisition. We find surprisingly modest levels of dilution from the standard rights plan, amounting to less than 10% of the total value of the target. This modest dilution is primarily a function of the fact that rights provide a one-time dilution when a bidder's investment in the target is relatively modest - no more than 15% of its stock in most cases. While rights plans can destroy part of this value, they generally do not destroy it all. We explore the reasons for the limits of such plans, and the reasons why no one has deliberately swallowed a pill.

rights plan, poison pill, takeover defense, dilution

Abstract:
This is a transcript of a roundtable discussion between Robert Pritzker of The Marmon Group, Inc., Vice-Chancellor Jack Jacobs of the Delaware Court of Chancery, and Law Professors William Carney, Richard Painter, and Robert Sitkoff, with Professor Carney serving as moderator. The general topic was corporate governance. Among other things the participants discussed the implications of information provided by Mr. Pritzker regarding Smith v. Van Gorkom. Mr. Pritzker stated that the $55 price and the one-week deadline were established by Jerry Van Gorkom, not the Pritzkers. Mr. Pritzker also described the terms and the motivations for the Pritzkers' contribution to the settlement. Finally, in addition to analysis of the Van Gorkom decision, the panel also discussed public and private boards of directors, the Caremark decision, and corporate charitable and political contributions. The roundtable was held under the auspices of the Theory Informs Business Practices Symposium at the Chicago-Kent College of Law on April 6, 2001.

Van Gorkom, Trans Union, Pritzker, Board of Directors, Caremark, Corporate Crime, Corporate Charity, Corporate Political Speech, Business Judgment Rule, Mergers, Takeovers

Abstract:
Limited liability has been known in Europe since at least the twelfth century, and appeared later in England and throughout the remainder of the developed world. Limited liability can be achieved by private contractual arrangements, by the use of limited liability forms of enterprise, by other statutory limits on liability, and by bankruptcy. The principal advantage of limited liability is in encouraging investment by passive investors in risky enterprises, particularly where these investors are poor monitors of managers. Joint and several liability is a particular deterrent to investment by wealthy investors, who are likely to bear all of the costs of judgment. Pro rata liability shifts collection costs from wealthy investors who must seek contribution from other investors to judgment creditors, who must collect from all investors if they are to recover the entire judgment.

Abstract:
The public lands exhibit many of the characteristics of a commons--overuse and charges set well below market rates. This mismanagement has been noted and criticized within government for many years, without significant actions to cure the problem. This failure is attributed to both interest group pressures and agency costs, with government officials not accountable to any owner. Privatization through disposition of these lands to stock corporations created for the purpose is explored. Corporations solve interest group problems by holding managers accountable to a single group of owners, shareholders, while dealing with other constituencies through markets and contracting at prices calculated to maximize profits. Similarly, corporations deal with agency costs through a variety of incentives and the market for corporate control. It is shown how privatizing ownership of public lands in this manner serves conservation and recreation goals by providing incentives to unbundle claims on the public lands to allow bidding by all user groups (including conservationists) who value particular aspects of these resources.

Abstract:
This Article challenges the widely held view that Delaware corporate law is dominant because it possesses superior traits, such as a well-understood statute, many judicial decisions interpreting the law, and wise and experienced judges administering that law. The authors evaluate superiority by the measure first identified by Romano as the relevant one for jurisdictional choice-reducing transactions costs in major transactions. The authors show that since the 1980s Delaware law has become increasingly complex and uncertain, due largely to judicial decisions that appear to tailor doctrines to produce fairness in individual cases, at the expense of certainty in planning and executing transactions. The result has been a variety of mini-rules that require firms and their lawyers to structure transactions formalistically to avoid the most intrusive forms of judicial review. These rules have led to a litigation explosion in Delaware, with concomitant high litigation costs. The authors also demonstrate the weaknesses of the Delaware General Corporation Law as compared to the Model Business Corporation Act. Finally, the authors examine and reject a series of apologies for Delaware law by commentators who concede at least some of these problems.

corporation, federalism, Delaware, competition

Abstract:
This paper examines the holdings of the Delaware courts that a control premium must be added to the market value of shares in freeze-out transactions. It finds this result is not required by prior Delaware law. We argue that there is no control premium absent a current transaction in control, and that assumptions of control premia in freeze-outs are simply speculation. Awarding control premia provides a windfall gain for public shareholders, and is contrary to the treatment of public shareholders who receive publicly traded shares in other mergers.

Abstract:
The focus of the 2003 Emory Law Journal Randolph Thrower Symposium was on the impact of competition on regulation. Judge Frank Easterbrook warns of the public expense incurred for private gains in regulation, and of the rate of judicial error in antitrust regulation. Fred McChesney traces the intellectual history of the battle for the soul of antitrust, and the regulatory competition among state, federal and international regulators to be the most restrictive and visible regulators of the field. George Benston traces the failures of regulation that led to Enron and Sarbanes-Oxley, blaming lawyers, accountants and regulators for a move from standards to rules. Barry Adler and Henry Butler examine Delaware's current prominence in Chapter 11 reorganization, and argue that no theory supports a prediction of permanent preeminence of the kind observed in corporate law. Jonathan Macy traces the internationalization of regulation, and describes three forces that create international uniformity in regulation, while Henry Manne imagines a corporate world without regulation.

Regulation, Competition, Securities, Antitrust, Bankruptcy, Corporations

Abstract:
This paper challenges the conventional wisdom that the competition for corporate chartering business is between states, and replaces it with an interest group view of corporate law production. Changes in corporate law in the U.S. are claimed to be driven primarily by lawyers and corporate managers. Managers are viewed as specializing in changes that can be viewed as creating rents for management, while lawyers sponsor more general changes. While Delaware lawyers are dominant producers, this paper demonstrates that lawyers in other states compete as well. The competition is shown to result in relative uniformity of American corporate laws, qualified principally by the dynamics of diffusion of innovations. Changes sponsored by lawyers, who face serious collective action problems, proceed at a relatively slow pace, while changes sponsored by managers, who appear to face lower costs, proceed more rapidly. The Model Business Corporation Act is a cost-reducing device for lawyers that increases the rate of diffusion. While the evidence of the speed of change for anti-takeover statutes suggests a "race to the bottom," in corporate law production, the evidence of more general changes suggests a "race to the top." Possible inefficiencies from rent-seeking legislation appear to be constrained by competitive forces.

Abstract:
The production of corporate law has been seen as a competition among the states. This paper takes an interest group view of the production of law, and argues that changes in corporate laws in the United States are driven primarily by lawyers and corporate managers. The benefits to lawyers from modern corporate laws include retention of corporate clients as local corporations, thus excluding the competition of out-of-state lawyers with expertise in Delaware law. But because the production of law is a public good, lawyers find initiating legal change costly, and innovations proceed slowly. Managers, on the other hand, are not generally experts on corporate law, but focus on particular issues that affect them directly, such as antitakeover laws and laws affecting their personal liability. The paper examines the degree of uniformity resulting from this competition, and finds a high degree of correspondence with the norms set in the Model Business Corporation Act. Deviations from this uniformity are explained in large part by innovations, many of which originate in the Model Act. The paper then examines how the collective action problems of the sponsoring interest groups influence the diffusion of innovations in corporate law. Innovations sponsored by lawyers have relatively slow rates of adoption, reflecting their collective action problems. When these costs are reduced through introduction of changes in the Model Act, the rate of diffusion increases. Managers appear to suffer from fewer collective action problems, and have a more intense interest in certain subjects because of the more direct benefits they obtain, and management-sponsored innovations are adopted much more rapidly. Possible inefficiencies from rent-seeking by interest groups appear to be constrained by competitive forces, suggesting that alternative solutions, such as federalizing corporate law, would not solve the rent-seeking problem as well, and would sacrifice the innovations obtained through the present competitive system.

Abstract:
American corporate law scholarship has witnessed the waxing and waning of a variety of grand theories about the globalization of corporate law in the past two decades. The first idea was that harmonization of European company law might lead to a productive form of uniformity. The second was that American law was out of step with that of other leading industrialized nations, and perhaps we should look to their models, generally involving controlling shareholders, for guidance. The third idea was that investors and corporations face common problems regardless of local law, and in a competitive environment one might expect a convergence of corporate laws through market forces that sought the most efficient solutions to these common problems. This kind of convergence has only occurred at a few margins, and seems unlikely to occur in such a way that choice of law rules in corporate law would become less relevant. Indeed, the fourth wave of scholarship in this field now seeks to explain why significant differences persist.

Corporate law, conflict of laws, convergence of laws