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Abstract:
In this paper, we examine the key legal characteristics of 375 employment contracts between some of the largest 1500 public corporations and their Chief Executive Officers. We look at the actual language of these contracts, asking whether and in what ways CEO contracts differ from what are thought of as standard employment contract features for other workers. Our data provide some empirical answers to several common assertions or speculations about CEO contracts, and shed light on whether these contracts are negotiated solely to suit the preferences of CEOs or have provisions that insure that the employers' interests are also safeguarded.

After giving an overview of the general characteristics of a CEO employment contract, and the process by which they are negotiated, we focus on five contracting issues: (1) the term just cause that defines when an executive can be terminated involuntarily with penalties; (2) the good reason termination clauses in the contract that permit an executive to leave voluntarily without financial penalties; (3) the non-competition clauses in the contract; (4) the use of arbitration clauses as a method of resolving contractual disputes; and (5) the contractual restrictions, if any, on the CEO selling stock options. We also discuss some of the less-well known economic terms of these contracts, including their length and the level of perquisites given to CEOs.

CEO, Employment Contracts

Abstract:
This article is an edited transcript of a lecture on the Employment Contract presented to a conference of state law judges. Part I introduces a model of a well-functioning labor market, which provides all employee benefits, and only those employee benefits, that employees value more than it costs employers to provide. Part II articulates ways in which labor markets might fail to provide such cost-justified benefits. Market failures can arise from asymmetric information, asymmetric performance, or collective goods. Such failures can justify legal intervention, although policymakers must worry about the cure being worse than the disease. Additionally, even without market failure policymakers might intervene for paternalistic or distributive reasons. Part III separates out "unequal bargaining power" as an argument for legal intervention, and argues it does not describe a market failure and is generally an incoherent justification for legal intervention.

Part IV applies this framework to evaluate legal erosions of the employment-at-will doctrine. Many courts have upheld claims that a termination breached an implied-in-fact promise not to dismiss a worker without cause. Sometimes, these claims can be justified as correcting problems of opportunism arising from asymmetric performance, problems that vary during the life cycle of a career employee. Contract protections generally are default rules, in that parties can reject them through explicit clauses in a contract. The article articulates the basic theories of default rules, which include mimic-the-market rules and penalty defaults. Other courts have recognized the tort of wrongful discharge in violation of public policy. This tort can be justified as an effort to have employers internalize third-party effects of discharges.

Abstract:
This article is an edited transcript of a lecture on the Employment Contract presented to a conference of state law judges. Part I introduces a model of a well-functioning labor market, which provides all employee benefits, and only those employee benefits, that employees value more than it costs employers to provide. Part II articulates ways in which labor markets might fail to provide such cost-justified benefits. Market failures can arise from asymmetric information, asymmetric performance, or collective goods. Such failures can justify legal intervention, although policymakers must worry about the cure being worse than the disease. Additionally, even without market failure policymakers might intervene for paternalistic or distributive reasons. Part III separates out "unequal bargaining power" as an argument for legal intervention, and argues it does not describe a market failure and is generally an incoherent justification for legal intervention.

Part IV applies this framework to evaluate legal erosions of the employment-at-will doctrine. Many courts have upheld claims that a termination breached an implied-in-fact promise not to dismiss a worker without cause. Sometimes, these claims can be justified as correcting problems of opportunism arising from asymmetric performance, problems that vary during the life cycle of a career employee. Contract protections generally are default rules, in that parties can reject them through explicit clauses in a contract. The article articulates the basic theories of default rules, which include mimic-the-market rules and penalty defaults. Other courts have recognized the tort of wrongful discharge in violation of public policy. This tort can be justified as an effort to have employers internalize third-party effects of discharges.

Abstract:
This article first parses the multiple overlapping definitions of discrimination, including distinctions between group and individual discrimination and between segregation and discrimination in pay. The article then summarizes the major economic models of discrimination, particularly Becker's taste-for-discrimination model and statistical-discrimination models, as well as sorting and status-production models. The discussion focuses on the conditions under which markets will tend to eliminate discrimination, noting that this occurs in a more limited range of situations than commonly recognized. The article next surveys the economic role of anti-discrimination laws, evaluating arguments that the law speeds the journey to a non-discriminatory equilibrium and that the law breaks social norms perpetuating inefficient discrimination. Finally, the article examines empirical studies of employment discrimination laws, including analyses of litigation trends and of the laws' effects on labor markets.

Abstract:
This article presents the full range of information that the Administrative Office's data convey on federal employment discrimination litigation. From that information, the authors tell three stories about (1) bringing these claims, (2) their outcome in the district court, and (3) the effect of appeal. Each of these stories is a sad one for employment discrimination plaintiffs: relatively often, the numerous plaintiffs must pursue their claims all the way through trial, which is usually a jury trial; at both pretrial and trial these plaintiffs lose disproportionately often, in all the various types of employment discrimination cases; and employment discrimination litigants appeal more often than other litigants, with the defendants doing far better on those appeals than the plaintiffs.

Abstract:
We estimate the effects on employment and wages of wrongful-discharge protections in the United States. Over the last three decades, most U.S. state courts have adopted one or more common law wrongful discharge doctrines that limit employers' discretion to terminate workers at-will. Using this cross-state variation with a difference-in-difference framework, we find robust evidence of a modest negative impact (-0.8 to -1.6 percentage points) of one wrongful-discharge doctrine, the implied-contract exception, on employment to population rates in state labor markets. The short-term impact is most pronounced for female, younger, and less-skilled workers, while the longer term costs appear to be borne by older and more-educated workers those most likely to litigate under this doctrine. We find no robust employment or wage effects of two other widely recognized wrongful-discharge laws: the public-policy and good-faith exceptions. Published findings in the literature range from no effect to very large negative effects. We reanalyze the two leading studies and find the discrepancies can be explained by methodological shortcomings in the one case and limitations in the coding of key court decisions in the other.

Abstract:
We estimate the effects on employment and wages of wrongful-discharge protections in the United States. Over the last three decades, most U.S. state courts have adopted one or more common law wrongful-discharge doctrines that limit employers' discretion to terminate workers at-will. Using this cross-state variation with a difference-in-difference framework, we find robust evidence of a modest negative impact (-0.8 to -1.6 percentage points) of one wrongful-discharge doctrine, the implied-contract exception, on employment to population rates in state labor markets. The short-term impact is most pronounced for female, younger, and less-skilled workers, while the longer term costs appear to be borne by older and more-educated workers - those most likely to litigate under this doctrine. We find no robust employment or wage effects of two other widely recognized wrongful-discharge laws: the public-policy and good-faith exceptions. Published findings in the literature range from no effect to very large negative effects. We re-analyze the two leading studies and find the discrepancies can be explained by methodological shortcomings in the one case and limitations in the coding of key court decisions in the other.

Employment Protection, Wrongful Discharge, Unjust Dismissal, Employment at Will, Labor Law, Instrumental Variables

Abstract:
This study uses a new criminal case data set to partially replicate Kalven and Zeisel's classic study of judge-jury agreement. The data show essentially the same rate of judge-jury agreement as did Kalven and Zeisel for cases tried almost 50 years ago. This study also explores judge-jury agreement as a function of evidentiary strength (as reported by both judges and juries), evidentiary complexity (as reported by both judges and juries), legal complexity (as reported by judges), and locale. Regardless of which adjudicator's view of evidentiary strength is used, judges tend to convict more than juries in cases of "middle" evidentiary strength. Judges tend to acquit more than juries in cases in which judges regard the evidence favoring the prosecution as weak. Judges tend to convict more than juries in cases in which judges regard the evidence favoring the prosecution as strong. Rates of adjudicator agreement are thus partly a function of which adjudicator's view of evidentiary strength is used, a result not available to Kalven and Zeisel, who were limited to judges' views of the evidence. We find little evidence that evidentiary complexity or legal complexity help explain rates of judge-jury disagreement. Rather, the data support Kalven-Zeisel's explanation that judges have a lower conviction threshold than juries. Local variation exists among the sites studied. The influences of juror race, sex, and education are also considered.

Abstract:
This paper documents and explains the amazing growth of the largest firms in law, accounting, and investment banking. Scholars to date have used various supply-side theories to explain the growth, and have generally examined only one industry at a time. We give the first demand-side explanation of firm growth, and show how the explanation is similar for firms in all "project" industries. We show that law plays an important role in determining industry structure.

Among the areas we cover are the growth of Multi-Disciplinary Practice firms. We argue that the issues surrounding MDPs can best be understood by looking more broadly at the forces driving project industries. We also explain the driving forces behind the breakup of the Big Five accounting firms, the consolidation of the investment banking industry and the heretofore unexamined divergent growth patterns of the law firms in the plaintiffs' securities litigation field.

Abstract:
This paper investigates the increased shareholder activism by labor unions and their pension funds, who are now the most aggressive institutional shareholders. Sometimes unions propose traditional corporate-governance measures through procedures familiar to shareholders. Only the union sponsor is novel. But recently unions have pushed innovative methods to get corporations to listen to shareholder complaints. These methods include mandatory amendment of corporate by-laws by shareholders and floor proposals submitted for a shareholder vote at the annual meeting.

Unions as shareholders have conflicting roles. We distinguish union-shareholder initiatives designed to further unions' traditional organizing and collective bargaining goals from those that enhance unions' role as a participant in strategic corporate decisions, a newer vision of the union role. With either the traditional or new role, the union shareholder can fight management in ways that benefit other shareholders, or can benefit workers at the expense of other shareholders.

We use this framework to describe labor unions' current voting initiatives. From the labor perspective, unions themselves recognize the need for new approaches - including approaches that do not reflexively regard efficiency and profitability as goals of "enemy" shareholders. From the corporate perspective, unions need new approaches because they have remained peripheral players in the boardroom despite their vast stock holdings.

We find legal reform to be unnecessary, because existing legal and market checks adequately constrain potential opportunistic union behavior. These checks include the fiduciary structure of Taft-Hartley union pension funds; the need to persuade other self-interested shareholders to vote for union initiatives; and the disciplinary power of capital markets, product markets, and the market for corporate control. These forces adequately limit labor unions' ability to expropriate more corporate value for their members, if they would choose to pursue that course of action.

Finally, we suggest that union-shareholder activism may have long-lasting effects on unions' role in corporate governance, but only if unions focus their shareholder voting initiatives in areas where they have special advantages in monitoring management. If unions can package their proposals in ways that emphasize to other shareholders ways in which the two groups' interests are aligned, then union-shareholder activism may become an important force in corporate governance.

Abstract:
This paper investigates the increased shareholder activism by labor unions and their pension funds, who are now the most aggressive institutional shareholders. Sometimes unions propose traditional corporate-governance measures through procedures familiar to shareholders. Only the union sponsor is novel. But recently unions have pushed innovative methods to get corporations to listen to shareholder complaints. These methods include proposing by-law amendments that would be adopted by shareholders and then bind the corporation and floor proposals submitted for a shareholder vote at the annual meeting. We describe recent developments in the law surrounding these new shareholder tactics, including the Fleming Companies case and the Idaho Power no-action letter. Unions as shareholders have conflicting roles. We distinguish union-shareholder initiatives designed to further unions' traditional organizing and collective-bargaining goals from those that enhance unions' role as a participant in strategic corporate decisions, a newer vision of the union role. With either the traditional or new role, the union shareholder can fight management in ways that benefit other shareholders, or can benefit workers at the expense of other shareholders. We use this framework to describe labor unions' current voting initiatives. From the labor perspective, unions themselves recognize the need for new approaches -- including approaches that do not reflexively regard efficiency and profitability as goals of "enemy" shareholders. From the corporate perspective, unions need new approaches because they have remained peripheral players in the boardroom despite their vast stock holdings. We find legal reform to be unnecessary, because existing legal and market checks adequately constrain potential opportunistic union behavior. These checks include the fiduciary structure of Taft-Hartley union pension funds; the need to persuade other self-interested shareholders to vote for union initiatives; and the disciplinary power of capital markets, product markets, and the market for corporate control. These forces adequately limit labor unions# ability to expropriate more corporate value for their members, if they would choose to pursue that course of action. Finally, we suggest that union-shareholder activism may have long-lasting effects only if unions focus their shareholder initiatives in areas where they have special advantages in monitoring management.