ELIZABETH POLLMAN, University of Pennsylvania Carey Law School; Co-Director, University of Pennsylvania Carey Law School - Institute for Law and Economics; European Corporate Governance Institute
Email: epollman@law.upenn.edu

One of the most notable trends of the Roberts Court is expanding corporate rights and narrowing liability or access to justice against corporate defendants. This Comment examines recent Supreme Court cases to highlight this “pro-business” pattern as well as its contradictory relationship with counter trends in corporate law and governance. From Citizens United to Americans for Prosperity, the Roberts Court’s jurisprudence could ironically lead to a situation in which it has protected corporate political spending based on a view of the corporation as an “association of citizens,” but allows constitutional scrutiny to block actual participants from getting information about corporate social and political activity. Further, as the Court has downplayed or ignored corporate decisionmaking structures in recent human rights cases such as Nestlé, by contrast, state corporate law cases have heightened attention on the board’s role in providing oversight to ensure legal compliance throughout the corporation’s operations. Bringing these threads together leads to the larger observation that the Court’s “pro-business” jurisprudence contributes to a dynamic that ultimately increases pressure on internal law and governance to create stronger constraints and processes to sort the various interests of its participants and stakeholders, as evidenced by growing calls for reform and the rising ESG movement.

LAWRENCE J. TRAUTMAN, Prairie View A&M University - College of Business, Texas A&M University School of Law (By Courtesy)
Email: Lawrence.J.Trautman@gmail.com
LARRY D. FOSTER, II, Prairie View A&M University - College of Business
Email: LFoster@methodsmediations.com
LORA KORETZ, W. P. Carey School of Business at Arizona State
Email: lora.koretz@asu.edu
CLYDE MCNEIL, Prairie View A&M University - College of Business
Email: clmcneil@pvamu.edu
ERIC D. YORDY, The W. A. Franke College of Business at Northern Arizona University
Email: eric.yordy@nau.edu

On December 8, 2021, the lawyers for “Elizabeth Holmes… rested their case… in her criminal-fraud trial, after the founder of blood-testing start-up Theranos Inc. gave testimony over seven days in which she acknowledged regrets but also placed blame on her former deputy and boy-friend.” The Wall Street Journal reports, “Ms. Holmes faced 11 counts of wire fraud and conspiracy. Each count carries a maximum sentence of 20 years in prison.” Then, on January 3, 2022, Ms. Holmes was convicted by a federal jury “on four of eleven charges that she conducted a yearslong fraud scheme against investors while running Theranos Inc., which ended up as one of Silicon Valley’s most notorious implosions.” Theranos now appears to be a story of the tension between a Silicon Valley “fake-it-till-you-make-it” ethos and abandoned ethics toward the honest disclosure and treatment of investors in the capital formation process.

MINOR MYERS, University of Connecticut - School of Law

The ascendance of SPACs in U.S. capital markets has attracted intense regulatory scrutiny from federal officials, especially the SEC. This Article examines SPACs through a different lens: Despite all their novelty and complexity, SPACs are organized as standard Delaware corporations. As this Article demonstrates, SPACs have exhibited a striking disregard of corporate law. The standard SPAC adopts a governance structure that, for a public corporation, is highly unusual: All corporate control is vested in the hands of a single shareholder (known as the sponsor), who suffers from a deep conflict of interest with public stockholders but nevertheless acts free of any conventional disinterested constraints. The SPAC industry has kept its collective head in the sand on what this model means for SPAC fiduciaries: under existing Delaware law, the standard SPAC very likely triggers the entire fairness test, and very likely for all the reasons it can be triggered. SPACs have also failed to comply with basic corporate statutory requirements in ways that are positively bizarre for large commercial transactions.

SPACs now face a corporate law reckoning, forcing Delaware to examine the SPAC in light of basic corporate expectations. This Article argues that the normative touchstone in that examination should be to enforce privately-ordered bargains. For a SPAC that elected to organize as a corporation, in Delaware, and sold shares of common stock to the public, the core attributes of the privately-ordered bargain are deceptively simple: (1) the mandatory loyalty obligation for fiduciaries and (2) the limited ways to satisfy that obligation short of a judicial inquiry. In particular, the SPAC redemption right should be irrelevant to the judicial standard of review, as homebrewed remedies cannot abrogate the loyalty demand or excuse the absence of any disinterested decision-makers. Thus, the most searching form of judicial review should apply to the one business decision that a SPAC makes—its business combination.

Delaware and the federal government should act symbiotically in responding to SPACs. Before imposing substantive external regulations on SPACs, the SEC and Congress should wait for a clearer picture from Delaware about the vehicle’s internal regulation. And for the time being, Delaware should resist any legislative calls to fashion a new statutory structure for the SPAC, especially in light of the looming federal response and the still-unfolding picture of sponsor behavior during the 2020-21 boom. Federal officials should fashion SPAC rules that are explicitly cognizant of Delaware’s fiduciary protections, as SPACs that live up to the basic expectations of the Delaware corporate form will give rise to far fewer problems under federal securities laws. Thus, for example, the SEC might allow the registration of SPAC shares only if the entity is incorporated in Delaware or might restrict exchange rules in similar fashion.