Many years ago, Henry Manne proposed a theory of the market for corporate control that provided a compelling argument for the existence of a vibrant hostile takeover market. He argued that “the control of corporations may constitute a valuable asset” if the acquirer takes control with the expectation of correcting managerial inefficiencies. In this way, it is the hostile takeover market and its lead actor, the hostile bidder, that acts as a corrective mechanism in corporate governance. Unfortunately, while a vibrant hostile takeover market did exist in the United States during the 1960s, 70s, and 80s, this has not been the case for many years. By contrast, the United Kingdom, despite having a broadly similar capital market environment and corporate governance system to the U.S., has gone down the path of allowing its hostile takeover market to flourish. Thus, the U.K. has been able to successfully retain the hostile takeover as a corrective mechanism in corporate governance. We find the current domestic state of affairs unacceptable. Without a vibrant hostile takeover market, a significant corrective mechanism has been lost. Therefore, with a view to correcting this inefficiency, we use as our primary authority the core principles identified in the U.K.’s regulatory legal framework, and especially its longstanding board passivity (or “non-frustration”) rule. More than any other element of the British framework, the board passivity rule has allowed for the creation of an enduring and successful hostile takeover market in the U.K. Accordingly, this Article recommends that domestic state corporate law statutes be amended to include a safe harbor for a hostile bidder when making an all-cash, all-shares tender offer that includes a guarantee of the same or higher price if a back-end or squeeze-out merger occurs. The use of the above safe harbor would effectively disallow a board’s use of the poison pill as a takeover defense unless a specific takeover defense, such as a poison pill, is provided for in the corporate charter. In this way, private ordering can always be used to trump the statutory safe harbor.
In the wake of the murder of George Floyd, many American companies issued public statements to support the Black Lives Matter movement and promise steps to address internal racial inequality and systemic racism. These statements and the efforts promised in them are laudable, provided that they are accompanied by meaningful action. However, these statements largely fail to examine how American companies have contributed to and benefitted from structural racism. Translating statements in support of Black Lives Matters into real action will require that American companies engage in a process of truth and reconciliation.
Many companies that sell long-lasting products also sell related “aftermarket” products, such as repair services and replacement parts. In Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451 (1992), the Supreme Court held that a company may face antitrust liability for exploiting its monopoly power in these aftermarkets even if it lacks market power in the original product market. This paper reconsiders that decision along two dimensions. First, despite both praise and criticism of the decision, there has been no historical investigation into the actual motivations underlying Kodak’s conduct in the copier and micrographics equipment aftermarkets. By drawing on original research and interviews with former Kodak employees and executives, this paper casts doubt on explanations for Kodak’s behavior offered by the Court and scholars and provides a new account of Kodak’s practices in those markets. Second, this paper takes a fresh look at the Kodak doctrine’s development in the years since the Supreme Court’s decision. What emerges from this analysis is a picture of an antirust doctrine ill-adapted to the world of software-based equipment and, worse still, an antitrust doctrine that raised the cost of aftermarket segmentation, likely promoting the very sort of aftermarket monopoly it sought to prevent. Abstract .................................................................................................................. 165................................................................................................................. 165 Introduction............................................................................................................ 166 I. The Kodak Doctrine ........................................................................................... 169 A. The Kodak Decision .......................................................................... 169 B. The Evolution of the Kodak Doctrine ................................................ 174 C. Theories of Kodak’s Behavior ........................................................... 175 1. The Price Discrimination Account .............................................. 176 2. The Lock-In Account .................................................................. 178 DOI: https://doi.org/10.15779/Z38CR5ND12 *. J.D., Yale Law School, 2018. I want to thank the former Kodak employees I spoke to for taking the time to speak with me and answer my questions. I also want to thank the John M. Olin Center for Law, Economics, and Public Policy at Yale Law School for providing financial support for this research, as well as Lucy Prather and Linus Recht for comments on later drafts. Finally, I want to thank Professor George Priest for his continued guidance throughout this research and his valuable comments on drafts of this paper. All errors are mine. Berkeley Business Law Journal Vol. 18:1, 2021 166 D. What Kodak Did and Why It Did It................................................... 181 1. Kodak Loses Control Over the Micrographics Service Market .. 181 2. Kodak Attempts to Regain Control of the Micrographics Service Market ......................................................................................... 183 3. Anticompetitive Practices in the Copier Market ......................... 185 II. The Impact of Kodak Doctrine .......................................................................... 187 A. The Kodak Doctrine’s Limited Protections ....................................... 188 B. The Avaya Case ................................................................................. 194 C. Weighing the Kodak Doctrine’s Costs and Benefits ......................... 197 Conclusion ............................................................................................................. 199
By most accounts, insider trading regulation ranks as perhaps the most confusing, incoherent, and inconsistent body of federal law. Criticism of the prevailing insider trading doctrine is pervasive and enduring. Fundamentally, this can be traced to a flawed predicate dating to the very inception of the prohibition. As originally enunciated, insider trading constituted deception and fraud under Section 10(b) of the Securities Act of 1934. This rule emerged not from the language of the statute, which contains no explicit definition of the conduct constituting unlawful insider trading, but from ad hoc interpretations and applications of Section 10(b) by courts, regulators, and prosecutors. But, doctrinally, the notion of insider trading as deception and fraud, as those terms were understood and enforced under the common law as recognized and practiced at the time, was a flawed, uncomfortable fit. In the statutory void, law enforcers and capital markets struggled with the confusion and anomalies the faulty insider trading regulation engendered. To deal with these difficulties, fictional or constructive doctrines were engrafted onto the existing legal structure in the form of further regulations, prosecutions, and case law. As insider trading law struggled to evolve, it became burdened by ever more complexity. The ensuing muddle cries out for reform, through judicial, regulatory, or legislative means. But, to be effective, the change cannot be grounded on the deficient underpinnings of prevailing insider trading law, nor can it be piecemeal. Rather, meaningful reform demands a fundamental overhaul. This Article argues that the fraud-based theory which still governs insider trading law should be scrapped, along with the entire structure of constructive doctrines that developed with it. To this end, a statutory framework prohibiting insider trading on the basis of knowing possession of material nonpublic information, and situated under the strict liability principle embodied in Section 16 of the 1934 Act, would sufficiently furnish the needed renewal. Instances of such a model exist in other jurisdictions, the European Union and Australia in particular. Abstract ................................................................................................... 234.................................................................................................. 234 DOI: https://doi.org/10.15779/Z386D5PB6M * Georgetown University Law Center, J.D. 2018; Williams College, B.A. 2013. © 2020 Andrew W. Marrero. This Article is based on a research paper the author prepared under the sponsorship and supervision of Professor Donald C. Langevoort of the Georgetown University Law Center in fulfillment Georgetown Law School’s Upperclass Legal Writing Requirement. My sincerest gratitude to Professor Langevoort for his excellent guidance and valuable comments in this regard. I also thank Judge Jed S. Rakoff of the United States District Court for the Southern District of New York and the editors of the Berkeley Business Law Journal for the exceptionally helpful feedback and encouragement they provided during the preparation of this Article. Introduction ............................................................................................. 235 I.Part I: Martoma’s Revenge ................................................................... 239 A. Personal Benefit in the Beginning: Dirks ............................ 239 B. Lower Court Twists and Turns: Newman ............................ 240 C. Reaffirmation: Salman ......................................................... 242 D. Gyrations, Again: Martoma I ............................................... 242 E. Full Circle: Martoma II ........................................................ 243 F. Back to Basics ...................................................................... 245 G. Shortcomings of Reforms .................................................... 247 II.Part II: The Quagmire ......................................................................... 250 A. Origins: Distortion of Words ............................................... 251 B. Through the Looking Glass: Distortions of Theory and Purpose ................................................................................. 253 C. End of the Line: Congress and the Supreme Court ............. 258 III.Part III: The Muddle Really Gets Muddled ....................................... 261 A. Original Fault: The Five Fictions of Insider Trading Fraud 262 1. Fiction of the Insider ...................................................... 263 2. Fiction of Fiduciary Duty .............................................. 266 3. Fiction of Disclosure ...................................................... 272 4. Fiction of Personal Benefit ............................................ 277 5. Fiction of Deception ...................................................... 281 B. The Court Wades In: The Bog Expanded, Confusion Compounded ........................................................................ 285 C. Failing Grade ....................................................................... 291 D. A House Divided ................................................................. 293 IV.Part IV: Purposes and Cross-Purposes .............................................. 295 A. Amazing Maze ..................................................................... 295 B. Fair Dealing: Investor and Market Protection ..................... 297 V.Part V: Full Circle ............................................................................... 300 A. The Essentials ...................................................................... 300 B. Congressional Measures ...................................................... 304 1. H.R. 1173 ....................................................................... 305 2. H.R. 1625 ....................................................................... 307 3. S. 702 ............................................................................. 308 4. H.R. 2534 ....................................................................... 310 C. Model Statute: Australia ...................................................... 310 Conclusion .............................................................................................. 312
In this article, we explain how a corporation might invoke religious freedom claims in order to protect corporate values such as diversity, equality, sanctuary, or women’s access to reproductive care which are not exclusively associated with a religion, and are often held by secular entities. In order to do so, we must address the following unresolved legal issues: 1) How can one define whether a set of beliefs are “religious” when those beliefs are held not just by a single individual, but by a diverse collection of individuals? 2) Does the meaning of religion change when it is no longer exercised by a human being but instead by a corporation? 3) Importantly, how would a court evaluate the religious claims of a business entity made up of diverse owners, members, and/or shareholders? 4) What are the broader consequences, benefits and detriments of protecting such claims?
This Article discusses the emergence of an international tax “war” and provides an overview of global digital taxation reform efforts. Governments have been unable to attain consensus surrounding how to tax cross-border digital transactions. As a result, dozens of governments are now pursuing uncoordinated reforms -- including digital services taxes, economic presence tests, withholding taxes and equalization levies -- that will encourage international double taxation and inhibit cross-border trade and investment. The global digital tax conflict masks a growing dissatisfaction with how to tax value associated with global transactions. Until this larger problem is unresolved, the war may continue unabated.
The World Bank’s influential Doing Business Report (DBR) has been a key platform for the American-driven dissemination of global norms of good corporate governance. A prominent part of the DBR is the related party transactions (RPT) index, which ranks 190 jurisdictions from around the world on the quality of their laws regulating RPTs. According to the RPT Index, the regulation of RPTs in Commonwealth Asia’s most important economies is stellar. In the 2018 RPT Index, Singapore ranked 1st, Hong Kong and Malaysia tied for 3rd, and India came in at 20th. However, despite the uniformly high RPT Index scores in all of Commonwealth Asia’s most important economies, empirical, case-study, and anecdotal evidence overwhelmingly suggests that there are in practice significant inter-jurisdictional and intra-jurisdictional differences in the actual function and regulation of RPTs in Commonwealth Asia.In this article, we assert that the conspicuous gap between what the RPT Index suggests should be occurring and what is actually occurring in Commonwealth Asia exists because it fails to capture the complexity of RPTs in three respects, which we term: (1) regulatory complexity; (2) shareholder complexity; and, (3) normative complexity. First, it appears that the RPT Index overly emphasizes the role played by a jurisdiction’s formal corporate and securities laws in determining the effectiveness of its RPT regulation, and it fails to pay due regard to its corporate culture and rule of law norms in determining the efficiency of its RPT regulation. Second, the RPT Index erroneously assumes that controlling shareholders are a homogeneous group driven by similar incentives. Third, the general assumption that RPTs per se are evidence of defective corporate governance and that stricter regulation of RPTs consequently equates to “good law” is erroneous. Demonstrating the frailties of the RPT Index is important in practice because jurisdictions – especially developing ones – commonly look to the DBR and its indices when reforming their laws. In addition, the RPT Index is built on some of the most influential research in the field of comparative corporate law, which makes our challenge to the validity of the RPT Index academically significant.
This article seeks to understand the rationale for and potential implications of the introduction of dual class shares (DCS) in Singapore. It does so by first considering the theoretical as well as evidential arguments for and against the use of DCS, followed by a survey on the reception (or otherwise) of such structures in four common law jurisdictions with vibrant capital markets, viz., Canada, the United States, United Kingdom and Hong Kong. It observes that the chief argument cited by business founders to justify the use of DCS structures is the desire to enhance a firm’s long-term profitability by shielding the (talented) founder from short-term market pressures. Though the use of DCS structures remains controversial, the phenomenal success of technology unicorns such as Alphabet Inc. and Alibaba appears (for now) to have sealed the place of DCS in the American securities markets. This exerts considerable pressure on competing markets to follow suit. Singapore’s response to this aggressive competition is pragmatic but measured. The indications so far are that the regulators would chart a middle path between the conflicting goals of incentivizing entrepreneurial fundraising and investor protection by permitting DCS structures in exceptional cases circumscribed by stringent safeguards. This, it is submitted, is an appropriate response given the theoretical and evidential underpinnings of DCS structures as well as economic and regulatory conditions peculiar to Singapore. Should it succeed, this development would serve as an interesting and notable example of a regulatory innovation that avoids the proverbial race to the bottom in the face of intense competition.
This article examines the impact of a “one-size-fits-all” corporate governance code on smaller listed firms, which should have fewer resources to hire more qualified independent directors for their boards and board committees. After examining data from a sample of companies listed in Hong Kong and Singapore, we find some limited support for these resources-based arguments. While smaller firms do not necessarily have a lower proportion of independent directors, some evidence suggests that smaller firms do pay less to independent directors and that these directors have to serve on multiple board committees. Although many larger firms also share the problem of overloading their independent directors, the ability to find and attract qualified candidates certainly differs with the availability of resources. Therefore, this article suggests that policymakers consider the merit of raising board independence standards and increasing board committee requirements and find ways to assist smaller firms in hiring qualified (but less expensive) independent directors.
The rise of the crypto economy brings promises and perils to the venture capital industry. Distributed ledger technologies offer new investment opportunities to venture capitalists (VCs). Traditional VCs are gradually diversifying their portfolios to invest in crypto-assets and blockchain technology projects, as well as launching crypto-centric funds. Simultaneously, venture capital funds are developing various hybrid financing models to adopt and imitate the fundraising mechanism of initial coin offerings. However, the polymorphous and evolving features of crypto-assets also introduce new risks to the venture capital market. The paper therefore examines the emerging models in the venture capital crypto landscape, identifies the new risks, and examines the current regulatory and contractual solutions. The paper also proposes recommendations for the venture capital crypto landscape going forward, including heightened regulations on crypto-centric funds and fund managers.
In 2012, Hong Kong passed its Competition Ordinance which provides a right of follow-on action, but no right of standalone action to private parties. Through reviewing the legislative history, this article found that such right is absent primarily because small and medium-sized enterprises (SMEs) worried that large companies would strategically file excessive, or even baseless, suits against them. The U.S., which has many private antitrust suits, is cited as an example to support this concerns. This article attempts to shed light on this matter by (1) identifying why there are so many private antitrust suits in the U.S., (2) rethinking whether the U.S. model is one that Hong Kong should avoid and (3) highlighting how the U.S. regime prevents baseless suits. After addressing these matters, this article articulates (1) why enabling a standalone right of action to private parties itself would not open the floodgates of antitrust litigations in Hong Kong, (2) why it might be harmful to Hong Kong if there are insufficient private antitrust suits, especially when baseless suits are expected and (3) whether Hong Kong is prepared to enable a standalone right of action while expecting frivolous and baseless suits.
This is the first Article to discuss the new phenomenon in America of corporations opening second headquarters in regions that are geographically distinct from their original headquarters. Currently, this trend is most notably evidenced by Amazon.com, Inc. and its plan to create a second headquarters equal in size and importance to its original headquarters located in Seattle, Washington. Amazon’s second headquarters search provides an ideal interdisciplinary case study to explore two important and interrelated aspects of business law and organizational behavior theory: corporate sustainability and corporate embeddedness. Choosing a location for a second headquarters that is culturally distinct from the first could have critical consequences for a corporation. For example, employees who relocate from the first headquarters to the second could have trouble becoming embedded in the new headquarters due to cultural differences. This could affect employee productivity and retention. Similarly, the embedded culture and values of the second headquarters’ community could overtly and implicitly influence the organizational identity of the overall corporation. While corporations can be driving forces for social change, this Article looks to show how they can be changed themselves. Business research concerning headquarters location thus far has largely ignored these issues. Therefore, this Article seeks to begin a dialogue concerning how the geography of a second headquarters influences internal organization and sustainability practices, corporate embeddedness, and organizational and individual identity issues within a corporation.
