New: How Corporate Governance Is Made: The Case of the Golden Leash

This Article presents a case study of a corporate governance innovation — the incentive compensation arrangement for activist-nominated director candidates colloquially known as the “golden leash.” Golden leash compensation arrangements are a potentially valuable tool for activist shareholders in election contests. In response to their use, several issuers adopted bylaw provisions banning incentive compensation arrangements. Investors, in turn, viewed director adoption of golden leash bylaws as problematic and successfully pressured issuers to repeal them.

The study demonstrates how corporate governance provisions are developed and deployed, the sequential response of issuers and investors, and the central role played by governance intermediaries — activist investors, institutional advisors, and corporate law firms.

The golden leash also presents an opportunity to test the response of share prices to governance innovation. We conduct two cross-sectional event studies around key …

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POSTED IN Faculty Research

REVISION: The Artificial Collective-Action Problem in Lawsuits Against Insured Defendants

In lawsuits against defendants covered by liability insurance, the parties negotiate toward a single settlement amount that collectively binds the plaintiff and all defense-side parties (the defendant and its liability insurer). This settlement method produces a collective-action problem whenever the trial outcome is uncertain and the potential damages exceed the limit of the defendant’s liability policy. When such a suit settles, the insurer often pays more, and the defendant/policyholder pays less, than each expected to pay if the case had gone to trial. The insurer is thus biased against, and the policyholder toward, pre-trial settlement. This conflict could produce an unnecessary trial or a settlement that overcompensates the plaintiff, depending on which bias prevails. To prevent such results, courts (and some insurance policies) place settlement duties on liability insurers. But enforcing these duties entails additional litigation, compliance costs, and the risk of legal error. …

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New: International Relations Theories and International Law

This brief essay describes the main approaches to explaining international relations and how they might be useful in understanding international law.

As used in academic discourse in the United States, international relations (IR) theory is a sub-field of political science that applies the methods of modern social science to develop and test hypotheses identifying the causes of “outcomes” that occur in world — as opposed to domestic — politics. The most important outcome is war (or peace); other outcomes of interest are alliances, treaties, varying levels of international trade, and the creation or effectiveness of international institutions like the United Nations (UN) and the International Criminal Court (ICC). A useful abstraction is to characterize all international outcomes along one spectrum of cooperation and conflict, with perpetual world peace on one end and no-holds-barred world war on the other. The term “international relations” is commonly used in non-academic settings …

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REVISION: Principal Costs

This Article offers a new theory of the optimal division of control between investors and managers in a business firm. We argue that the optimal division of control minimizes the sum of agency costs and what we call principal costs. Principal costs arise when investors exercise control in a manner that, inadvertently or intentionally, harms their collective interest in maximizing the firm’s value. Principal costs can result from conflicts of interest among investors, collective-action problems, and mistaken decisions caused by a lack of information or expertise. The desire to avoid principal costs is the reason that investors delegate control to managers. But because of the risk of agency costs, investors often retain some control, the exercise of which entails the risk of principal costs. We observe that the division of control rights between investors and mangers is a zero-sum proposition, and therefore that the tradeoff between principal costs and agency costs is inescapable. More …

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New: Strengthening Charity Law: Replacing Media Oversight with Advance Rulings for Nonprofit Fiduciaries

This Article considers three urgent challenges facing the charitable community and its state regulators: too little fiduciary duty law for nonprofits, the rise of media enforcement of wrongdoing in charities, and an inherent tension in the state’s dual role as enforcer and protector of the nonprofit sector. It analyzes whether the scarcity of law is really a problem by comparing nonprofit organizations with business organizations and concludes that charities lack the self-enforcement mechanisms of businesses and therefore need more government guidance. It evaluates whether the media has made governmental supervision obsolete and expresses skepticism about the press displacing state oversight. The solution presented, an advance-ruling procedure for fiduciary duty questions, proposes that states shift their focus from better enforcement against wrongdoers ex post to better charity governance ex ante by devoting more attention and resources to assisting well-meaning charity directors in …

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REVISION: The Artificial Collective-Action Problem in Lawsuits Against Insured Defendants

In lawsuits against defendants covered by liability insurance, the parties negotiate toward a single settlement amount that collectively binds the plaintiff and all defense-side parties (the defendant and its liability insurer). This settlement method produces a collective-action problem whenever the trial outcome is uncertain and the potential damages exceed the limit of the defendant’s liability policy. When such a suit settles, the insurer often pays more, and the defendant/policyholder pays less, than each expected to pay if the case had gone to trial. The insurer is thus biased against, and the policyholder toward, pre-trial settlement. This conflict could produce an unnecessary trial or a settlement that overcompensates the plaintiff, depending on which bias prevails. To prevent such results, courts (and some insurance policies) place settlement duties on liability insurers. But enforcing these duties entails additional litigation, compliance costs, and the risk of legal error. …

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REVISION: Principal Costs and Governance Structures in the Theory of the Firm

This Article offers a new theory of the optimal division of control between investors and managers in a business firm. We argue that the optimal division of control minimizes the sum of agency costs and what we call principal costs. Principal costs arise when investors exercise control in a manner that, inadvertently or intentionally, harms their collective interest in maximizing the firm’s value. Principal costs can result from conflicts of interest among investors, collective-action problems, and mistaken decisions caused by a lack of information or expertise. The desire to avoid principal costs is the reason that investors delegate control to managers. But because of the risk of agency costs, investors often retain some control, the exercise of which entails the risk of principal costs. We observe that the division of control rights between investors and mangers is a zero-sum proposition, and therefore that the tradeoff between principal costs and agency costs is inescapable. More …

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POSTED IN Faculty Research

REVISION: The Artificial Collective-Action Problem in Lawsuits Against Insured Defendants

In lawsuits against defendants covered by liability insurance, the parties negotiate toward a single settlement amount that collectively binds the plaintiff and all defense-side parties (the defendant and its liability insurer). This settlement method produces a collective-action problem whenever the trial outcome is uncertain and the potential damages exceed the limit of the defendant’s liability policy. When such a suit settles, the insurer often pays more, and the defendant/policyholder pays less, than each expected to pay if the case had gone to trial. The insurer is thus biased against, and the policyholder toward, pre-trial settlement. This conflict could produce an unnecessary trial or a settlement that overcompensates the plaintiff, depending on which bias prevails. To prevent such results, courts (and some insurance policies) place settlement duties on liability insurers. But enforcing these duties entails additional litigation, compliance costs, and the risk of legal error. …

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2015 Corporate Law Symposium: The Changing Face of Corporate Compliance and Corporate Governance

On Monday, February 9th, 2015, the Corporate Law Center hosted its annual symposium. This year’s topic was the “Changing Face of Corporate Compliance and Corporate Governance.” The symposium consisted of two panel discussions, and was followed by a keynote address given by Thomas Baxter, the General Counsel and Executive Vice President of the Federal Reserve Bank of New York.

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POSTED IN Banking & Finance, Corporate Governance, Corporate Law, Fordham Corporate Law Center, Fordham Event Recap

“After Law School What? How to Leverage Your Legal Education In Non-Traditional Ways,” with Deborah L. Jacobs

On February 24th, the Fordham Corporate Law Center held a Business Law Practitioners Series Program entitled “After Law School What? How to Leverage Your Legal Education In Non-Traditional Ways,” with Deborah L. Jacobs. Ms. Jacobs is an entrepreneur, an attorney, and an award-winning journalist. Spending her educational career in New York City, she graduated from Barnard College, received her J.D. from Columbia Law School, and her M.S. from the Columbia Graduate School of Journalism. She worked as an adjunct professor at Fordham Law School for the legal research and writing course. Her last position was with Forbes as a financial journalist and senior editor. Her recent book, entitled Estate Planning Smarts – a guide for planning retirement, wills and trusts – is a best seller, and called a category killer by one review. She is currently working on the 4th edition of the book.

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POSTED IN BLPS, Fordham Corporate Law Center, Lectures Series, Uncategorized

- Fordham Corporate Center