Syllabus - Corporate Law and Governance (62626)

Course/Module description:
In every developed market-economy, organizational law in general and corporate law in particular plays an essential role in the economy by providing a wide range of rules, arrangements and legal-entities, that design the way in which corporations, as well as other legal entities, are governed. Therefore, the knowledge and understanding of corporate governance policy is essential not only for designing corporate law policy but also for designing general economic policy and firms behavior. What is, if any, the essential role of organizational law from an economic perspective? What institutions in modern corporate law facilitate those roles? How much power should shareholders have vis-à-vis managers? How much and in what form should managers be compensated? How do all those questions relate to developed financial markets and economic growth? What benefits and constraints do developed financial markets impose on corporate governance and corporate law?

We will consider these questions and others with particular emphasis on American corporate law and the American financial markets, focusing on diffused ownership companies. We will analyze corporate law and corporate governance from an analytical and critical economic perspective. We will challenge common legal practices and theories as well as classical economic concepts.

Students will be encouraged to explore these issues by engaging in class discussions, and by writing analytical seminar papers. There will be no exam.

Required Reading:
Part I – THE CORPORATE FORM
Class 1 – The Essential role of Organizational Law
Please read the introduction and chapters III, IV, VI: Henry Hansmann & Reinier Kraakman, “The Essential Role of Organizational Law”, 110 Yale Law Journal 387 (2000).
Class 2 – Who Needs Limited Liability?
Pls. read the full article except for chapter III: Frank H. Easterbrook & Daniel R. Fischel, “Limited Liability and the Corporation”, 52 University of Chicago Law Review 89 (1985).
Pls. read the full article except for chapters II, III, V: Joseph A. Grundfest, “The Limited Future of Unlimited Liability: A Capital Markets Perspective”, 102 Yale Law Journal 387 (1992).
Recommended reading: Henry Hansmann & Reinier Kraakman, “Towards Unlimited Liability for Corporate Torts”, 100 Yale Law Journal 1879 (1991).
Class 3 – Agency Theory
Introduction, Chapters I, II, III of: Eugene Fama & Michael Jensen, “Separation of Ownership and Control”, 26 Journal of Law & Economics 301 (1983).

Introduction of Michael Jensen & William Meckling, ”Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”, Journal of Financial Economics 3(4) 305-360 (1976).

Part II – LEGAL AND MARKET SOLUTIONS TO AGENCY PROBLEMS IN DIFFUSED OWNERSHIP COMPANIES

Class 4 - The Board of Directors and its Fiduciary Duty

Oliver Hart, “An economist’s view on fiduciary duty”, 42 University of Toronto Law Journal 299 (1993).

Mark Maremont, “The CEO's Private Golf Shuttle”, Wall Street Journal, Oct. 1, 2005.

Recommended reading: A. A. Berle Jr., “Corporate Powers as Powers in Trust”, 44, Harvard Law Review 1049 (1931).

Class 5 - Takeovers and the Market for Corporate Control I
p. 175-182 of Sanford Grossman & Oliver Hart, “One Share, One Vote, and the Market for Corporate Control”, 20 Journal of Financial Economics 175 (1988).

Easterbrook & Fiscel, The Proper Role of a Target’s Management in Responding to a Tender Offer, 94 Har. L. Rev. 1161 (1984)

Part III – THE CURRENT DEBATE ON SHAREHOLDER ACTIVISM

Class 6 - Hedge Fund Activism

Pls. read this article except for chapter II: Kahan, Marcel and Rock, Edward B., Hedge Funds in Corporate Governance and Corporate Control , 155 Uni. Penn. L. Rev. 1021 (2007).

Class 7 – The 2014 Bebchuk Lipton Debate on the Long-Term Effects of Hedge Fund Activism

Introduction, Chapters I, II and VII of: Lucian A. Bebchuk, Alon Brav, and Wei Jiang, The long-term effects of hedge fund activism, Forthcoming, Columbia Law Review, vol. 114, 2014.

Martin Lipton, Wachtell, Lipton, Rosen & Katz, The Bebchuk Syllogism, The Harvard Law School Forum on Corporate Governance and Financial Regulation, August 26, 2013.

Recommended: Martin Lipton, Wachtell, Lipton, Rosen & Katz, Current Thoughts About Activism, Revisited, The Harvard Law School Forum on Corporate Governance and Financial Regulation, April 8, 2014.

Class 8 - Shareholders Voting: Empty Voting, Vote Buying & the New Financial Products

Pages 628-654, 682-684 of Henry T. C. Hu, Bernard Black, “Equity and Debt Decoupling and Empty Voting II: Importance and Extensions”, 156 U. Pa L. Rev. 625 (2007)

Recommended reading: Henry T. C. Hu & Bernard S. Black, Hedge Funds, Insiders and Empty Voting: Decoupling of Economic and Voting Ownership in Public Companies (working paper 2006), available at http://ssrn.com/abstract&eq;874098.

Class 9 – The 2014 Bebchuk Lipton Debate on Blockholder Disclosure

Pls. read p. 40-52 of Lucian Bebchuk and Robert J. Jackson, Jr., The Law and Economics of Blockholder Disclosure, Harvard Business Law Review, Vol. 2, No. 1, pp. 40-60, Spring 2012.
Wachtell, Lipton, Rosen & Katz, Petition for Rulemaking under Section 13 of the Securities Exchange Act of 1934, March 7, 2011.

Class 10 – The Bebchuk Lipton Debate on Shareholder Access to the Ballot

Pls. read p. 1-19 of Lucian Bebchuk, The Case for Shareholder Access to the Ballot, The Business Lawyer (2003) reprinted in Shareholder Access to the Corporate Ballot
Pls. read p. 67-70, 82-94 of Martin Lipton and Steve Rosenblum, Election Contests in the Company’s Proxy: An Idea Whose Time Has Not Come, The Business Lawyer (2003) reprinted in Shareholder Access to the Corporate Ballot

Recommended reading: The Bebchuk Bylaw: Devilish.. but Brilliant, 6 The M&A Journal 10 (2006).

Part IV – EXECUTIVE COMPENSATION
Class 11 – Executive Compensation – The Big Picture
Introduction and Summary, List of Recommendations snd Guiding Principles, and Chapters 1, 2, 6 of Michael Jensen, Kevin Murphy & Eric Wruck, Remuneration: Where We've Been, How We Got to Here, What are the Problems, and How to Fix Them, working paper (2004).

Class 12 – Executive Compensation As an Agency Problem
Chapter 5, 6 of Michael Jensen, Kevin Murphy & Eric Wruck, Remuneration: Where We've Been, How We Got to Here, What are the Problems, and How to Fix Them, working paper (2004)

Lucian Bebchuk & Jesse Fried, “Pay without Performance: Overview of the Issues,” 17 Journal of Applied Corporate Finance 8-22 (2005).
Recommended readings:
Charles Forelle & James Bandler, “The Perfect Payday”, Wall Street Journal Mar. 18, 2006, available at http://online.wsj.com/news/articles/SB114265075068802118 Xavier Gabaix & Augustin Landier, Why Has CEO Pay Increased So Much?, Forthcoming in the Quarterly Journal of Economics, 2007.

Hall, Brian J., and Jeffrey B. Liebman (1998), Are CEOs Really Paid Like Bureaucrats? Quarterly Journal of Economics 113, 653-691.

Class 13 – Nitzan Shilon, The Case for Cash-for-Performance (working paper)

Class 14 – Core, Guay & Larcker, Executive Equity Compensation: A Survey

Class 15 – David Walker, The Way We Pay Now: Understanding and Evaluating Performance-Based Executive Pay, 1 Journal of Law, Finance, and Accounting 395 (2016).

Class 16 –
Alexander Pepper, Julie Gore & Alf Crossman, Are Long-Term Incentive Plans an Effective and Efficient Way of Motivating Senior Executives? 23 (1) Human Resource Management Journal 36 (2013).
Class 17 – Executive Stock Holdings as a Tool for Executive Accountability (i)

Nitzan Shilon, CEO Stock Ownership Policies – Rhetoric and Reality, 90(1) Indiana Law Journal 353 (2015).

Class 18 – Executive Stock Holdings as a Tool for Executive Accountability (ii)
Nitzan Shilon, Putting Directors Money Where Their Mouths Are: A New Approach to Corporate TakeoverDynamics, COLUM. BUS. L. REV. 511 (2017).

Part V – CORPORATE CONTROL TRANSACTIONS
Class 19 – Introduction and Chapters II, III in Frank Easterbrook & Daniel R. Fischel, Corporate Control Transactions, 91 Yale L.J. 698 (1982)

Class 20 – Lucian Bebchuk, Efficient and Inefficient Sales of Corporate Control, 109 Quarterly Journal of Economics 957-993 (1994) (please do not try to understand the formulas, but rather focus on the qualitative analysis of the paper).

Class21– Freeze-Outs
Introduction and p. 22, 30- 47, 55-63 of Subramanian, Guhan. Fixing Freeze-outs, 115 Yale Law Journal 2 (2005).

Part VI – THE FUTURE OF CORPORATE GOVERNANCE

Class 22 – Outlook to the Future of Corporate Governance
Jill Fisch, The Overstated Promise of Corporate Governance (reviewing Corporate Governance: Promises Kept, Promises Broken by Jonathan Macey), 77(2) Chic. L. Rev. 923 (2010).