{"id":4605,"date":"2018-09-13T17:37:24","date_gmt":"2018-09-13T21:37:24","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?page_id=4605"},"modified":"2025-02-18T18:25:44","modified_gmt":"2025-02-18T23:25:44","slug":"volume-8-issue-1","status":"publish","type":"page","link":"https:\/\/journals.law.harvard.edu\/hblr\/volume-8-issue-1\/","title":{"rendered":"Volume 8, Issue 1 (2018)"},"content":{"rendered":"
CORPORATE LAW & GOVERNANCE<\/h5>\n

CAN RESTITUTION SAVE FRAGILE SPIRELESS NETWORKS?<\/a><\/h3>\n
Ariel Porat & Robert E. Scott<\/strong><\/em><\/h6>\n
\n
\n
\n
\n
\n
\n

This Article examines the dramatic increase in business networks in recent decades and considers whether the law can play a useful role in supporting the efficient functioning of these inter-firm relationships for coordination and cooperation. Repeat play, reputational sanctions, and norms of trust and reciprocity are the common explanations for the flourishing of networks in many industries and places. But the evidence also shows that a certain class of networks often fails to survive or function effectively and beneficial cooperation among these network members is impaired. These fragile networks develop organically without a controlling party or hierarchy at the center of the network to facilitate network formation. Lacking a controlling entity, they are \u201cwebs without any spider.\u201d Clusters of industrial districts are traditional examples of this class of networks. More recently, the information revolution has stimulated a dramatic increase in another type of \u201cspiderless\u201d network: networks of strategic alliances are now a common means of organizing collaborations among firms in high technology and R&D intensive settings. In both types of spiderless networks there are no legal mechanisms to control moral hazard and free riding risks during the period of network formation and operation. We show how in theory the law could support spiderless networks by allowing firms who externalize benefits to other firms in the network to recover for those benefits. Practical considerations may limit the implementation of a full-blown right of restitution. Nevertheless, by recognizing a limited right to recover for uncompensated costs and benefits in appropriate cases, the law can function as a background norm for sharing costs and benefits among network members, motivating them to overcome daunting coordination problems. We consider several implementation issues, show how they might be resolved, and apply our analysis to a set of well-known spiderless networks.<\/p>\n

\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
CORPORATE LAW & GOVERNANCE<\/h5>\n

CONCENTRATED OWNERSHIP AND LONG-TERM SHAREHOLDER VALUE<\/a><\/h3>\n
Albert H. Choi<\/i><\/b><\/h6>\n
\n
\n
\n

Corporate ownership structure with a controlling shareholder is wide- spread around the world. Conventional accounts of concentrated ownership warn against controlling shareholders\u2019 abusive exercise of control and extrac- tion of \u201cprivate benefits\u201d at the expense of minority shareholders. These accounts, however, are in sharp contrast with the success achieved by many firms with concentrated ownership and the resurgent popularity of dual class struc- ture (which separates voting rights from rights to profits) with uncontested control, as evidenced by Google, Facebook, and many others. This Article attempts to reconcile the empirical evidence with the existing theory by demonstrating how a moderate amount of private benefits of control can actually enhance long- term value by inducing commitment and investment by the controlling shareholder. On the downside, because private benefits of control are less sensitive to firm performance, they can undermine the controlling shareholder\u2019s incentive to maximize firm value. On the upside, because private benefits of control are non- transferrable (they are \u201cprivate\u201d and illiquid), they create a lock-in effect, making the controlling shareholder more likely to stay with the firm for the long-term and care about the firm\u2019s long-term reputation and performance. The analysis renders a number of implications. For instance, this Article shows that achieving the optimal balance may require a formal separation of voting rights from rights to profits, as is done in a dual class structure. This can explain why certain founders are taking their companies public with a dual class structure even though such structure is considered to be inefficient and can lead to lower proceeds from equity sale. It also renders a normative argument that, instead of a categorical ban, a more nuanced approach towards such mechanisms, such as heightened judicial scrutiny, could be superior.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

\n
CORPORATE LAW & GOVERNANCE \u2022 HUMAN RIGHTS & LABOR<\/h5>\n

IS SAY ON PAY ALL ABOUT PAY? THE IMPACT OF FIRM PERFORMANCE<\/a><\/h3>\n
Jill Fisch, Darius Palia & Steven Davidoff Solomon<\/strong><\/em><\/h6>\n
\n
\n
\n
\n
\n
\n

The Dodd-Frank Act of 2010 mandated a number of regulatory reforms including a requirement that large U.S. public issuers provide their shareholders with the opportunity to cast a non-binding vote on executive compensation. The \u201csay on pay\u201d vote was designed to rein in excessive levels of executive compensation and to encourage boards to adopt compensation structures that tie executive pay more closely to performance. Although the literature is mixed, many studies question whether the statute has had the desired effect. Shareholders at most issuers overwhelmingly approve the compensation packages, and pay levels continue to be high.
\nAlthough a lack of shareholder support for executive compensation is relatively rare, say on pay votes at a number of issuers have reflected low levels of shareholder support. A critical question is what factors drive a low say on pay vote. In other words, is say on pay only about pay?<\/p>\n

\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
CORPORATE LAW & GOVERNANCE<\/h5>\n

INEFFICIENT TAILORING: THE PRIVATE ORDERING PARADOX IN CORPORATE LAW<\/a><\/h3>\n
Michal Barzuza<\/strong><\/em><\/h6>\n
\n
\n
\n
\n
\n
\n

The conventional wisdom in corporate law posits that private ordering has an important virtue: it allows firms to efficiently tailor governance terms to their particular needs. This virtue is routinely advanced to justify the largely \u201cenabling\u201d structure of U.S. corporate law, and to oppose \u201cone-size-fits-all\u201d mandatory regulation.
\nThis Article argues that private ordering frequently produces inefficient tailoring of corporate governance terms\u2014firms that need governance constraints are precisely the ones that do not volunteer to implement them. In theory, the conventional approach assumes that these firms will implement constraints voluntarily because otherwise they would be disciplined by market forces. Yet such reliance on market discipline has an inherent paradox: the firms that would benefit most from governance constraints are precisely the ones that are subject to weak market discipline.
\nEvidence from myriad studies and contexts suggests that firms\u2019 needs for constraints are often not, or negatively, correlated with having them. For example, the inclination to cross-list on US exchanges is negatively correlated with controlling shareholders\u2019 private benefits, and with the cross-listing premium; firms that benefitted from independent directors were precisely the ones that did not have them prior to SOX; managers of firms that investors believed would benefit most from proxy access were precisely those who were most likely to contest them; Nevada\u2019s lax fiduciary duties attract firms that are prone to financial reporting failures. The Article concludes with implications for data interpretation and corporate law policy.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

CORPORATE LAW & GOVERNANCE CAN RESTITUTION SAVE FRAGILE SPIRELESS NETWORKS? Ariel Porat & Robert E. Scott This Article examines the […]<\/p>\n","protected":false},"author":6,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-4605","page","type-page","status-publish","hentry"],"jetpack_shortlink":"https:\/\/wp.me\/PgKEUK-1ch","jetpack-related-posts":[{"id":5258,"url":"https:\/\/journals.law.harvard.edu\/hblr\/corporate-law-governance\/","url_meta":{"origin":4605,"position":0},"title":"Corporate Law & Governance","author":"wgu","date":"February 15, 2025","format":false,"excerpt":"VOLUME 15 \u2022 COLUMNS THE DUAL CLASS DILEMMA AND THE SUNSET-CLAUSE SOLUTION\u00a0 Adrian Brown The desirability of dual-class stock has been a source of substantial controversy. Some scholars, commentators, and industry participants are wholly in favor of such arrangements. Others are wholly opposed. While neither of these diametrically opposed views\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4740,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-8-issue-2\/","url_meta":{"origin":4605,"position":1},"title":"Volume 8, Issue 2 (2018)","author":"wgu","date":"November 20, 2019","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION INVESTOR-DRIVEN FINANCIAL INNOVATION Kathryn Judge Financial regulations often encourage or require market participants to hold particular types of financial assets. One unintended consequence of this form of regulation is that it can spur innovation to increase the effective supply of favored assets. This Article examines when\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4332,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-6-issue-2\/","url_meta":{"origin":4605,"position":2},"title":"Volume 6, Issue 2 (2017)","author":"ehansen","date":"January 5, 2017","format":false,"excerpt":"TAXATION EVALUATION BEPS: A RECONSIDERATION OF THE BENEFITS PRINCIPLE AND PROPOSAL FOR UN OVERSIGHT Reuven S. Avi-Yonah & Haiyan Xu The Financial Crisis of 2008 and Great Recession that followed have exacerbated income inequality within and between countries. In the aftermath of the economic turbulence, politicians have turned their attention\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5256,"url":"https:\/\/journals.law.harvard.edu\/hblr\/taxation\/","url_meta":{"origin":4605,"position":3},"title":"Taxation","author":"wgu","date":"February 15, 2025","format":false,"excerpt":"VOLUME 11 \u2022 COLUMNS RETHINKING TAX FOR THE DIGITAL ECONOMY AFTER COVID-19 Tarc\u00edsio Diniz Magalh\u00e3es and Allison Christians Before COVID-19 arrived, policymakers from around the world were busy working on the makings of a new global tax consensus to reflect structural changes in the world economy as a result of\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4234,"url":"https:\/\/journals.law.harvard.edu\/hblr\/hblr-online-volume-4\/","url_meta":{"origin":4605,"position":4},"title":"Volume 4 (2013\u20132014)","author":"ehansen","date":"July 31, 2016","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION AN EVALUATION OF THE U.S. REGULATORY RESPONSE TO SYSTEMIC RISK AND FAILURE POSED BY DERIVATIVES Kimberly Summe This Article will focus on Titles II and VII of the Dodd-Frank Act in order to examine how transacting in derivatives has changed in the aftermath of this legislation\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5276,"url":"https:\/\/journals.law.harvard.edu\/hblr\/environment-social-governance\/","url_meta":{"origin":4605,"position":5},"title":"Environment, Social, & Governance","author":"wgu","date":"February 15, 2025","format":false,"excerpt":"VOLUME 15 \u2022 COLUMNS ACTIVISM ON HOLD: THE LEGAL BARRIERS TO SHAREHOLDER IMPACT LITIGATION Dennis Ronel In recent years, shareholder activism in the United States has surged, driven by the rise of Environmental, Social, and Governance (ESG) policies and heightened corporate stewardship. This Column examines the challenges shareholder activists face\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/pages\/4605","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/comments?post=4605"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/pages\/4605\/revisions"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/media?parent=4605"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}