{"id":4778,"date":"2020-03-27T14:38:25","date_gmt":"2020-03-27T18:38:25","guid":{"rendered":"https:\/\/journals.law.harvard.edu\/hblr\/?page_id=4778"},"modified":"2025-02-18T17:17:37","modified_gmt":"2025-02-18T22:17:37","slug":"volume-10-issue-1","status":"publish","type":"page","link":"https:\/\/journals.law.harvard.edu\/hblr\/volume-10-issue-1\/","title":{"rendered":"Volume 10, Issue 1"},"content":{"rendered":"
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LEGAL & REGULATORY COMPLIANCE<\/h5>\n

THE UNTENABLE CASE FOR KEEPING INVESTORS IN THE DARK<\/a><\/h3>\n
Lucian A. Bebchuk, Robert J. Jackson Jr., James D. Nelson & Roberto Tallarita
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This Article seeks to contribute to the heated debate on the disclosure of political spending by public companies. A rulemaking petition urging SEC rules requiring such disclosure has attracted over 1.2 million comments since its sub- mission almost nine years ago, but the SEC has not yet made a decision on the petition. The petition has sparked a debate among academics, members of the investor and issuer communities, current and former SEC commissioners, and members of Congress. In the course of this debate, opponents of mandatory dis- closure have put forward a wide range of objections to such SEC mandates. This Article provides a comprehensive and detailed analysis of these objections, and it shows that they fail to support an opposition to transparency in this area.<\/p>\n

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ENTREPRENEURSHIP & STARTUPS<\/h5>\n

DO FOUNDERS CONTROL START-UP FIRMS THAT GO PUBLIC?<\/a><\/h3>\n
Brian Broughman & Jesse M. Fried
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Black & Gilson (1998) argue that an IPO-welcoming stock market stimu- lates venture deals by enabling VCs to give founders a valuable \u201ccall option on control.\u201d We study 18,000 startups to investigate the value of this option. Among firms that reach IPO, 60% of founders are no longer CEO. With little voting power, only half of the others survive three years as CEO. At initial VC financ- ing, the probability of getting real control of a public firm for three years is 0.4%. Our results shed light on control evolution in startups, and cast doubt on the plausibility of the call-option theory linking stock and VC markets.<\/p>\n

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BUSINESS & CORPORATIONS<\/h5>\n

SELF-DRIVING CORPORATIONS?<\/a><\/strong><\/h3>\n
John Armour & Horst Eidenm\u00fcller
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What are the implications of artificial intelligence (AI) for corporate law? In this essay, we consider the trajectory of AI\u2019s evolution, analyze the effects of its application on business practice, and investigate the impact of these develop- ments for corporate law. Overall, we claim that the increasing use of AI in cor- porations implies a shift from viewing the enterprise as primarily private and facilitative, towards a more public, and regulatory, conception of the law gov- erning corporate activity. Today\u2019s AI is dominated by machine learning applica- tions which assist and augment human decision-making. These raise multiple challenges for business organization, the management of which we collectively term \u201cdata governance.\u201d The impact of today\u2019s AI on corporate law is coming to be felt along two margins. First, we expect a reduction across many standard dimensions of internal agency and coordination costs. Second, the oversight challenges\u2014and liability risks\u2014at the top of the firm will rise significantly. Tomorrow\u2019s AI may permit humans to be replaced even at the apex of corporate decision-making. This is likely to happen first in what we call \u201cself-driving sub- sidiaries\u201d performing very limited corporate functions. Replacing humans on corporate boards with machines implies a fundamental shift in focus: from con- trolling internal costs to the design of appropriate strategies for controlling \u201cal- gorithmic failure,\u201d that is, unlawful acts by an algorithm with potentially severe negative effects (physical or financial harm) on external third parties. We dis- cuss corporate goal-setting, which in the medium term is likely to become the center of gravity for debate on AI and corporate law. This will only intensify as technical progress moves toward the possibility of fully self-driving corpora- tions. We outline potential regulatory strategies for their control. The potential for regulatory competition weakens lawmakers\u2019 ability to respond, and so even though the self-driving corporation is not yet a reality, we believe the regulatory issues deserve attention well before tomorrow\u2019s AI becomes today\u2019s.<\/p>\n

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LEGAL & REGULATORY COMPLIANCE<\/h5>\n

BOUNTIES FOR ERRORS: MARKET TESTING CONTRACTS<\/a><\/h3>\n
Robert K. Rasmussen & Michael Simkovic
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Many scholars and courts have championed a plain meaning approach to interpreting commercial contracts between sophisticated parties. These parties are assumed to carefully draft contracts to make their rights and obligations clear and knowable if the language is enforced as written. However, recent events in the commercial lending arena have raised questions about the efficacy of this approach. Aggressive parties have combed through reams of complex documents looking for ways around seemingly clear contractual barriers. For example, Hovnanian promised to intentionally default on a debt payment to one of its wholly-owned subsidiaries in exchange for favorable financing from a hedge fund whose substantial CDS short position would have otherwise become worthless. In another case, J. Crew, faced with financial distress, found a way to divert the crown jewels from the collateral package pledged to its lenders, and instead use this value to prevent a default on unsecured notes that were coming due. Both of these transactions upended the expectations of those who put the original deals together. They raise the question: how can systems that depend on clear rules evolve, correct problems and reduce unintended consequences with- out resorting to a subjective standard? One approach is to crowdsource error- checking to market-participants by paying bounties to those who detect and pub- licize flaws in rules-based systems so that problems can be diagnosed and cor- rected (or, at least, their consequences mitigated) by subsequently revising the rules. This article considers such an iterative approach in the context of the Credit Default Swaps Market and the syndicated loan market.<\/p>\n

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SECURITIES & FINANCIAL REGULATION<\/h5>\n

DRIVELESS FINANCE<\/a><\/strong><\/h3>\n
Hilary J. Allen<\/i><\/b><\/strong><\/em><\/h6>\n

While safety concerns are at the forefront of the debate about driverless cars, such concerns seem to be less salient when it comes to the increasingly sophisticated algorithms driving the financial system. This Article argues, how- ever, that a precautionary approach to sophisticated financial algorithms is jus- tified by the potential enormity of the social costs of financial collapse. Using the algorithm-driven fintech business models of robo-investing, marketplace lending, high frequency trading and token offerings as case studies, this Article illustrates how increasingly sophisticated algorithms (particularly those capable of machine learning) can exponentially exacerbate complexity, speed and corre- lation within the financial system, making the system more fragile. This Article also explores how such algorithms may undermine some of the regulatory re- forms that were implemented in the wake of the 2008 financial crisis to make the financial system more robust. Through its analysis, this Article demonstrates that the algorithmic automation of finance (a phenomenon I refer to as \u201cdriver- less finance\u201d) deserves close attention from a financial stability perspective. This Article argues that regulators should become involved with the processes by which the relevant algorithms are created, and that such efforts should begin immediately\u2014while the technology is still in its infancy and remains somewhat susceptible to regulatory influence.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

LEGAL & REGULATORY COMPLIANCE THE UNTENABLE CASE FOR KEEPING INVESTORS IN THE DARK Lucian A. Bebchuk, Robert J. Jackson Jr., […]<\/p>\n","protected":false},"author":109,"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":""}},"footnotes":""},"class_list":["post-4778","page","type-page","status-publish","hentry"],"jetpack_shortlink":"https:\/\/wp.me\/PgKEUK-1f4","jetpack-related-posts":[{"id":3487,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-3-issue-2\/","url_meta":{"origin":4778,"position":0},"title":"Volume 3, Issue 2 (2013)","author":"wpengine","date":"October 15, 2013","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION \u2022 LEGAL & REGULATORY COMPLIANCE PRIVATE REGULATION OF INSIDER TRADING IN THE SHADOW OF LAX PUBLIC ENFORCEMENT: EVIDENCE FROM CANADIAN FIRMS Laura Nyantung Beny and Anita Anand Like firms in the United States, many Canadian firms voluntarily restrict trading by corporate insiders beyond the requirements of\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":5049,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-13-issue-1\/","url_meta":{"origin":4778,"position":1},"title":"Volume 13, Issue 1","author":"wgu","date":"August 8, 2023","format":false,"excerpt":"BUSINESS & CORPORATIONS IS \u201cPUBLIC COMPANY\u201d STILL A VIABLE REGULATORY CATEGORY? George S. Georgiev This Article suggests that the ubiquitous \u201cpublic company\u201d regulatory category, as currently constructed, has outlived its effectiveness in fulfilling core goals of the modern administrative state. An ever-expanding array of federal economic regulation hinges on public\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2320,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-2-issue-1\/","url_meta":{"origin":4778,"position":2},"title":"Volume 2, Issue 1 (2012)","author":"wpengine","date":"July 6, 2012","format":false,"excerpt":"[vc_row][vc_column][vc_column_text] FOREWORD Hal S. Scott POLITICS & ECONOMICS OLD SINS AND LONG SHADOWS Lee C. Buchheit Old sins cast long shadows. In the world of sovereign debt, so apparently do new ones. It used to be that the period of time that elapsed between a serious policy mistake and the\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":3822,"url":"https:\/\/journals.law.harvard.edu\/hblr\/volume-4-issue-1\/","url_meta":{"origin":4778,"position":3},"title":"Volume 4, Issue 1 (2014)","author":"Dayme Sanchez","date":"August 8, 2014","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION \u2022 BANKING REGULATING CAPITAL Prasad Krishnamurthy Most observers agree that the excessive debt or leverage of systemically important financial institutions (SIFIs) was a central reason why the housing crash of 2007\u20132009 led to a recession. The Dodd-Frank Act authorizes the Financial Stability Oversight Council and the\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4231,"url":"https:\/\/journals.law.harvard.edu\/hblr\/hblr-online-volume-6\/","url_meta":{"origin":4778,"position":4},"title":"Volume 6 (2015\u20132016)","author":"ehansen","date":"July 31, 2016","format":false,"excerpt":"SECURITIES & FINANCIAL REGULATION IT AIN'T BROKE: THE CASE FOR CONTINUED SEC REGULATION OF P2P LENDING Benjamin Lo In 2008, the Securities and Exchange Commission made waves by deciding to regulate the nascent peer-to-peer lending industry. Only two lending platforms survived the SEC\u2019s entry into a previously lightly-regulated market. Under\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4233,"url":"https:\/\/journals.law.harvard.edu\/hblr\/hblr-online-volume-3\/","url_meta":{"origin":4778,"position":5},"title":"Volume 3 (2012\u20132013)","author":"ehansen","date":"July 31, 2016","format":false,"excerpt":"ENVIRONMENTAL, SOCIAL, & GOVERNANCE WHY ARE FOREIGN INVESTMENTS IN DOMESTIC ENERGY PROJECTS NOW UNDER CFIUS SCRUTINY? Stephen Heifetz and Michael Gershberg CFIUS now actively reviews and sometimes alters transactions that result in foreign control of U.S. energy companies. There are three primary drivers behind this recent scrutiny. SECURITIES & FINANCIAL\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\/4778","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\/109"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/comments?post=4778"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/pages\/4778\/revisions"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/hblr\/wp-json\/wp\/v2\/media?parent=4778"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}