Published from to
Publication Types
Categories
Lucian A. Bebchuk, The Myth That Insulating Boards Serves Longterm Value, 113 Colum. L. Rev. 1637 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Shareholders
Type: Article
Lucian A. Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2005)(Reprinted in Foundations of Corporate Law, 2nd ed., (Romano, ed., 2010)).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Lucian A. Bebchuk & Jesse Fried, Pay without Performance: The Unfulfilled Promise of Executive Compensation (Harvard Univ. Press 2004).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Financial Reform
,
Corporate Governance
,
Corporate Law
Type: Book
Abstract
The Unfulfilled Promise of Executive Compensation Lucian A. Bebchuk. on flawed schemes — to get unprecedented amounts of compensation that were to a substantial degree unrelated to their own performance. The stock market boom is a ...
Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency Problems of Institutional Investors (June 1, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
Type: Other
Abstract
We analyze how the rise of institutional investors has transformed the governance landscape. While corporate ownership is now concentrated in the hands of institutional investors that can exercise stewardship of those corporations that would be impossible for dispersed shareholders, the investment managers of these institutional investors have agency problems vis-à-vis their own investors. We develop an analytical framework for examining these agency problems and apply it to study several key types of investment managers. We analyze how the investment managers of mutual funds - both index funds and actively managed funds - have incentives to under-spend on stewardship and to side excessively with managers of corporations. We show that these incentives are especially acute for managers of index funds, and that the rise of such funds has system-wide adverse consequences for corporate governance. Activist hedge funds have substantially better incentives than managers of index funds or active mutual funds, but their activities do not provide a complete solution for the agency problems of institutional investors. Our analysis provides a framework for future work on institutional investors and their agency problems, and generates insights on a wide range of policy questions. We discuss implications for disclosure by institutional investors; regulation of their fees; stewardship codes; the rise of index investing; proxy advisors; hedge funds; wolf pack activism; and the allocation of power between corporate managers and shareholders.
Lucian A. Bebchuk & Kobi Kastiel, The Untenable Case For Perpetual Dual-Class Stock, 103 Va. L. Rev. 585 (2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Shareholders
Type: Article
Abstract
The desirability of a dual-class structure, which enables founders of public companies to retain a lock on control while holding a minority of the company’s equity capital, has long been the subject of a heated debate. This debate has focused on whether dual-class stock is an efficient capital structure that should be permitted at the time of initial public offering (“IPO”). By contrast, we focus on how the passage of time since the IPO can be expected to affect the efficiency of such a structure. Our analysis demonstrates that the potential advantages of dual-class structures (such as those resulting from founders’ superior leadership skills) tend to recede, and the potential costs tend to rise, as time passes from the IPO. Furthermore, we show that controllers have perverse incentives to retain dual-class structures even when those structures become inefficient over time. Accordingly, even those who believe that dual-class structures are in many cases efficient at the time of the IPO should recognize the substantial risk that their efficiency may decline and disappear over time. Going forward, the debate should focus on the permissibility of finite-term dual-class structures — that is, structures that sunset after a fixed period of time (such as ten or fifteen years) unless their extension is approved by shareholders unaffiliated with the controller. We provide a framework for designing dual-class sunsets and address potential objections to their use. We also discuss the significant implications of our analysis for public officials, institutional investors, and researchers.
Lucian A. Bebchuk & Alma Cohen, Recent Board Declassifications: A Response to Cremers and Sepe (May 1, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Other
Abstract
This note offers an initial response to a study released earlier this month by Martijn Cremers and Simone Sepe, “Board Declassification Activism: The Financial Value of the Shareholder Rights Project.” Putting aside methodological questions about their analysis and accepting their results “as is,” we show that the results of this study do not provide a basis for opposing board declassifications. Appropriately interpreted, the results provide some significant evidence that declassifications are beneficial and no evidence that they are value-reducing. The results obtained for preceding years in prior published work by the authors either do not hold or are substantially reversed in the period examined by the current study. Overall, the results of the current study contradict and undermine the conclusions in the authors’ earlier published work in support of staggered boards.
Lucian A. Bebchuk (with Alon Brav, Wei Jiang & Thomas Keusch), Dancing with Activists (Columbia Bus. Sch. Research Paper No. 17-44, Apr. 10, 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Mergers & Acquisitions
Type: Other
Abstract
An important milestone often reached in the life of an activist engagement is the entering into a “settlement” agreement between the activist and the target’s board. Using a comprehensive hand-collected data set, we provide the first systematic analysis of the drivers, nature, and consequences of such settlement agreements. We identify the determinants of settlements, showing that settlements are more likely when the activist has a credible threat to win board seats in a proxy fight. We argue that, due to incomplete contracting, settlements can be expected to contract not directly on the operational or leadership changes that activists seek but rather on board composition changes that can facilitate operational and leadership changes down the road. Consistent with the incomplete contracting hypothesis, we document that settlements focus on boardroom changes and that such changes are subsequently followed by increases in CEO turnover, increased payout to shareholders, and higher likelihood of a sale or a going-private transaction. We find no evidence to support concerns that settlements enable activists to extract significant rents at the expense of other investors by introducing directors not supported by other investors or by facilitating “greenmail.” Finally, we document that stock price reactions to settlement agreements are positive and that the positive reaction is higher for “high-impact” settlements. Our analysis provides a look into the “black box” of activist engagements and contributes to understanding how activism brings about changes in its targets.
Lucian A. Bebchuk & Assaf Hamdani, Independent Directors and Controlling Shareholders, 165 U. Pa. L. Rev. 1271 (2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Abstract
Independent directors are an important feature of modern corporate law. Courts and lawmakers around the world increasingly rely on these directors to protect investors from controlling shareholder opportunism. In this Article, we argue that the existing director-election regime significantly undermines the ability of independent directors to effectively perform their oversight role. Both the election and retention of independent directors normally depend on the controlling shareholders. As a result, these directors have incentives to go along with controllers’ wishes, or, at least, inadequate incentives to protect public investors. To induce independent directors to perform their oversight role, we argue, some independent directors should be accountable to public investors. This can be achieved by empowering investors to determine or at least substantially influence the election or retention of these directors. These “enhanced-independence” directors should play a key role in vetting “conflicted decisions,” where the interests of the controller and public investors substantially diverge, but not have a special role with respect to other corporate issues. Enhancing the independence of some directors would substantially improve the protection of public investors without undermining the ability of the controller to set the firm’s strategy. We explain how the Delaware courts, as well as other lawmakers in the United States and around the world, can introduce or encourage enhanced-independence arrangements. Our analysis offers a framework of director election rules that allows policymakers to produce the precise balance of power between controlling shareholders and public investors that they find appropriate. We also analyze the proper role of enhanced-independence directors as well as respond to objections to their use. Overall, we show that relying on enhanced-independence directors, rather than independent directors whose election fully depend on the controller, can provide a better foundation for investor protection in controlled companies.
Lucian A. Bebchuk & Assaf Hamdani, Making Independent Directors Work, U. Pa. L. Rev. (forthcoming 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Abstract
Independent directors are a prominent feature of modern corporate law, and lawmakers increasingly rely on them to protect public investors from controlling shareholders' opportunism. In this Article, however, we argue that the prevailing director election regime significantly undermines the ability of independent directors to adequately perform their assigned role. Under current director election arrangements, both the election and the retention of independent directors depends on the controlling shareholder. As a result, such directors have incentives to go along with controllers’ wishes or at least inadequate incentives to protect public investors. To ensure that independent directors can be relied upon to monitor controlling shareholders, we argue, some independent directors should be accountable to public investors. This can be achieved by empowering the investors to determine or at least influence these directors’ election or retention. These “enhanced-independence” directors should play a key role in vetting “conflicted decisions” — that is, self-dealing transactions and other matters hat raise a conflict between the controller's interests and those of public investors — but not over other corporate issues. Enhancing the independence of some directors would substantially improve the protection of public investors without undermining the ability of the controller to set the firm's strategy. We explain how the Delaware courts, other U.S. regulators, and policymakers around the world can introduce enhanced-independence arrangements. Our analysis offers a framework of director election rules that allows policymakers to produce the precise balance of power between controlling shareholders and public investors that they find appropriate. We also analyze the proper role of such directors as well as respond to objections to their use. Overall, we show that enhanced-independence directors can provide a solid foundation for protecting public investors in controlled companies.
John C. Coates, IV, Lucian A. Bebchuk, Reinier Kraakman & Mark J. Roe (with Bernard S. Black, John C. Coffee, James D. Cox, Ronald J. Gilson, Jeffrey N. Gordon, Lawrence A. Hamermesh, Henry Hansmann, Robert J. Jackson, Marcel Kahan, Vikramaditya S. Khanna, Michael Klausner, Donald C. Langevoort, Brian J.M. Quinn, Edward B. Rock & Helen S. Scott, Supreme Court Amicus Brief of 19 Corporate Law Professors, Friedrichs v. California Teachers Association, No. 14-915 (U.S. Nov. 6, 2015).
Categories:
Corporate Law & Securities
,
Constitutional Law
Sub-Categories:
First Amendment
,
Corporate Law
,
Shareholders
Type: Article
Abstract
The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt out” rights or practical ability to avoid subsidizing corporate political expression with which they disagree. Nor do individuals have the practical option to refrain from putting their savings into equity investments, as doing so would impose damaging economic penalties and ignore conventional financial guidance for individual investors.
Lucian A. Bebchuk, Alon Brav & Wei Jiang, The Long-Term Effects of Hedge Fund Activism, 115 Colum. L. Rev. 1085 (2015).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Financial Markets & Institutions
,
Shareholders
,
Corporate Law
,
Corporate Governance
Type: Article
Lucian Bebchuk, Jeff Greene, Richard Ruback, Paul Clancy & Paul Hilal, Ernst & Young LLP Roundtable on Activist Investors and Their Implications for Corporate Managers, 27 J. Applied Corp. Fin. 8 (2015).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
Type: Article
Lucian A. Bebchuk & Robert J. Jackson, Toward a Constitutional Review of the Poison Pill, 114 Colum. L. Rev. 1549 (2014).
Categories:
Corporate Law & Securities
,
Constitutional Law
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Securities Law & Regulation
,
Shareholders
Type: Article
Lucian A. Bebchuk & Allen Ferrell, Rethinking Basic, 69 Bus. Law. 671 (2014).
Categories:
Civil Practice & Procedure
,
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Corporate Law
,
Securities Law & Regulation
,
Class Action Litigation
Type: Article
Lucian Bebchuk, Alma Cohen & Charles C.Y. Wang, Golden Parachutes and the Wealth of Shareholders, 25 J. Corp. Fin. 140 (2014).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Economics
,
Finance
,
Shareholders
,
Corporate Governance
Type: Article
Abstract
Golden parachutes (GPs) have attracted substantial attention from investors and public officials for more than two decades. We find that GPs are associated with higher expected acquisition premiums and that this association is at least partly due to the effect of GPs on executive incentives. However, we also find that firms that adopt GPs experience negative abnormal stock returns both during and subsequent to the period surrounding their adoption. This finding raises the possibility that even though GPs facilitate some value-increasing acquisitions, they do have, on average, an overall negative effect on shareholder wealth; this effect could be due to GPs weakening the force of the market for control and thereby increasing managerial slack, and/or to GPs making it attractive for executives to go along with some value-decreasing acquisitions that do not serve shareholders' long-term interests. Our findings have significant implications for ongoing debates on GPs and suggest the need for additional work identifying the types of GPs that drive the identified correlation between GPs and reduced shareholder value.
Lucian A. Bebchuk, Alma Cohen & Charles C.Y. Wang, Learning and the Disappearing Association Between Governance and Returns, 108 J. Fin. Econ. 323 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
Type: Article
Abstract
The correlation between governance indices and abnormal returns documented for 1990-1999 subsequently disappeared. The correlation and its disappearance are both due to market participants' gradually learning to appreciate the difference between good-governance and poor-governance firms. Consistent with learning, the correlation's disappearance was associated with increases in market participants' attention to governance; market participants and security analysts were, until the beginning of the 2000s but not subsequently, more positively surprised by the earning announcements of good-governance firms; and, although governance indices no longer generated abnormal returns during the 2000s, their negative association with firm value and operating performance persisted.
Lucian A. Bebchuk, Alon Brav, Robert J. Jackson & Wei Jiang, Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy, 39 J. Corp. L. 1 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
,
Shareholders
,
Mergers & Acquisitions
,
Corporate Governance
,
Corporate Law
Type: Article
Abstract
The Securities and Exchange Commission (SEC) is currently considering a rulemaking petition requesting that the Commission shorten the ten-day window, established by Section 13(d) of the Williams Act, within which investors must publicly disclose purchases of a five percent or greater stake in public companies. In this Article, we provide the first systematic empirical evidence on these disclosures and find that several of the petition’s factual premises are not consistent with the evidence. Our analysis is based on about 2,000 filings by activist hedge funds during the period of 1994–2007. We find that the data are inconsistent with the petition’s key claim that changes in market practices and technologies have operated over time to increase the magnitude of pre-disclosure accumulations, making existing rules “obsolete” and therefore requiring the petition’s proposed “modernization.” The median stake that these investors disclose in their 13(d) filings has remained stable throughout the 17-year period that we study, and regression analysis does not identify changes over time in the stake disclosed by investors. We also find that: * A substantial majority of 13(d) filings are actually made by investors other than activist hedge funds, and these investors often use a substantial part of the ten-day window before disclosing their stake. * A significant proportion of poison pills have low thresholds of 15% or less, so that management can use 13(d) disclosures to adopt low-trigger pills to prevent any further stock accumulations by activists — a fact that any tightening of the SEC’s rules in this area should take into account. * Even when activists wait the full ten days to disclose their stakes, their purchases seem to be disproportionately concentrated on the day they cross the threshold and the next day; thus, the practical difference in pre-disclosure accumulations between the existing regime and the rules in jurisdictions with shorter disclosure windows is likely much smaller than the petition assumes. * About ten percent of 13(d) filings seem to be made after the ten-day window has expired; the SEC may therefore want to consider tightening the enforcement of existing rules before examining the proposed acceleration of the deadline. Our analysis provides new empirical evidence that should inform the SEC’s consideration of this subject — and a foundation on which subsequent empirical and policy analysis can build.
Lucian A. Bebchuk & Robert J. Jackson, Shining Light on Corporate Political Spending, 101 Geo. L.J. 923 (2013).
Categories:
Government & Politics
,
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Elections & Voting
Type: Article
Lucian Bebchuk, Scott Hirst & June Rhee, Toward the Declassification of S&P 500 Boards, 3 Harv. Bus. L. Rev. 157 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Abstract
This report provides an overview and analysis of the work that the Shareholder Rights Project (SRP) undertook on behalf of a number of institutional investors during 2012 and 2013, the SRP’s first two years of operations. During 2012 and 2013, the SRP worked on behalf of eight SRP-represented investors on board declassification proposals submitted for a vote at the 2012 and/or 2013 annual meetings of 122 S&P 500 and Fortune 500 companies, and this work has produced substantial results: 100 Negotiated Outcomes: Negotiated outcomes involving a commitment to board declassification were reached with 100 S&P 500 and Fortune 500 companies, about three-quarters of the companies receiving proposals in 2012 and/or 2013. 58 Successful Precatory Proposals: During 2012 and 2013, declassification proposals brought by SRP-represented investors received majority support at 58 annual meetings of 53 S&P 500 and Fortune 500 companies (all but three of the annual meetings in which such proposals went to a vote), with average support of about 80% of votes cast. 81 Board declassifications: A total of 81 S&P 500 and Fortune 500 companies already declassified their boards during 2012 and 2013 as a result of the work of the SRP and SRP-represented investors. These 81 companies, which have an aggregate market capitalization exceeding one trillion dollars (as of Dec, 31, 2013), represent about 65% of the companies with which engagements took place and about 60% of the S&P 500 companies that had classified boards as of the beginning of 2012. Expected Impact by End of 2014: The work of the SRP and SRP-represented investors is expected to produce a significant number of additional board declassifications during 2014 as a result of (i) management declassification proposals that will go to a vote pursuant to 2012 and 2013 agreements, (ii) companies agreeing to follow the preferences of shareholders expressed in 58 successful precatory declassification proposals, and (iii) ongoing engagement by the SRP and SRP-represented investors. We estimate that, by the end of 2014, this work will have contributed to movements towards board declassification by about 100 S&P 500 and Fortune 500 companies; this large-scale change can be expected to increase board accountability and thereby to enhance shareholder value and company performance in the affected companies. Beyond Board Declassification: The SRP’s 2012 and 2013 work also facilitated a substantial increase in successful engagement by public pension funds, and in their ability to obtain governance changes favored by shareholders. The proposals that the SRP worked in 2012 and 2013 on represented over 50% of the shareholder proposals by public pension funds that received majority support in 2012 and 2013, and over 20% of all precatory shareholder proposals (by all proponents) that received majority support in 2012 and 2013. The Shareholder Rights Project (SRP) is a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk. The SRP works on behalf of public pension funds and charitable organizations seeking to improve corporate governance at publicly traded companies, as well as on research and policy projects related to corporate governance. Any views expressed and positions taken by the SRP and its representatives should be attributed solely to the SRP and not to Harvard Law School or Harvard University.
Lucian A. Bebchuk & Alon Klement, Negative-Expected-Value Suits, in Procedural Law And Economics 341 (Chris William Sanchirico ed., Edward Elgar Pub. 2012).
Categories:
Banking & Finance
,
Civil Practice & Procedure
Sub-Categories:
Economics
,
Remedies
Type: Book
Abstract
With contributions from some of the leading scholars in law and economics, this comprehensive book summarizes the state of economic research on litigation, procedure and evidence.
Lucian A. Bebchuk & Robert J. Jackson, The Law and Economics of Blockholder Disclosure, 2 Harv. Bus. L. Rev. 40 (2012).
Categories:
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
Type: Article
Abstract
The Securities and Exchange Commission is currently considering a rulemaking petition that advocates tightening the rules under the Williams Act, which regulates the disclosure of large blocks of stock in public companies. In this Article, we explain why the Commission should not view the proposed tightening as a merely “technical” change needed to meet the objectives of the Williams Act, provide market transparency, or modernize its regulations. The drafters of the Williams Act made a conscious choice not to impose an inflexible 5% cap on pre-disclosure accumulations of shares to avoid deterring investors from accumulating large blocks of shares. We argue that the proposed changes to the SEC’s rules should similarly be examined in the larger context of the optimal balance of power between incumbent directors and these blockholders. We discuss the beneficial and documented role that outside blockholders play in corporate governance and the adverse effect that any tightening of the Williams Act’s disclosure thresholds can be expected to have on such blockholders. We explain that there is currently no evidence that trading patterns and technologies have changed in ways that would make it desirable to tighten these disclosure thresholds. Furthermore, since the passage of the Williams Act, the rules governing the balance of power between incumbents and outside blockholders have already moved significantly in favor of the former — both in absolute terms and in comparison to other jurisdictions — rather than the latter. Our analysis provides a framework for the comprehensive examination of the rules governing outside blockholders that the Commission should pursue. In the meantime, we argue, the Commission should not adopt new rules that would tighten the disclosure thresholds that apply to blockholders. Existing research and available empirical evidence provide no basis for concluding that such tightening would protect investors and promote efficiency. Indeed, there is a good basis for concern that such tightening would harm investors and undermine efficiency.
Lucian A. Bebchuk & Itay Goldstein, Self-fulfilling Credit Market Freezes, 24 Rev. Fin. Stud. 3519 (2011).
Categories:
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Banking
,
Economics
Type: Article
Lucian A. Bebchuk, K.J. Martijn Cremers & Urs C. Peyer, The CEO Pay Slice, 102 J. Fin. Econ. 199 (2011).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
,
Shareholders
Type: Article
Lucian A. Bebchuk, Alma Cohen & Charles C.Y. Wang, Staggered Boards and the Wealth of Shareholders: Evidence from Two Natural Experiments (NBER Working Paper No. 17127, June 2011).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
,
Shareholders
Type: Other
Abstract
While staggered boards have been documented to be negatively correlated with firm valuation, such association might be due to staggered boards either bringing about lower firm value or merely reflecting the tendency of low-value firms to have staggered boards. In this paper, we use two natural experiments to shed light on the causality question. In particular, we focus on two recent court rulings, separated by several weeks, that affected in opposite directions the antitakeover force of staggered boards: (i) a ruling by the Delaware Chancery Court approving the legality of shareholder-adopted bylaws that weaken the antitakeover force of a staggered board by moving the company's annual meeting up from later parts of the calendar year to January, and (ii) the subsequent decision by the Delaware Supreme Court to overturn the Chancery Court ruling and invalidate such bylaws. We find evidence consistent with the hypothesis that the Chancery Court ruling increased the value of affected companies - namely, companies with a staggered board and an annual meeting in later parts of the calendar year - and that the Supreme Court ruling produced a reduction in the affected companies' value. The identified effects were most pronounced for firms for which control contests are especially relevant due to relative underperformance, small firm size, high asset pledgibility, or high takeover intensity in their industry. Our findings have implications for the long-standing debate on staggered boards. The findings are consistent with the market's viewing staggered boards as bringing about a reduction in firm value. Our findings are thus consistent with leading institutional investors' policies in favor of board de-staggering, and with the view that the ongoing process of board de-staggering in public firms can be expected to enhance shareholder value.
Lucian A. Bebchuk & Jesse M. Fried, Pay Without Performance: Overview of the Issues, in The History of Modern U.S. Corporate Governance (Brian Cheffins ed., 2011).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Shareholders
,
Executive Compensation
Type: Book
Lucian A. Bebchuk, Yaniv Grinstein & Urs Peyer, Lucky CEOs and Lucky Directors, 65 J. Fin. 2363 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
Type: Article
Lucian A. Bebchuk & Robert J. Jackson, Corporate Political Speech: Who Decides?, 124 Harv. L. Rev. 83 (2010).
Categories:
Corporate Law & Securities
,
Constitutional Law
Sub-Categories:
First Amendment
,
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Oren Bar-Gill & Lucian A. Bebchuk, Consent and Exchange, 39 J. Legal Stud. 375 (2010).
Categories:
Civil Practice & Procedure
,
Banking & Finance
Sub-Categories:
Contracts
,
Remedies
,
Private Law
,
Litigation & Settlement
Type: Article
Abstract
In some cases, the law permits a party that unilaterally provides a benefit to another party to recover the estimated value of this benefit. Despite calls for expanding the set of cases to which such a restitution rule applies, the law commonly applies a mutual consent rule under which a party providing another with a benefit cannot obtain any recovery without securing the advance consent of the beneficiary to the transaction. We provide an efficiency rationale for the undesirability of broad use of the restitution rule by identifying significant adverse ex ante effects of the rule that are avoided by the consent requirement. Even assuming that courts' errors in estimating buyer benefits would be unbiased, a restitution rule would strengthen sellers' hand by providing them with a put option that they may but do not have to use. As a result, the restitution rule would encourage inefficient market entry by low-quality sellers that would not contribute to any efficient transactions but would be able to extract payments from buyers seeking to avoid an exchange with them. Furthermore, the restitution rule would discourage efficient market entry by some or all potential buyers of a good or service. Beyond the restitution rule, we extend our analysis to show that similar adverse effects can also arise from other "pricing" rules that provide buyers or sellers with call or put options to force an exchange at a judicially-determined price.
Lucian A. Bebchuk & Jesse M. Fried, Paying For Long-Term Performance, 158 U. Pa. L. Rev. 1915 (2010).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
,
Executive Compensation
Type: Article
Abstract
Firms, investors, and regulators around the world are now seeking to ensure that the compensation of public company executives is tied to long-term results, in part to avoid incentives for excessive risk taking. This Article examines how best to achieve this objective. Focusing on equity-based compensation, the primary component of executive pay, we identify how such compensation should best be structured to tie pay to long-term performance. We consider the optimal design of limitations on the unwinding of equity incentives, putting forward a proposal that firms adopt both grant-based and aggregate limitations on unwinding. We also analyze how equity compensation should be designed to prevent the gaming of equity grants at the front end and the gaming of equity dispositions at the back end. Finally, we emphasize the need for widespread adoption of limitations on executives’ use of hedging and derivative transactions that weaken the tie between executive payoffs and the long-term stock price that well-designed equity compensation is intended to produce.
Lucian A. Bebchuk & Ehud Kamar, Bundling and Entrenchment, 123 Harv. L. Rev. 1549 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Lucian A. Bebchuk & Zvika Neeman, Investor Protection and Interest Group Politics, 23 Rev. Fin. Stud. 1089 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
,
Corporate Law
Type: Article
Lucian A. Bebchuk & Michael S. Weisbach, The State of Corporate Governance Research, 23 Rev. Fin. Stud. 939 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
Type: Article
Lucian A. Bebchuk & Scott Hirst, Private Ordering and the Proxy Access Debate, 65 Bus. Law. 329 (2010).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Law
,
Corporate Governance
,
Securities Law & Regulation
Type: Article
Lucian A. Bebchuk, Nell Minow & Joseph Stiglitz, Compensation in the Financial Industry, Testimony before the House Committee on Financial Services, H.R. Doc. No. 111-98 (Jan. 22, 2010).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Finance
,
Financial Reform
,
Corporate Governance
Type: Presentation
Abstract
House Committee on Financial Services
Lucian A. Bebchuk & Holger Spamann, Regulating Bankers’ Pay, 98 Geo. L.J. 247 (2010).
Categories:
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Banking
,
Financial Reform
Type: Article
Abstract
This paper seeks to make three contributions to understanding how banks’ executive pay has produced incentives for excessive risk-taking and how such pay should be reformed. First, although there is now wide recognition that pay packages focused excessively on short-term results, we analyze a separate and critical distortion that has received little attention. Equity-based awards, coupled with the capital structure of banks, tie executives’ compensation to a highly levered bet on the value of banks’ assets. Because bank executives expect to share in any gains that might flow to common shareholders, but are insulated from losses that the realization of risks could impose on preferred shareholders, bondholders, depositors, and taxpayers, executives have incentives to give insufficient weight to the downside of risky strategies. Second, we show that corporate governance reforms aimed at aligning the design of executive pay arrangements with the interests of banks’ common shareholders - such as advisory shareholder votes on compensation arrangements, use of restricted stock awards, and increased director oversight and independence -cannot eliminate the identified problem. In fact, the interests of common shareholders could be served by more risk-taking than is socially desirable. Accordingly, while such measures could eliminate risk-taking that is excessive even from shareholders’ point of view, they cannot be expected to prevent risk-taking that serves shareholders but is socially excessive. Third, we develop a case for using regulation of banks’ executive pay as an important element of financial regulation. We provide a normative foundation for such pay regulation, analyze how regulators should monitor and regulate bankers’ pay, and show how pay regulation can complement and reinforce the traditional forms of financial regulation.
Lucian A. Bebchuk & Jesse M. Fried, How to Tie Equity Compensation to Long-Term Results, 22 J. Applied Corp. Fin. 99 (2010).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Law
,
Executive Compensation
Type: Article
Abstract
Companies, investors, and regulators around the world are now seeking to tie executives’ payoffs to long-term results and avoid rewarding executives for short-term gains. Focusing on equity-based compensation, the primary component of top executives’ pay, the authors analyze how such compensation should best be structured to provide executives with incentives to focus on long-term value creation. To improve the link between equity compensation and long-term results, the authors recommend that executives be prevented from unwinding their equity incentives for a significant time period after vesting. At the same time, however, the authors suggest that it would be counterproductive to require that executives hold their equity incentives until retirement, as some have proposed. Instead, the authors recommend that companies adopt a combination of “grant-based” and “aggregate” limitations on the unwinding of equity incentives. Grant-based limitations would allow executives to unwind the equity incentives associated with a particular grant only gradually after vesting, according to a fixed, pre-specified schedule put in place at the time of the grant. Aggregate limitations on unwinding would prevent an executive from unloading more than a specified fraction of the executive’s freely disposable equity incentives in any given year. Finally, the authors emphasize the need for effective limitations on executives’ use of hedging and derivative transactions that would weaken the connection between executive payoffs and long-term stock values that a well-designed equity arrangement should produce.
Lucian A. Bebchuk & Jesse M. Fried, Pay Without Performance: Overview of the Issues, in Foundations of Corporate Law 437 (Roberta Romano ed., 2nd ed. 2010).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Shareholders
,
Executive Compensation
Type: Book
Lucian A. Bebchuk, Alma Cohen & Holger Spamann, The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008, 27 Yale J. on Reg. 257 (2010).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Banking
,
Commercial Law
,
Finance
,
Financial Markets & Institutions
,
Shareholders
,
Corporate Law
,
Administrative Law & Agencies
Type: Article
Abstract
The standard narrative of the meltdown of Bear Stearns and Lehman Brothers assumes that the wealth of the top executives at these firms was largely wiped out along with their firms. In the ongoing debate about regulatory responses to the financial crisis, commentators have used this assumed fact as a basis for dismissing both the role of compensation structures in inducing risk-taking and the potential value of reforming such structures. This Article provides a case study of compensation at Bear Stearns and Lehman Brothers during 2000-2008 and concludes that this assumed fact is incorrect. We find that the top-five-executive teams at these firms cashed out large amounts of performance-based compensation during this period. From 2000-2008, they were able to cash out large amounts of bonus compensation that were not clawed back when the firms collapsed, and to pocket large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion, respectively, from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives' initial holdings at the beginning of the period, and the executives' net payoffs for the period were thus decidedly positive. The divergence between how the top executives and their shareholders fared implies that it is not possible to rule out, as standard narratives suggest, that the executives' pay arrangements provided them with excessive risk-taking incentives. We discuss the implications of our analysis for understanding the possible role that pay arrangements have played in the run-up to the financial crisis and how they should be reformed going forward.
Lucian Bebchuk & Jesse Fried, Long-Term Performance Is Key, 87 Harv. Bus. Rev. 113 (2009).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
Type: Article
Lucian A. Bebchuk & Assaf Hamdani, The Elusive Quest for Global Governance Standards, 157 U. Pa. L. Rev. (2009).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Lucian Bebchuk, How to Make TARP II Work (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 626, Feb. 14, 2009).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Government & Politics
Sub-Categories:
Banking
,
Financial Markets & Institutions
,
Financial Reform
,
Corporate Bankruptcy & Reorganization
,
Securities Law & Regulation
,
Corporate Law
,
Law & Economics
,
Congress & Legislation
,
Administrative Law & Agencies
Type: Other
Abstract
Treasury Secretary Geithner announced a plan, which the Treasury is willing to finance with up to $1 trillion of public funds, to partner with private capital to buy banks’ “troubled assets.” The Treasury has not yet settled on the plan’s design, and its announcement has encountered substantial skepticism as to whether an effective plan for a public-private partnership in buying troubled assets can be worked out. This paper argues that, yes, it can. The paper also analyzes how the plan should be designed to contribute most to restarting the market for troubled assets at the least cost to taxpayers. The government’s plan should focus on establishing a significant number of competing funds that will be privately managed and dedicated to buying troubled assets – not on creating one, large public-private aggregator bank. Establishing competing funds, I show, is necessary both to securing a well-functioning market for troubled assets and to keeping costs to taxpayers at a minimum. Each new fund will be partly financed with private capital, with the rest coming (say, in the form of non-recourse debt financing) from the government’s Investment Fund planned by the Treasury. One important element of the proposed design is a competitive process in which private managers seeking to establish a fund participating in the program will submit bids as to what fraction of the fund’s capital will be funded privately. The government will set the fraction of each participating fund’s capital that must be financed with private money at the highest level that, given the received bids, will still enable establishing new funds with aggregate capital equal to the program’s target level. Overall, I show that the proposed design will leverage private capital to the fullest extent possible and will provide the most effective and least costly mechanism for restarting the market for troubled assets.
Lucian Bebchuk, Alma Cohen & Allen Ferrell, What Matters in Corporate Governance?, 22 Rev. Fin. Stud. 783 (2009).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
Type: Article
Abstract
We investigate the relative importance of the twenty-four provisions followed by the Investor Responsibility Research Center (IRRC) and included in the Gompers, Ishii, and Metrick governance index (Gompers, Ishii, and Metrick 2003). We put forward an entrenchment index based on six provisions: staggered boards, limits to shareholder bylaw amendments, poison pills, golden parachutes, and supermajority requirements for mergers and charter amendments. We find that increases in the index level are monotonically associated with economically significant reductions in firm valuation as well as large negative abnormal returns during the 1990-2003 period. The other eighteen IRRC provisions not in our entrenchment index were uncorrelated with either reduced firm valuation or negative abnormal returns.
Lucian Bebchuk, Buying Troubled Assets, 26 Yale J. on Reg. 343 (2009).
Categories:
Banking & Finance
,
Disciplinary Perspectives & Law
,
Government & Politics
,
Corporate Law & Securities
Sub-Categories:
Financial Markets & Institutions
,
Risk Regulation
,
Corporate Bankruptcy & Reorganization
,
Law & Economics
,
Government Accountability
Type: Article
Abstract
This Essay analyzes how government intervention in the market for banks' troubled assets is best designed, and also uses this analysis to evaluate the public-private investment program announced by the U.S. government in March 2009. I begin by presenting the case for using government funds to restart the market for troubled assets. I then discuss the advantages of providing government capital to competing privately managed funds--a strategy I have advocated in past work--and I outline the key elements that such a plan should include.
Lucian Bebchuk, Unfreezing Credit Markets (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 622, Dec. 13, 2008).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Government & Politics
,
International, Foreign & Comparative Law
Sub-Categories:
Financial Markets & Institutions
,
Banking
,
Securities Law & Regulation
,
Business Organizations
,
Fiduciaries
,
Law & Economics
,
Congress & Legislation
,
International Monetary Systems
Type: Other
Abstract
Despite the large infusion of capital into the financial sector and low interest rates, the flow of financing to operating firms has failed to return to normal levels. One explanation suggested is that banks still lack confidence because they need time to adjust to the new environment. Another is that the reduced flow of credit reflects banks' rational assessment of borrowers' bleak prospects in the current economic conditions. This paper puts forward a third explanation. When the prospects of operating firms are interdependent, banks' decisions on whether to lend to a given operating firm depend on their expectations about whether other operating firms will receive financing. As a result, an inefficient credit market freeze may arise in which banks avoid lending to operating firms due to their self-fulfilling expectations that other banks will not be lending. Such an inefficient freeze may persist even when banks have ample capital and interest rates are brought down to a barely positive level. Facing an inefficient and persistent credit freeze, I argue, the government should consider getting the economy out of it by taking upon itself the credit risks involved in providing a substantial amount of new lending to operating firms. This can be accomplished by (i) providing banks with non-recourse financing for portfolios of new loans to operating firms, or otherwise agreeing to bear part of the risks generated by such portfolios, in return for a share of the upside, or (ii) setting up government-funded, privately managed funds dedicated to making such loans. These mechanisms funds can contribute substantially, both directly and indirectly, to producing a credit thaw.
Lucian A. Bebchuk, Martijn Cremers & Urs Peyer, CEO Centrality (NBER Working Paper No. 13701, Dec. 2007).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Executive Compensation
Type: Other
Abstract
We investigate the relationship between CEO centrality -- the relative importance of the CEO within the top executive team in terms of ability, contribution, or power -- and the value and behavior of public firms. Our proxy for CEO centrality is the fraction of the top-five compensation captured by the CEO. We find that CEO centrality is negatively associated with firm value (as measured by industry-adjusted Tobin's Q). Greater CEO centrality is also correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO's receiving a "lucky" option grant at the lowest price of the month, (iv) greater tendency to reward the CEO for luck in the form of positive industry-wide shocks, (v) lower likelihood of CEO turnover controlling for performance, and (vi) lower firm-specific variability of stock returns over time. Overall, our results indicate that differences in CEO centrality are an aspect of firm management and governance that deserves the attention of researchers.
Lucian A. Bebchuk, The Myth of the Shareholder Franchise, 93 Va. L. Rev. 675 (2007).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Governance
Type: Article
Lucian Bebchuk, Yaniv Grinstein & Urs C. Peyer, Lucky Directors (NBER Working Paper no. w12811, Dec. 2006).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
Type: Article
Abstract
While prior empirical work and much public attention have focused on the opportunistic timing of executives' grants, we provide in this paper evidence that outside directors' option grants have also been favorably timed to an extent that cannot be fully explained by sheer luck. Examining events in which public firms granted options to outside directors during 1996-2005, we find that 9% were "lucky grant events" falling on days with a stock price equal to a monthly low. We estimate that about 800 lucky grant events owed their status to opportunistic timing, and that about 460 firms and 1400 outside directors were associated with grant events produced by such timing. There is evidence that the opportunistic timing of director grant events has been to a substantial extent the product of backdating and not merely spring-loading based on private information. We find that directors' luck has been correlated with executives' luck. Furthermore, grant events were more likely to be lucky when the firm had more entrenching provisions protecting insiders from the risk of removal, as well as when the board did not have a majority of independent directors.
Lucian Bebchuk, Martijn Cremers & Urs Peyer, Pay Distribution in the Top Executive Team (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 574, Dec. 2006).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Law & Economics
,
Executive Compensation
Type: Other
Abstract
We investigate the distribution of pay in the top executive team in public companies. In particular, we study the CEO's pay slice (CPS), defined as the fraction of the aggregate top-five total compensation paid to the CEO. A firm's CPS might reflect the relative significance of the CEO – in terms of ability, contribution to the firm, or power – relative to other members of the top executive team. We find that CPS has been going up over the past decade. During this period, CEOs have increased their fraction of both equity-based compensation and non-equity compensation. The level of CPS is associated with various characteristics of the top team and the firm’s governance arrangements. Among other things, CPS is high when the CEO has long tenure; when the CEO chairs the board; when few other executives are members of the board; and when the firm has more entrenching provisions. High CPS is associated with lower firm value as measured by Tobin's Q. Using a simultaneous equations approach yields findings consistent with the possibility that this negative correlation is at least partly due to high CPS, or the factors that it reflects, bringing about a lower Tobin's Q. High CPS is also associated with a reduction in the sensitivity of CEO turnover to performance. This is the case especially in firms with high entrenchment levels. Overall, our results indicate that the distribution of compensation in the top executive team is an aspect of pay arrangements and corporate governance that is worthy of financial economists' attention.
Lucian A. Bebchuk & Assaf Hamdani, Federal Corporate Law: Lessons From History, 106 Colum. L. Rev. 1793 (2006).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
Type: Article
Lucian A. Bebchuk, Letting Shareholders Set the Rules, 119 Harv. L. Rev. 1784 (2006).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Article
Lucian A. Bebchuk & Richard A. Posner, One-Sided Contracts in Competitive Consumer Markets, 104 Mich. L. Rev. 827 (2006).
Categories:
Banking & Finance
,
Consumer Finance
Sub-Categories:
Contracts
,
Commercial Law
,
Consumer Protection Law
,
Consumer Contracts
Type: Article
Abstract
This paper shows that "one-sided" terms in standard contracts, which deny consumers a contractual benefit that seems efficient on average, may arise in competitive markets without informational problems (other than those of courts). A one-sided term might be an efficient response to situations in which courts cannot perfectly observe all the contingencies needed for an accurate implementation of a "balanced" contractual term when firms are more concerned about their reputation, and thus less inclined to behave opportunistically, than consumers are. We develop this explanation, discuss its positive and normative implications, and compare them to those of information-based explanations for one-sided terms.
Lucian A. Bebchuk & Jesse M. Fried, Pay without Performance: Overview of the Issues, 20 Acad. Mgmt. Persp. 5 (2006).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Shareholders
,
Executive Compensation
Type: Article
Lucian Bebchuk et al., "Director Liability", 31 Del. J. Corp. L. 1011 (2006).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Abstract
This article contains the edited transcript of a forum on personal liability of directors held at Harvard Law School in November 2005. Eleven panelists offer their diverse views and perspectives on this subject. The participants in the panel, which is moderated by Lucian Bebchuk, are: Joseph Bachelder, Roel Campos, Byron Georgiou, Alan Hevesi, William Lerach, Robert Mendelsohn, Robert Monks, Toby Myerson, John Olson, Leo Strine, Jr., and John Wilcox.
Lucian Bebchuk, Yaniv Grinstein & Urs C. Peyer, Lucky CEOs (NBER Working Paper no. w12771, 2006).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
Type: Article
Abstract
The analysis of this paper was subsequently combined with that of our companion paper “Lucky Directors,” http://ssrn.com/abstract=952239. The combined paper, titled “Lucky CEOs and Lucky Directors,” is available on SSRN at http://ssrn.com/abstract=1405316 and was published at Journal of Finance, Vol. 65, No. 6, pp. 2363-2401, 2010. We study the relation between corporate governance and opportunistic timing of CEO option grants. Investigating the incidence of lucky grants - defined as grants given at the lowest price of the month - we estimate that about 1,150 lucky grants resulted from opportunistic timing, and that 12% of firms provided one or more lucky grant due to opportunistic timing during the period 1996-2005. We find no evidence that opportunistically timed grants served as a substitute for other forms of compensation; indeed, total reported compensation from other sources was higher (relative to peer companies) in firms providing lucky grants. For any given CEO with two or more grants, grants were more likely to be lucky when they took place in months in which the potential payoffs from opportunistic timing were relatively high. Grants were also more likely when the company did not have a majority of independent directors on the board and/or the CEO had longer tenure, both factors that are associated with increased influence of the CEO on pay-setting and board decision-making. Luck was persistent, with a CEO's chance of getting a lucky grant increasing when a preceding grant was lucky as well. Finally, we find that opportunistic timing was present in each of the economy's 12 (Fama-French) industries, and we do not find evidence that it was significantly driven by industry norms and culture. Because our analysis suggests that the existence of lucky CEO grants is a variable that can be useful to research studying firms’ governance and decision-making, we make available on the website of the Harvard Program on Corporate Governance a dataset of CEO luck indicators based on our work.
Lucian A. Bebchuk & Robert J. Jackson, Jr., Executive Pensions, 30 J. Corp. L. 823 (2005).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Shareholders
Type: Article
Abstract
Because public firms are not required to disclose the monetary value of pension plans in their executive pay disclosures, financial economists have generally analyzed executive pay using figures that do not include the value of such pension plans. This paper presents evidence that omitting the value of pension benefits significantly undermines the accuracy of existing estimates of executive pay, its variability, and its sensitivity to performance companies. Studying the pension arrangements of CEOs of S&P 500, we find that the CEOs' plans had a median actuarial value of $15 million; that the ratio of the executives' pension value to the executives' total compensation (including both equity and non-equity pay) during their service as CEO had a median value of 34%; and that including pension values increased the median percentage of the executives' total compensation composed of salary-like payments during and after their service as CEO from 15% to 39%.
Lucian A. Bebchuk & Yaniv Grinstein, Firm Expansion and CEO Pay (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 533, Nov. 7, 2005).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Executive Compensation
Type: Other
Abstract
We study the extent to which decisions to expand firm size are associated with increases in subsequent CEO compensation. Investigating a broad universe of firm-expansion choices, we find, controlling for performance and firm characteristics, a positive and economically meaningful correlation between CEO compensation and the CEO's past decisions to increase firm size. We demonstrate that the identified correlation is not driven by large corporate acquisitions, and that it remains significant and economically meaningful when firms making large acquisitions during the relevant period are excluded. We further find an asymmetry between size increases and decreases: while size increases are positively correlated with subsequent CEO pay, size decreases are not negatively correlated with subsequent CEO pay. The identified association between expansion decisions and subsequent CEO pay is relevant for assessing CEO incentives with respect to a broad range of choices made by firms.
Lucian A. Bebchuk & Alma Cohen, The Costs of Entrenched Boards, 78 J. Fin. Econ. 409 (2005).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Shareholders
,
Corporate Law
,
Corporate Governance
,
Empirical Legal Studies
Type: Article
Abstract
This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. Staggered boards, which a majority of U.S. public companies have, substantially insulate boards from removal in either a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q). We also provide suggestive evidence that staggered boards bring about, and not merely reflect, an economically significant reduction in firm value. Finally, the correlation with reduced firm value is stronger for staggered boards that are established in the corporate charter (which shareholders cannot amend) than for staggered boards established in the company's bylaws (which shareholders can amend).
Lucian A. Bebchuk & Jesse M. Fried, Pay Without Performance: Overview of the Issues, 17 J. Applied Corp. Fin. 8 (2005).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Shareholders
,
Executive Compensation
Type: Article
Lucian A. Bebchuk & Jesse M. Fried, Executive Compensation at Fannie Mae: A Case Study of Perverse Incentives, Nonperformance Pay, and Camouflage, 30 J. Corp. L. 807 (2005).
Categories:
Labor & Employment
,
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Securities Law & Regulation
,
Shareholders
,
Executive Compensation
Type: Article
Abstract
This paper is a case study of Fannie Mae's executive compensation arrangements during the period 2000-2004. We identify and analyze four problems with these arrangements: - First, by richly rewarding executives for reporting higher earnings, without requiring return of the compensation if earnings turned out to be misstated, Fannie Mae's arrangement provided perverse incentives to inflate earnings. - Second, Fannie Mae's arrangements provided soft landings to executives who were pushed out by the board for failure; expectation of such outcome adversely affected ex ante incentives. - Third, even if the executives had retired after years of unblemished service, the value of their retirement packages would have been largely unrelated to their own performance. - Fourth, both when promising retirement payments to executives and when making theses payments, Fannie Mae's disclosures obscured rather than made transparent the total values of the executives' retirement packages. Because many other companies have practices similar to Fannie Mae's, our case study highlights some general problems with existing pay practices and the need for reform.
Lucian A. Bebchuk & Jesse M. Fried, Pay Without Performance: Overview of the Issues, 30 J. Corp. L. 647 (2005).
Categories:
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Corporate Governance
,
Shareholders
,
Executive Compensation
Type: Article
Abstract
In a recent book, Pay without Performance: The Unfulfilled Promise of executive Compensation, we critique existing executive pay arrangements and the corporate governance processes producing them, and put forward proposals for improving both executive pay and corporate governance. This paper provides an overview of the main elements of our critique and proposals. We show that, under current legal arrangements, boards cannot be expected to contract at arm's length with the executives whose pay they set. We discuss how managers' influence can explain many features of the executive compensation landscape, including ones that researchers subscribing to the arm's length contracting view have long viewed as puzzling. We also explain how managerial influence can lead to inefficient arrangements that generate weak or even perverse incentives, as well as to arrangements that make the amount and performance-insensitivity of pay less transparent. Finally, we outline our proposals for improving the transparency of executive pay, the connection between pay and performance, and the accountability of corporate boards.
Lucian Bebchuk, The Case for Shareholder Access: A Response to the Business Roundtable, 55 Case W. Res. L. Rev. 557 (2005).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Securities Law & Regulation
,
Shareholders
Type: Article
Abstract
The Business Roundtable has played a key role in the opposition to the SEC shareholder access proposal. While the strong resistance to the proposal has been thus far successful in discouraging the SEC from adopting it, this paper considers the merits of the Business Roundtable's substantive arguments in opposition to the proposal. The paper provides a detailed examination of the wide range of objections to shareholder access that the Business Roundtable put forward in its submissions to the SEC. I conclude that none of these objections provides a good basis for opposing shareholder access.
Lucian A. Bebchuk & Yaniv Grinstein, The Growth of Executive Pay, 21 Oxford Rev. Econ. Pol'y 283 (2005).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
Type: Article
Abstract
This paper examines both empirically and theoretically the growth of US executive pay during the period 1993-2003. During this period, pay has grown much beyond the increase that could be explained by changes in firm size, performance, and industry classification. Had the relationship of compensation to size, performance, and industry classification remained the same in 2003 as it was in 1993, mean compensation in 2003 would have been only about half of its actual size. During the 1993-2003 period, equity-based compensation has increased considerably in both new-economy and old-economy firms, but this growth has not been accompanied by a substitution effect, i.e. a reduction in non-equity compensation. The aggregate compensation paid by public companies to their top-five executives during the considered period added up to about $350 billion, and the ratio of this aggregate top-five compensation to the aggregate earnings of these firms increased from 5 per cent in 1993-5 to about 10 per cent in 2001-3. After presenting evidence about the growth of pay, we discuss alternative explanations for it. We examine how this growth could be explained under either the arm`s-length bargaining model of executive compensation or the managerial-power model. Among other things, we discuss the relevance of the parallel rise in market capitalizations and in the use of equity-based compensation.
Lucian A. Bebchuk & Jesse M. Fried, Stealth Compensation via Retirement Benefits, 1 Berkeley Bus. L.J. 293 (2004).
Categories:
Labor & Employment
,
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
,
Executive Compensation
,
Retirement Benefits & Social Security
Type: Article
Abstract
This paper analyzes an important form of "stealth compensation" provided to managers of public companies. We show how boards have been able to camouflage large amount of executive compensation through the use of retirement benefits and payments. Our study highlights the significant role that camouflage and stealth compensation play in the design of compensation arrangements. Our study also highlights the significance of whether information about compensation arrangements is not merely publicly available but also communicated in a way that is transparent and accessible to outsiders.
Lucian Bebchuk, Streamlining Access to the Corporate Ballot, 12 Corp. Governance Advisor 28 (2004).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Shareholders
,
Corporate Governance
,
Corporate Law
,
Law & Economics
Type: Article
Abstract
This paper examines the specific features of the shareholder access rule recently proposed by the Securities and Exchange Commission. I suggests that, even accepting the Commission’s generally cautious approach and its desire to limit shareholder access to cases where the need for it is evident, the restrictions included in the rule proposal are excessive and should be relaxed. In particular, I identify several changes in these restrictions that would contribute to attaining the policy goals that the proposed rule seeks to serve.
Lucian A. Bebchuk, Why Firms Adopt Antitakeover Arrangements, 152 U. Pa. L. Rev. 713 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Mergers & Acquisitions
,
Shareholders
Type: Article
Symposium on Corporate Elections(Lucian Bebchuk, ed., Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 448, Nov. 2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
,
Securities Law & Regulation
Type: Other
Abstract
This paper contains the proceedings of the Symposium on Corporate Elections held at Harvard Law School in October 2003. The symposium brought together SEC officials, CEOs, directors, institutional investors, money managers, shareholder activists, lawyers, judges, academics, and others to discuss the subject from a wide range of perspectives. The symposium included six sessions. The first session focused on the basic pros and cons of shareholder access. It featured a presentation and discussion of two papers: "Election Contests in the Company's Proxy: An Idea whose Time has not Come" by Martin Lipton and Steven Rosenblum, Wachtell, Lipton, Rosen & Katz; and "Shareholder Access to the Ballot" by Lucian Bebchuk, Harvard Law School. The second session focused on the perspective of boards and management. The panel speakers were Richard Breeden (Chairman, Richard C. Breeden & Co.), John Castellani (President, The Business Roundtable), James Rogers (Chairman of the Board and Chief Executive Officer, Cinergy Corp.), and Ralph Whitworth (Chairman of the Board, Apria Healthcare Group, Inc.). The third session focused on the perspective of institutional investors. The panel speakers were Orin Kramer (Partner, Kramer Spellman, L.P.A), Robert Pozen (Visiting Professor of Law from Practice, Harvard Law School and formerly Vice-Chair, Fidelity Investments), Michael Price (Managing Partner, MFP Investments) and Sarah Teslik (Executive Director, Council for Institutional Investors). The fourth session of the symposium focused on the perspective of shareholder activists and advisers. Panelists were Jaime Heard (Chief Executive Officer, Institutional Shareholder Services), Robert Monks (Founder, Lens Governance Advisors), Damon Silvers (Associate General Counsel, AFL-CIO), and John Wilcox (Vice Chairman, Georgeson Shareholders). The fifth session focused on legal problems in designing a shareholder access rule. The panel speakers were John Coffee (Professor of Law, Columbia Law School), Joseph Grundfest (Professor of Law and Business, Stanford Law School), Robert Todd Lang (Senior Partner, Weil, Gotshal & Manges), Charles Nathan (Partner, Latham & Watkins), and Leo Strine (Vice Chancellor, Delaware Chancery Court). The final session featured concluding remarks. The speakers were Robert Clark (Harvard University Distinguished Service Professor and Professor of Law, Harvard Law School), Floyd Norris (Chief Financial Correspondent, The New York Times), and Harvey Goldschmid (Commissioner, U.S. Securities and Exchange Commission). Each session started with opening presentations by the panelists, followed by a discussion among the panelists and between the panelists and other participants in the symposium.
Lucian A. Bebchuk, The Case for Shareholder Access to the Ballot, 59 Bus. Law. 43 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
,
Corporate Law
Type: Article
Lucian A. Bebchuk & Alma Cohen, Firms' Decisions Where to Incorporate, 48 J.L. & Econ. 383 (2003).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Government & Politics
Sub-Categories:
Corporate Law
,
Empirical Legal Studies
,
State & Local Government
Type: Article
Abstract
This paper empirically investigates the decisions of publicly traded firms where to incorporate. We study the features of states that make them attractive to incorporating firms and the characteristics of firms that determine whether they incorporate in or out of their state of location. We find that states that offer stronger antitakeover protections are substantially more successful both in retaining in-state firms and in attracting out-of-state incorporations. We estimate that, compared with adopting no antitakeover statutes, adopting all standard antitakeover statutes enabled the states that adopted them to more than double the percentage of local firms that incorporated in-state (from 23% to 49%). Indeed, we find no evidence that the incorporation market has even penalized the three states that passed antitakeover statutes widely viewed as detrimental to shareholders. We also find that there is commonly a big difference between a state's ability to attract incorporations from firms located in and out of the state, and we investigate several possible explanations for this home-state advantage. Our findings have significant implications for corporate governance, regulatory competition, and takeover law.
Lucian A. Bebchuk & Jesse Fried, Executive Compensation as an Agency Problem, 17 J. Econ. Persp. 71 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
Type: Article
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Trouble with Staggered Boards: A Reply to Georgeson's John Wilcox, 11 Corp. Governance Advisor 17 (2003).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Governance
Type: Article
Abstract
In recent work, we presented evidence indicating that staggered boards have adverse effects on target shareholders. John Wilcox, the Vice-Chair of Georgeson, recently published a critique of our work, urging shareholders to support staggered boards. We respond in this article to Wilcox's critique and explain why it does not weaken in any way our analysis of staggered boards. The study criticized by Wilcox, "The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy," 54 Stanford Law Review 887-951 (2002), is available at http://ssrn.com/abstract=304388. In a separate reply, "The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants," 55 Stanford Law Review 885-917 (2002), which is available at http://ssrn.com/abstract=360840, we respond to several other responses to our original study and present additional evidence that confirms its conclusions.
Oren Bar-Gill & Lucian A. Bebchuk, Misreporting Corporate Performance (Harvard L. & Econ. Discussion Paper No. 400, Dec. 7, 2002).
Categories:
Corporate Law & Securities
,
Labor & Employment
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Corporate Governance
,
Executive Compensation
Type: Other
Abstract
This paper develops a model of the causes and consequences of misreporting of corporate performance. Misreporting in our model covers all actions, whether legal or illegal, that enable managers of firms with low value to make statements that mimic those made by firms with high value. We show that even managers who cannot sell their shares in the short-term might misreport in order to improve the terms under which their company would be able to raise capital for new projects or acquisitions. When managers may sell some of their holdings in the short-term, incentives to misreport and the incidence of misreporting increase to an extent that depends on what fraction of their holdings managers may sell and on whether they can sell without the market knowing about it. Investments in misreporting have real economic costs and distort financing and investment decisions, with firms that misreport raising too much equity and firms that do not misreport raising too little. A lax accounting and legal environment increases the incidence of misreporting and consequently the distortions in capital allocation. Our analysis provides many testable predictions concerning the times, industries, and types of firms where misreporting is likely to occur. The analysis also has implications for corporate governance and executive compensation.
Lucian Bebchuk, Ex Ante Investments and Ex Post Externalities (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 397, Dec. 2, 2002).
Categories:
Property Law
,
Environmental Law
,
Disciplinary Perspectives & Law
,
Banking & Finance
Sub-Categories:
Economics
,
Law & Economics
,
Land Use
,
Property Rights
Type: Other
Abstract
Whenever the use of an asset by one party imposes an externality on another party's use of an asset, entitlements must be allocated. Does an upstream firm have a right to use a river's water or does a downstream firm have a right not to have the water used? And if the downstream firm is to be protected, should the protection comein the form of a property right or a liability rule? This paper focuses on how the all ocation of entitlements affects ex ante investments and actions. Even when ex post bargaining is easy, the ex post allocation of entitlements, by affecting the distribution of ex post value, can have significant efficiency effects ex ante. by identifying the ex ante effects of alternative rules, the analysis provides a framework for determining allocations of entitlement that would perform best from the perspective of ex ante efficiency. As far as ex ante effects are concerned, liability rules are not generally superior to property rights. The analysis has implications for a broad range of legal and policy questions.
Lucian Bebchuk, Alma Cohen & Allen Ferrell, Does the Evidence Favor State Competition in Corporate Law?, 90 Calif. L. Rev. 1775 (2002).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Law
,
Business Organizations
,
State & Local Government
Type: Article
Lucian A. Bebchuk & Assaf Hamdani, Optimal Defaults for Corporate Law Evolution, 96 Nw. U. L. Rev. 489 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
Type: Article
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants, 55 Stan. L. Rev. 885 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
Type: Article
Lucian Bebchuk, Asymmetric Information and the Choice of Corporate Governance Arrangements (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 398, Nov. 4, 2002).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Governance
,
Antitrust & Competition Law
,
Corporate Law
,
Mergers & Acquisitions
,
Law & Economics
Type: Other
Abstract
This paper analyzes how asymmetric information affects which corporate governance arrangements firms choose when they go public. It is shown that such asymmetry might lead firms to adopting – through the design of securities and corporate charters -- corporate governance arrangements that are known to be inefficient both by public investors and by those taking firms public. When assets with higher value produce opportunities for higher private benefits of control, asymmetric information about the asset value of firms going public will lead some or all such firms to offer a sub-optimal level of investor protection. The results can help explain why charter provisions cannot be relied on to provide optimal investor protection in countries with poor investor protection, why companies going public in the US commonly include substantial antitakeover provisions in their charters, and why companies rarely restrict self-dealing or the taking of corporate opportunities more than is done by the corporate laws of their country. The analysis also identifies a potentially beneficial role that mandatory legal rules might play in the corporate area.
Oren Bar-Gill & Michal Barzuza, The Market for Corporate Law (NBER Working Paper No. w9156, Sept. 2002).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Financial Markets & Institutions
,
Corporate Law
,
State & Local Government
Type: Article
Abstract
This paper develops a model of the competition among states in providing corporate law rules. The analysis provides a full characterization of the equilibrium in this market. Competition among states is shown to produce optimal rules with respect to issues that do not have a substantial effect on managers' private benefits but not with respect to issues (such as takeover regulation) that substantially affect these private benefits. We analyze why a Dominant state such as Delaware can emerge, the prices that the dominant state will set and the profits it will make. We also analyze the roles played by legal infrastructure, network externalities, and the rules governing incorporations. The results of the model are consistent with, and can explain, existing empirical evidence; they also indicate that the performance of state competition cannot be evaluated on the basis of how incorporation in Delaware in the prevailing market equilibrium affects shareholder wealth.
Lucian A. Bebchuk, Jesse Fried & David Walker, Managerial Power and Rent Extraction in the Design of Executive Compensation, 69 U. Chi. L. Rev. 751 (2002).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Labor & Employment
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Shareholders
,
Empirical Legal Studies
,
Executive Compensation
Type: Article
Abstract
This paper develops an account of the role and significance of rent extraction in executive compensation. Under the optimal contracting view of executive compensation, which has dominated academic research on the subject, pay arrangements are set by a board of directors that aims to maximize shareholder value by designing an optimal principal-agent contract. Under the alternative rent extraction view that we examine, the board does not operate at arm’s length; rather, executives have power to influence their own compensation, and they use their power to extract rents. As a result, executives are paid more than is optimal for shareholders and, to camouflage the extraction of rents, executive compensation might be structured sub-optimally. The presence of rent extraction, we argue, is consistent both with the processes that produce compensation schemes and with the market forces and constraints that companies face. Examining the large body of empirical work on executive compensation, we show that the picture emerging from it is largely compatible with the rent extraction view. Indeed, rent extraction, and the desire to camouflage it, can better explain many puzzling features of compensation patterns and practices. We conclude that extraction of rents might well play a significant role in U.S. executive compensation; and that the significant presence of rent extraction should be taken into account in any examination of the practice and regulation of corporate governance.
Lucian A. Bebchuk, The Case Against Board Veto in Corporate Takeovers, 69 U. Chi. L. Rev. 973 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Mergers & Acquisitions
Type: Article
Lucian A. Bebchuk, & Allen Ferrell, On Takeover Law and Regulatory Competition, 57 Bus. Law. 1047 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Securities Law & Regulation
,
Mergers & Acquisitions
,
Corporate Law
,
Corporate Governance
Type: Article
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Theory, evidence, and policy, 54 Stan. L. Rev. 887 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Mergers & Acquisitions
Type: Article
Abstract
Staggered boards, which a majority of public companies now have, provide a powerful antitakeover defense, stronger than is commonly recognized. They provide antitakeover protection both by (i) forcing any hostile bidder, no matter when it emerges, to wait at least one year to gain control of the board and (ii) requiring such a bidder to win two elections far apart in time rather than a one-time referendum on its offer. Using a new data set of hostile bids in the five-year period 1996-2000, we find that not a single hostile bid won a ballot box victory against an 'effective' staggered board (ESB). We also find that an ESB nearly doubled the odds of remaining independent for an average target in our data set, from 34% to 61%, halved the odds that a first bidder would be successful, from 34% to 14%, and reduced the odds of a sale to a white knight, from 32% to 25%. Furthermore, we find that the shareholders of targets that remained independent were made worse off compared with accepting the bid and that ESBs did not provide sufficient countervailing benefits in terms of increased premiums to offset the costs of remaining independent. Overall, we estimate that, in the period studied, ESBs reduced the returns of shareholders of hostile bid targets on the order of 8-10%. Finally, we show that most staggered boards were adopted before the developments in takeover doctrine that made ESBs such a potent defense. Selected by academics as one of the “top ten” articles in corporate/securities law for 2002, out of 350 articles published in that year.
Lucian A. Bebchuk, Ex Ante Costs of Violating Absolute Priority in Bankruptcy, 57 J. Fin. 445 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Shareholders
,
Corporate Bankruptcy & Reorganization
Type: Article
Abstract
A basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority. Research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects. In contrast, this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders. Such deviations aggravate the moral hazard problem with respect to project choice-increasing the equityholders incentive to favor risky projects-as well as with respect to borrowing and dividend decisions.
Lucian A. Bebchuk, John C. Coates & Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Further Findings and a Reply to Symposium Participants, 55 Stan. L. Rev. 885 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Governance
Type: Article
Abstract
This paper develops and defends our earlier analysis of the powerful antitakeover force of staggered boards. We reply to five responses to our work, by Stephen Bainbridge, Mark Gordon, Patrick McGurn, Leo Strine, and Lynn Stout, which are to be published in a Stanford Law Review Symposium. We present new empirical evidence that extends our earlier findings, confirms our conclusions, and demonstrates that the alternative theories put forward by some commentators do not adequately explain the evidence. Among other things, we find that having a majority of independent directors does not address the concern that defensive tactics might be abused. We also find that effective staggered boards do not appear to have a significant beneficial effect on premia in negotiated transactions. Finally, we show that, unlike our approach, the approach that our critics advocate for Delaware takeover jurisprudence to follow is both inconsistent with its established principles and takes an extreme position in the overall debate on takeover defenses. Our analysis and new findings further strengthen the case for limiting the ability of incumbents armed with a staggered board to continue saying no after losing an election conducted over an acquisition offer.
Lucian Bebchuk, The Questionable Case for Using Auctions to Select Lead Counsel, 80 Wash. U. L. Q. 889 (2002).
Categories:
Legal Profession
,
Disciplinary Perspectives & Law
,
Civil Practice & Procedure
Sub-Categories:
Class Action Litigation
,
Litigation & Settlement
,
Law & Economics
,
Legal Services
Type: Article
Abstract
This paper analyzes the shortcomings of using auctions for selecting lead counsel in class action cases. In contrast to what proponents of auctions suggest, the outcome of an auction is likely to diverge considerably from what an informed principal would have chosen. In particular, auctions push the percentage of recovery paid to counsel to the lowest level at which law firms would be willing to take the case. Because of the need to provide counsel with incentives to invest effort and resources, however, the class might well be better served by a higher percentage than this minimum level, and auctions might push fees to levels that are too low. The analyzed problems are ones that arise also in those types of cases for which the use of auctions should be considered according to the recent recommendations of a Task Force report.
Lucian Bebchuk & Assaf Hamdani, Vigorous Race or Leisurely Walk: Reconsidering the Competition Over Corporate Charters, 112 Yale L.J. 553 (2002).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Government & Politics
,
Civil Practice & Procedure
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
,
Choice of Law
,
Law & Economics
,
State & Local Government
,
Federalism
Type: Article
Lucian A. Bebchuk, Property Rights and Liability Rules: The Ex Ante View of the Cathedral, 100 Mich. L. Rev. 601 (2001).
Categories:
Banking & Finance
,
Civil Practice & Procedure
,
Property Law
Sub-Categories:
Economics
,
Remedies
,
Property Rights
Type: Article
Lucian Bebchuk & Oliver Hart, Takeover Bids vs. Proxy Fights in Contests for Corporate Control (Harv. L. Sch. John M. Olin Ctr. Discussion Paper No. 336, Oct. 1, 2001).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
,
Mergers & Acquisitions
,
Law & Economics
Type: Other
Abstract
This paper evaluates the primary mechanisms for changing management or obtaining control in publicly traded corporations with dispersed ownership. Specifically, we analyze and compare three mechanisms: (1) proxy fights (voting only); (2) takeover bids (buying shares only); and (3) a combination of proxy fights and takeover bids in which shareholders vote on acquisition offers. We first show how proxy fights unaccompanied by an acquisition offer suffer from substantial shortcomings that limit the use of such contests in practice. We then argue that combining voting with acquisition offers is superior not only to proxy fights alone but also to takeover bids alone. Finally, we show that, when acquisition offers are in the form of cash or the acquirer’s existing securities, voting shareholders can infer from the pre-vote market trading which outcome would be best in light of all the available public information. Our analysis has implications for the ongoing debates in the US over poison pills and in Europe over the new EEC directive on takeovers.
Lucian A. Bebchuk & Allen Ferrell, Federal Intervention to Enhance Shareholder Choice, 87 Va. L. Rev. 993 (2001).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Shareholders
,
Corporate Law
,
Federalism
Type: Article
Lucian A. Bebchuk & Jesse Fried, A New Approach to Valuing Secured Claims in Bankruptcy, 114 Harv. L. Rev. 2386 (2001).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Secured Transactions
,
Corporate Law
,
Corporate Bankruptcy & Reorganization
Type: Article
Lucian A. Bebchuk & Omri Ben-Shahar, Precontractual Reliance, 30 J. Legal Stud. 423 (2001).
Categories:
Disciplinary Perspectives & Law
,
Banking & Finance
,
Consumer Finance
Sub-Categories:
Contracts
,
Economics
,
Investment Products
,
Consumer Contracts
,
Law & Economics
Type: Article
Abstract
During contractual negotiations, parties often make reliance expenditures that would increase the surplus should a contract be made. This paper analyzes decisions to invest in precontractual reliance under alternative legal regimes. Investments in reliance will be socially suboptimal in the absence of any precontractual liability—and will be socially excessive under strict liability for all reliance expenditures. Given the results for these polar cases, we focus on exploring how “intermediate”‐liability rules could be best designed to induce efficient reliance decisions. One of our results indicates that the case for liability is shown to be stronger when a party retracts from terms that it has proposed or from preliminary understandings reached by the parties. Our results have implications, which we discuss, for various contract doctrines and debates. Finally, we show that precontractual liability does not necessarily have an overall adverse effect on parties’ decisions to enter into contractual negotiations.
Lucian A. Bebchuk, & Allen Ferrell, A New Approach to Takeover Law and Regulatory Competition, 87 Va. L. Rev. 111 (2001).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Law
,
Mergers & Acquisitions
,
Shareholders
,
Federalism
Type: Article
Lucian A. Bebchuk & David Walker, The Overlooked Corporate Finance Problems of a Microsoft Breakup, 56 The Bus. Law. 459 (2001).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Shareholders
,
Securities Law & Regulation
Type: Article
Lucian A. Bebcuk & Allen Ferrell, Federalism and Takeover Law: The Race to Protect Managers from Takeovers, in Regulatory Competition and Economic Integration 68 (D. Esty & D. Geradin eds., Oxford Univ. Press 2001).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
,
Mergers & Acquisitions
,
Federalism
Type: Book
Lucian A. Bebchuk, Using Options to Divide Value in Corporate Bankruptcy, 44 Eur. Econ. Rev. 829 (2000).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Securities Law & Regulation
,
Shareholders
,
Corporate Bankruptcy & Reorganization
Type: Article
Lucian A. Bebchuk & Marcel Kahan, Adverse Selection and Gains to Controllers in Corporate Freezeouts, in Concentrated Corporate Ownership 247 (R. Morck ed., U. Chi. Press 2000).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Book
Lucian A. Bebchuk & Luigi Zingales, Ownership Structures and the Decision to Go Public: Private Versus Social Optimality, in Concentrated Corporate Ownership 55 (R. Morck ed., U. Chi. Press 2000).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Business Organizations
,
Shareholders
Type: Book
Lucian A. Bebchuk, Reinier H. Kraakman & George Triantis, Stock Pyramids, Cross-Ownership and Dual Class Equity: The Mechanisms and Agency Costs of Separating Control from Cash-Flow Rights, in Concentrated Corporate Ownership 295 (R. Morck ed., Univ. Chi. Press 2000)(Earlier issued as NBER Working Paper No. 6951, 1999).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
Type: Book
Lucian A. Bebchuk & Mark J. Roe, A Theory of Path Dependence in Corporate Ownership and Governance, 52 Stan. L. Rev. 127 (1999)(Reprinted in Foundations of Corporate Law, (Romano ed., 2d ed., 2010); Translated into Mandarin and reprinted in 26 Graduate L. Rev. 126 (2011) (Ning Guijun, translator)).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Economics
,
Corporate Governance
,
Corporate Law
Type: Article
Lucian A. Bebchuk, & Andrew Guzman, An Economics Analysis of Transnational Bankruptcies, 42 J.L. & Econ. 775 (1999).
Categories:
Banking & Finance
,
International, Foreign & Comparative Law
,
Corporate Law & Securities
Sub-Categories:
Economics
,
Corporate Bankruptcy & Reorganization
,
Foreign Law
Type: Article