John Coates

John F. Cogan, Jr. Professor of Law and Economics

Research Director, Center on the Legal Profession

Biography

John Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School, and Research Director of the Center on the Legal Profession. Before joining Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in financial institutions and M&A. He has testified before Congress and provided consulting services to the U.S. Department of Justice, the U.S. Department of Treasury, the New York Stock Exchange, and participants in the financial markets, including individuals, mutual funds, hedge funds, investment banks, commercial banks, and private equity funds. In addition, he served as independent distribution consultant for the Securities and Exchange Commission in two "Fair Fund" distributions to investors - including one of the first distributions (of $50 million relating to an enforcement action regarding payment for order flow), and one of the largest distributions (of $306 million relating to enforcement actions regarding market timing and late trading). He has also served as an independent representative of individual and institutional clients of institutional trustees and money managers.

Areas of Interest

John C. Coates, Mergers, Acquisitions and Restructuring: Types, Regulation, and Patterns of Practice, in The Oxford Handbook of Corporate Law and Governance (Jeffrey N. Gordon & Wolf-Georg Ringe eds. 2017).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Corporate Law
,
Corporate Governance
Type: Book
Abstract
An important component of corporate governance is the regulation of significant transactions – mergers, acquisitions, and restructuring. This paper (a chapter in Oxford Handbook on Corporate Law and Governance, forthcoming) reviews how M&A and restructuring are regulated by corporate and securities law, listing standards, antitrust and foreign investment law, and industry-specific regulation. Drawing on real-world examples from the world’s two largest M&A markets (the US and the UK) and a representative developing nation (India), major types of M&A transactions are reviewed, and six goals of M&A regulation are summarized – to (1) clarify authority, (2) reduce costs, (3) constrain conflicts of interest, (4) protect dispersed owners, (5) deter looting, asset-stripping and excessive leverage, and (6) cope with side effects. Modes of regulation either (a) facilitate M&A – collective action and call-right statutes – or (b) constrain M&A – disclosure laws, approval requirements, augmented duties, fairness requirements, regulation of terms, process and deal-related debt, and bans or structural limits. The paper synthesizes empirical research on types of transactions chosen, effects of law on M&A, and effects of M&A. Throughout, similarities and differences across transaction types and countries are noted. The paper concludes with observations about what these variations imply and how law affects economic activity.
John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale L. J. 882 (2015).
Categories:
Banking & Finance
Sub-Categories:
Finance
,
Financial Reform
,
Economics
Type: Article
Abstract
Some members of Congress, the D.C. Circuit, and the legal academy are promoting a particular, abstract form of cost-benefit analysis for financial regulation: judicially enforced quantification. How would CBA work in practice, if applied to specific, important, representative rules, and what is the alternative? Detailed case studies of six rules—(1) disclosure rules under Sarbanes-Oxley section 404; (2) the SEC’s mutual fund governance reforms; (3) Basel III’s heightened capital requirements for banks; (4) the Volcker Rule; (5) the SEC’s cross-border swap proposals; and (6) the FSA’s mortgage reforms—show that precise, reliable, quantified CBA remains unfeasible. Quantified CBA of such rules can be no more than “guesstimated,” as it entails (a) causal inferences that are unreliable under standard regulatory conditions; (b) the use of problematic data; and/or (c) the same contestable, assumption-sensitive macroeconomic and/or political modeling used to make monetary policy, which even CBA advocates would exempt from CBA laws. Expert judgment remains an inevitable part of what advocates label “gold-standard” quantified CBA, because finance is central to the economy, is social and political, and is non-stationary. Judicial review of quantified CBA can be expected to do more to camouflage discretionary choices than to discipline agencies or promote democracy.
John C. Coates, Ronald A. Fein, Kevin P. Crenny & Li Wei Vivian Dong, Quantifying Institutional Block Ownership, Domestic and Foreign, at Publicly Traded U.S. Corporations (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 888, 2016).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Business Organizations
Type: Article
Abstract
This short technical report provides an empirical analysis of the level of institutional block ownership overall, and of foreign block ownership, at a broad set of publicly traded corporations. Disclosed institutional blockholders of every company in the Standard & Poor’s 500 index are analyzed, and the distribution of blockholders is presented. Blockholders are identified as domestic or foreign entities, and whether they were majority owned or controlled by foreign entities. Roughly one in three companies in the S&P 500 has one or more block holders with 20 % ownership, and one in eleven (9%) has one or more foreign institutions each owning five percent or more blocks of stock. The descriptive data reported here may assist lawmakers, analysts, and investors in assessing the effects of globalization of capital markets and the interaction of country and governance risk, and in developing policies. Among other things, these data may inform debates on the degree to which domestic political spending by U.S. corporations conveys any potential for foreign influence through governance, and the likely costs and benefits of disclosure laws regarding such influence.
John C. Coates, IV, M & A Contracts: Purposes, Types, Regulation, and Patterns of Practice, in Research Handbook on Mergers and Acquisitions (Steven Davidoff Solomon & Claire A. Hill eds. 2016).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
Type: Book
John C. Coates, Why Have M&A Contracts Grown? Evidence from Twenty Years of Deals (Harvard Law Sch. John M. Olin Ctr. for Law, Econ. & Bus., Discussion Paper No. 889, 2016).
Categories:
Corporate Law & Securities
Sub-Categories:
Mergers & Acquisitions
,
Securities Law & Regulation
Type: Article
Abstract
Over 20 years, M&A contracts have more than doubled in size – from 35 to 88 single-spaced pages in this paper’s font. They have also grown significantly in linguistic complexity – from post-graduate “grade 20” to post-doctoral “grade 30”. A substantial portion (lower bound ~20%) of the growth consists not of mere verbiage but of substantive new terms. These include rational reactions to new legal risks (e.g., SOX, FCPA enforcement, shareholder litigation) as well as to changes in deal and financing markets (e.g., financing conditions, financing covenants, and cooperation covenants; and reverse termination fees). New contract language also includes dispute resolution provisions (e.g., jury waivers, forum selection clauses) that are puzzling not for appearing new but in why they were ever absent. A final, notable set of changes reflect innovative deal terms, such as top-up options, which are associated with a 18-day (~30%) fall in time-to-completion and a 6% improvement in completion rates. Exploratory in nature, this paper frames a variety of questions about how an important class of highly negotiated contracts evolves over time.
John C. Coates, The Volcker Rule as Structural Law: Implications for Cost-Benefit Analysis and Administrative Law, 10 Cap. Mkt. L.J. 447 (2015).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Banking
,
Economics
,
Finance
,
Corporate Law
Type: Article
Abstract
The Volcker rule – a key part of Congress’s response to the financial crisis – is best understood as a “structural law,” a traditional Anglo-American technique for governance of hybrid public-private institutions such as banks and central banks. The tradition extends much farther back in time than the Glass-Steagall Act, to which the Volcker Rule has been unfavorably (but unfairly) compared. The goals of the Volcker Rule are complex and ambitious, and not limited to reducing risk directly, but include reshaping banks’ organizational cultures. Another body of structural laws – part of the core of administrative law – attempts to restrain and discipline regulatory agencies, through process requirements such as cost-benefit analysis (CBA). Could the Volcker rule be the subject of reliable, precise, quantified CBA? Given the nature of the Volcker rule as structural law, its ambitions, and the current capacities of CBA, the answer is clearly “no,” as it would require regulators to anticipate, in advance of data, private market behavior in response to novel activity constraints. If administrative law is to improve regulatory implementation of structural laws such as the Volcker Rule, better fitting and more nuanced tools than CBA are needed.
John C. Coates, IV, Thirty Years of Evolution in the Roles of Institutional Investors in Corporate Governance, in Research Handbook on Shareholder Power ch. 4 (Jennifer G. Hill and Randall S. Thomas, eds., 2015).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Shareholders
Type: Book
Abstract
Much of the history of corporate law has concerned itself not with shareholder power, but rather with its absence. Recent shifts in capital market structure require a reassessment of the role and power of shareholders.
John C. Coates, IV, Corporate Speech & the First Amendment: History, Data, and Implications, 30 Const. Comment. 223 (2015).
Categories:
Constitutional Law
,
Corporate Law & Securities
Sub-Categories:
First Amendment
,
Corporate Law
,
Business Organizations
Type: Article
Abstract
This Article draws on empirical analysis, history, and economic theory to show that corporations have begun to displace individuals as direct beneficiaries of the First Amendment and to outline an argument that the shift reflects economically harmful rent seeking. The history of corporations, regulation of commercial speech, and First Amendment case law is retold, with an emphasis on the role of constitutional entrepreneur Justice Lewis Powell, who prompted the Supreme Court to invent corporate and commercial speech rights. The chronology shows that First Amendment doctrine long post-dated both pervasive regulation of commercial speech and the rise of the U.S. as the world’s leading economic power – a chronology with implications for originalists, and for policy. Supreme Court and Courts of Appeals decisions are analyzed to quantify the degree to which corporations have displaced individuals as direct beneficiaries of First Amendment rights, and to show that they have done so recently, but with growing speed since Virginia Pharmacy, Bellotti, and Central Hudson. Nearly half of First Amendment challenges now benefit business corporations and trade groups, rather than other kinds of organizations or individuals, and the trend-line is up. Such cases commonly constitute a form of corruption: the use of litigation by managers to entrench reregulation in their personal interests at the expense of shareholders, consumers, and employees. In aggregate, they degrade the rule of law, rendering it less predictable, general and clear. This corruption risks significant economic harms in addition to the loss of a republican form of government.
John C. Coates, IV, Jesse M. Fried, & Kathryn E. Spier, What Courses Should Law Students Take? Lessons from Harvard’s Big Law Survey, 64 J. Legal Educ. 443 (2015).
Categories:
Corporate Law & Securities
,
Legal Profession
,
Banking & Finance
Sub-Categories:
Finance
,
Legal Education
,
Legal Services
Type: Article
Abstract
We report the results of an online survey, conducted on behalf of Harvard Law School, of 124 practicing attorneys at major law firms. The survey had two main objectives: (1) to assist students in selecting courses by providing them with data about the relative importance of courses; and (2) to provide faculty with information about how to improve the curriculum and best advise students. The most salient result is that students were strongly advised to study accounting and financial statement analysis, as well as corporate finance. These subject areas were viewed as particularly valuable, not only for corporate/transactional lawyers, but also for litigators. Intriguingly, non-traditional courses and skills, such as business strategy and teamwork, are seen as more important than many traditional courses and skills.
John C. Coates, IV, Cost-Benefit Analysis of Financial Regulation: A Reply, 124 Yale L.J. F. 305 (Jan. 22, 2015).
Categories:
Government & Politics
Sub-Categories:
Administrative Law & Agencies
Type: Article
John C. Coates, IV, Securities Litigation in the Roberts Court: An Early Assessment, 57 Ariz. L. Rev. 1 (2015).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Securities Law & Regulation
,
Supreme Court of the United States
,
Judges & Jurisprudence
Type: Article
John C. Coates, IV, Towards Better Cost-Benefit Analysis: An Essay on Regulatory Management, 78 Law & Contemp. Probs. 1 (2015).
Categories:
Government & Politics
Sub-Categories:
Administrative Law & Agencies
Type: Article
John C. Coates & Suraj Srinivasan, SOX after Ten Years: A Multidisciplinary Review, 28 Accounting Horizons 627 (2014).
Categories:
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
Type: Article
Abstract
We review and assess research findings from more than 120 papers in accounting, finance, and law to evaluate the impact of the Sarbanes-Oxley Act. We describe significant developments in how the Act was implemented and find that despite severe criticism, the Act and institutions it created have survived almost intact since enactment. We report survey findings from informed parties that suggest that the Act has produced financial reporting benefits. While the direct costs of the Act were substantial and fell disproportionately on smaller companies, costs have fallen over time and in response to changes in its implementation. Research about indirect costs such as loss of risk taking in the U.S. is inconclusive. The evidence for and social welfare implications of claimed effects such as fewer IPOs or loss of foreign listings are unclear. Financial reporting quality appears to have gone up after SOX but research on causal attribution is weak. On balance, research on the Act's net social welfare remains inconclusive. We end by outlining challenges facing research in this area, and propose an agenda for better modeling costs and benefits of financial regulation.
John C. Coates, Corporate Politics, Governance, and Value Before and After Citizens United, 9 J. Empirical Legal Stud. 657 (2012).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Governance
,
Shareholders
,
Empirical Legal Studies
Type: Article
Abstract
How did corporate politics, governance, and value relate to each other in the S&P 500 before and after Citizens United? In regulated and government-dependent industries, politics is nearly universal, and uncorrelated with shareholder power, agency costs, or value. However, 11 percent of CEOs in 2000 who retired by 2011 obtained political positions after retiring and, in most industries, political activity correlates negatively with measures of shareholder power, positively with signs of agency costs, and negatively with shareholder value. The politics-value relationship interacts with capital expenditures, and is stronger in regressions with firm and time fixed effects, which absorb many omitted variables. After the shock of Citizens United, corporate lobbying and PAC activity jumped, in both frequency and amount, and firms politically active in 2008 had lower value in 2010 than other firms, consistent with politics at least partly causing and not merely correlating with lower value. Overall, the results are inconsistent with politics generally serving shareholder interests, and support proposals to require disclosure of political activity to shareholders.
John C. Coates, Managing Disputes Through Contract: Evidence from M&A, 2 Harv. Bus. L. Rev. 295 (2012).
Categories:
Corporate Law & Securities
,
Banking & Finance
,
Civil Practice & Procedure
Sub-Categories:
Contracts
,
Mergers & Acquisitions
,
Arbitration
,
Choice of Law
,
Dispute Resolution
,
Litigation & Settlement
Type: Article
Abstract
An important set of contract terms manages potential disputes. In a detailed, hand-coded sample of mergers and acquisition (M&A) contracts from 2007 and 2008, dispute management provisions correlate strongly with target ownership, state of incorporation, and industry, and with the experience of the parties’ law firms. For Delaware, there is good and bad news. Delaware dominates choice for forum, whereas outside of Delaware, publicly held targets’ states of incorporation are no more likely to be designated for forum than any other court. However, Delaware’s dominance is limited to deals for publicly held targets incorporated in Delaware, Delaware courts are chosen only 20% of the time in deals for private targets incorporated in Delaware, and they are never chosen for private targets incorporated elsewhere, or in asset purchases. A forum goes unspecified in deals involving less experienced law firms. Whole contract arbitration is limited to private targets, is absent only in the largest deals, and is more common in cross-border deals. More focused arbitration––covering price-adjustment clauses––is common even in the largest private target bids.Specific performance clauses––prominently featured in recent high-profile M&A litigation––are less common when inexperienced M&A lawyers involved. These findings suggest (a) Delaware courts’ strengths are unique in, but limited to, corporate law, even in the “corporate” context of M&A contracts; (b) the use of arbitration turns as much on the value of appeals, trust in courts, and value-at-risk as litigation costs; and (c) the quality of lawyering varies significantly, even on the most “legal” aspects of an M&A contract.
John C. Coates, Michele M. DeStefano, Ashish Nanda & David B. Wilkins, Hiring Teams, Firms, and Lawyers: Evidence of the Evolving Relationships in the Corporate Legal Market, 36 Law & Soc. Inquiry 999 (2011).
Categories:
Legal Profession
,
Disciplinary Perspectives & Law
,
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Empirical Legal Studies
,
Legal Services
Type: Article
Abstract
How are relationships between corporate clients and law firms evolving? Drawing on interview and survey data from 166 chief legal officers of S&P 500 companies from 2006–2007, we find that—contrary to standard depictions of corporate client-provider relationships—(1) large companies have relationships with ten to twenty preferred providers; (2) these relationships continue to be enduring; and (3) clients focus not only on law firm platforms and lead partners, but also on teams and departments within preferred providers, allocating work to these subunits at rival firms over time and following “star” lawyers, especially if they move as part of a team. The combination of long-term relationships and subunit rivalry provides law firms with steady work flows and allows companies to keep cost pressure on firms while preserving relationship-specific capital, quality assurance, and soft forms of legal capacity insurance. Our findings have implications for law firms, corporate departments, and law schools.
John C. Coates, M&A Break Fees: U.S. Litigation Versus UK Regulation, in Regulation versus Litigation: Perspectives from Economics and Law 239 (Daniel P. Kessler ed., 2011).
Categories:
Corporate Law & Securities
,
Civil Practice & Procedure
,
Disciplinary Perspectives & Law
,
International, Foreign & Comparative Law
Sub-Categories:
Mergers & Acquisitions
,
Litigation & Settlement
,
Law & Economics
,
European Law
Type: Book
John C. Coates, The Keynote Papers and the Current Financial Crisis, 47 J. Accounting Res. 427 (2009).
Categories:
Banking & Finance
Sub-Categories:
Finance
,
Financial Markets & Institutions
,
Risk Regulation
Type: Article
Abstract
One hesitates to write history as it happens, or to draw policy lessons from current events. The conference took place in May 2008 - after the government-assisted takeover of Bear Stearns but before a capital market downturn fueled a system-wide liquidity crisis, with successive insolvencies at IndyMac, Fannie Mae, Freddie Mac, Lehman, AIG, WaMu, and, as I write, Citigroup. But it would be odd to comment on capital market regulation without mentioning the events of the last three months. I am first to acknowledge that anything I might have written in May would not have foreseen the crisis or linked capital market regulation to financial institutions, which in the US have been conventionally treated as discrete in discourse and institutions (e.g., U.S. Treasury 2008; Leuz and Wysocki 2008).
John C. Coates, The Goals and Promise of the Sarbanes-Oxley Act, 21 J. Econ. Persp. 91 (2007).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Governance
,
Corporate Law
Type: Article
John C. Coates, Explaining Variation in Takeover Defenses: Blame the Lawyers, 89 Calif. L. Rev. 1301 (2001).
Categories:
Corporate Law & Securities
,
Legal Profession
Sub-Categories:
Securities Law & Regulation
,
Shareholders
,
Corporate Governance
,
Legal Services
Type: Article
Abstract
Traditional law and economics scholarship predicts that no companies will adopt takeover defenses prior to IPOs, because defenses increase agency costs between shareholders and managers, and reduce IPO proceeds. In fact, data from 357 IPOs in the 1990s show that many companies adopt defenses prior to IPOs. Even more puzzling for conventional scholarship, defenses vary widely at the IPO stage. Analysis shows that more of this variation in defenses can be explained by characteristics of law firms advising owner-managers than by traditional theories about defenses. Among other findings: (1) Companies advised by larger law firms with more takeover experience adopt more defenses; (2) In 1991-92, companies with Silicon Valley lawyers adopted almost no defenses; by 1998, Silicon Valley lawyers' clients were as likely to use defenses as clients of other lawyers; (3) Companies with high-quality underwriters and venture capital backing adopt more defenses; (4) The overall rate of defense adoption increased in the 1990s. Together, these findings provide strong evidence that lawyers determine key terms in the "corporate contract," due to agency costs between owner-managers and their lawyers.

Current Courses

Course Catalog View