Jesse M. Fried

Dane Professor of Law

Griswold 506

617-384-8158

Assistant: Lauren Semrau / 617-384-9814

Biography

Jesse M. Fried is a Professor of Law at Harvard Law School. Before joining the Harvard faculty in 2009, Fried was a Professor of Law and Faculty Co-Director of the Berkeley Center for Law, Business and the Economy (BCLBE) at the University of California Berkeley. Fried has also been a visiting professor at Columbia University Law School, Duisenberg School of Finance, IDC Herzilya, and Tel Aviv University. He holds an A.B. and A.M in Economics from Harvard University, and a J.D. magna cum laude from Harvard Law School. His well-known book Pay without Performance: the Unfulfilled Promise of Executive Compensation, co-authored with Lucian Bebchuk, has been widely acclaimed by both academics and practitioners and translated into Arabic, Chinese, Japanese, and Italian. Fried has served as a consultant and expert witness in litigation involving executive compensation and corporate governance issues. He also serves on the Research Advisory Council of proxy advisor Glass, Lewis & Co.

Areas of Interest

Jesse M. Fried, The Uneasy Case for Favoring Long-Term Shareholders, 124 Yale L.J. 1554 (2015).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Fiduciary Law
,
Commercial Law
,
Venture Capital
,
Corporate Governance
,
Business Organizations
,
Fiduciaries
,
Shareholders
,
Corporate Law
Type: Article
Abstract
This Article challenges a persistent and pervasive view in corporate law and corporate governance: that a firm’s managers should favor long-term shareholders over short-term shareholders, and maximize long-term shareholders’ returns rather than the short-term stock price. Underlying this view is a strongly held intuition that taking steps to increase long-term shareholder returns will generate a larger economic pie over time. I show, however, that this intuition is flawed. Long-term shareholders, like short-term shareholders, can benefit from managers’ destroying value—even when the firm’s only residual claimants are its shareholders. Indeed, managers serving long-term shareholders may well destroy more value than managers serving short-term shareholders. Favoring the interests of long-term shareholders could thus reduce, rather than increase, the value generated by a firm over time.
Jesse M. Fried, Insider Trading via the Corporation, 164 U. Pa. L. Rev. 801 (2014).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Financial Markets & Institutions
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
,
Fiduciaries
,
Business Organizations
Type: Article
Abstract
A U.S. firm buying and selling its own shares in the open market can trade on inside information more easily than its own insiders because it is subject to less stringent trade disclosure rules. Not surprisingly, insiders exploit these relatively lax rules to engage in indirect insider trading: they have the firm buy and sell shares at favorable prices to boost the value of their own equity. Such indirect insider trading imposes substantial costs on public investors in two ways: by systematically diverting value to insiders and by inducing insiders to take steps that destroy economic value. To reduce these costs, I put forward a simple proposal: subject firms to the same trade-disclosure rules that are imposed on their insiders.
Brian J. Broughman, Jesse M. Fried & Darian M. Ibrahim, Delaware Law as Lingua Franca: Theory and Evidence, 57 J.L. & Econ. 865 (2014).
Categories:
Corporate Law & Securities
,
Government & Politics
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Business Organizations
,
Empirical Legal Studies
,
State & Local Government
Type: Article
Abstract
Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law, as well as the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a “lingua franca” for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence consistent with this lingua-franca explanation. Indeed, the lingua-franca effect appears to be more important than other factors that have been shown to influence corporate domicile, such as corporate-law flexibility and the quality of a state’s judiciary. Our study contributes to the literature on the market for corporate charters by providing evidence that Delaware’s continued dominance is in part due to investors’ familiarity with its corporate law.
Brian B. Broughman & Jesse M. Fried, Carrots and Sticks: How VCs Induce Entrepreneurial Teams to Sell Startups, 98 Cornell L. Rev. 1319 (2013).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
,
Banking & Finance
Sub-Categories:
Venture Capital
,
Corporate Governance
,
Corporate Law
,
Fiduciaries
,
Business Organizations
,
Securities Law & Regulation
,
Empirical Legal Studies
Type: Article
Abstract
Venture capitalists (VCs) usually exit from their investments in a startup via a trade sale. But the startup's entrepreneurial team-the startup's founder, other executives, and common shareholders-may resist a trade sale. Such resistance is likely to be particularly intense when the sale price is low relative to the VCs' liquidation preferences. Using a hand-collected dataset of Silicon Valley firms, we investigate how VCs overcome such resistance. We find, in our sample, that VCs give bribes (carrots) to the entrepreneurial team in 45 % of trade sales; in these sales, carrots total an average of 9% of deal value. The overt use of coercive tools (sticks) occurs, but only rarely. Our study sheds light on important but underexplored aspects of corporate governance in VC-backed startups and the venture capital ecosystem.
Brian B. Broughman & Jesse M. Fried, Do VCs Use Inside Rounds to Dilute Founders? Some Evidence From Silicon Valley, 18 J. Corp. Fin. 1104 (2012).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Finance
,
Venture Capital
,
Fiduciary Law
,
Corporate Law
,
Corporate Governance
,
Business Organizations
,
Empirical Legal Studies
Type: Article
Abstract
In the bank-borrower setting, a firm’s existing lender may exploit its positional advantage to extract rents from the firm in subsequent financings. Analogously, a startup’s existing venture capital investors (VCs) may dilute the founder through a follow-on financing from these same VCs (an “inside” round) at an artificially low valuation. Using a hand-collected dataset of Silicon Valley startup firms, we find little evidence that VCs use inside rounds to dilute founders. Instead, our findings suggest that inside rounds are generally used as “backstop financing” for startups that cannot attract new money, and these rounds are conducted at relatively high valuations (perhaps to reduce litigation risk).
Jesse M. Fried, Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay, 89 Tex. L. Rev. 1113 (2011).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Finance
,
Fiduciary Law
,
Venture Capital
,
Corporate Governance
,
Corporate Law
,
Business Organizations
,
Fiduciaries
,
Shareholders
Type: Article
Abstract
This Article identifies a cost to public investors of tying executive pay to the future value of a firm’s stock - even its long-term value. In particular, such an arrangement can incentivize executives to engage in share repurchases (when the current stock price is low) and equity issuances (when the current stock price is high) that reduce “aggregate shareholder value,” the amount of value flowing to all the firm’s shareholders over time. The Article also puts forward a mechanism that ties executive pay to aggregate shareholder value and thereby eliminates the identified distortions.
Jesse M. Fried & Nitzan Shilon, Excess-Pay Clawbacks, 36 J. Corp. L. 722 (2011).
Categories:
Corporate Law & Securities
,
Labor & Employment
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Securities Law & Regulation
,
Executive Compensation
Type: Article
Abstract
We explain why firms should have a policy requiring directors to recover “excess pay” – payouts to executives resulting from an error in compensation metrics (such as inflated earnings). We then analyze the clawback policies voluntarily adopted by S&P 500 firms as of 2010 and find that only a small fraction had such a policy. Our findings suggest that the Dodd-Frank Act, which requires firms to adopt a clawback policy for certain types of excess pay, will improve compensation arrangements at most firms. We also suggest how the types of excess pay not reached by Dodd-Frank should be addressed.
Jesse M. Fried & Brian Broughman, Renegotiation of Cash Flow Rights in the Sale of VC-Backed Firms, 95 J. Fin. Econ. 384 (2010).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Contracts
,
Commercial Law
,
Finance
,
Venture Capital
,
Business Organizations
,
Corporate Law
,
Corporate Governance
,
Shareholders
,
Fiduciaries
,
Empirical Legal Studies
Type: Article
Abstract
Incomplete contracting theory suggests that venture capitalist (VC) cash flow rights, including liquidation preferences, could be subject to renegotiation. Using a hand-collected data set of sales of Silicon Valley firms, we find common shareholders do sometimes receive payment before VCs’ liquidation preferences are satisfied. However, such deviations from VCs’ cash flow rights tend to be small. We also find that renegotiation is more likely when governance arrangements, including the firm’s choice of corporate law, give common shareholders more power to impede the sale. Our study provides support for incomplete contracting theory, improves understanding of VC exits, and suggests that choice of corporate law matters in private firms.
Jesse M. Fried, Rationalizing the Dodd-Frank Clawback (European Corporate Governance Inst. (ECGI) - Law Working Paper No. 314/2016).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Labor & Employment
Sub-Categories:
Financial Reform
,
Corporate Law
,
Corporate Governance
,
Executive Compensation
Type: Article
Abstract
On July 1, 2015, the Securities and Exchange Commission (SEC) proposed an excess-pay clawback rule to implement the provisions of Section 954 of the Dodd-Frank Act. I explain why the SEC’s proposed Dodd-Frank clawback, while reducing executives’ incentives to misreport, is overbroad. The economy and investors would be better served by a more narrowly targeted “smart” excess-pay clawback that focuses on fewer issuers, executives, and compensation arrangements.

Current Courses

Course Catalog View

Griswold 506

617-384-8158

Assistant: Lauren Semrau / 617-384-9814