Mark J. Roe

David Berg Professor of Law

Biography

Mark J. Roe is a professor at Harvard Law School, where he teaches corporate law and corporate bankruptcy.  He wrote Strong Managers, Weak Owners: The Political Roots of American Corporate Finance (Princeton, 1994), Political Determinants of Corporate Governance (Oxford, 2003), and Bankruptcy and Corporate Reorganization (Foundation, 2011). Recent academic articles include: The Derivatives Market’s Payments Priorities as Financial Crisis Accelerator, 63 Stanford Law Review 539 (2011), available at http://ssrn.com/abstract=1567075;  Corporate Structural Degradation Due to Too-Big-to-Fail Finance, University of Pennsylvania Law Review (forthcoming), available at http://ssrn.com/abstract=2262901; and Corporate Short-Termism — In the Boardroom and in the Courtroom,  68 Business Lawyer 977 (2013), available at http://ssrn.com/abstract=2239132.

Areas of Interest

Mark J. Roe, Structural Corporate Degradation Due to Too-Big-To-Fail Finance, 162 U. Pa. L. Rev. 1419 (2014).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Commercial Law
,
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Corporate Bankruptcy & Reorganization
Type: Article
Abstract
Corporate governance incentives at too-big-to-fail financial firms deserve systematic examination. For industrial conglomerates that have grown too large to be efficient, internal and external corporate structural pressures push to resize the firm. External activists press the firm to restructure to raise its stock market value. Inside the firm, boards and managers see that the too-big firm can be more efficient and more profitable if restructured via spinoffs and sales. But a major corrective for industrial firm overexpansion fails to constrain large, too-big-to-fail financial firms when (1) the funding boost that the firm captures by being too-big-to-fail sufficiently lowers the firm’s financing costs and (2) a resized firm or the spun-off entities would lose that funding benefit. Propositions (1) and (2) have both been true and, consequently, a major retardant to industrial firm overexpansion has gone missing for large financial firms. The effect resembles that of a corporate poison pill, but one that disrupts the actions of both outsiders and insiders.
Mark J. Roe, The Derivatives Market’s Payment Priorities as Financial Crisis Accelerator, 63 Stan. L. Rev. 539 (2011).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Contracts
,
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Investment Products
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
Type: Article
Abstract
Chapter 11 bars bankrupt debtors from immediately repaying their creditors, so that the bankrupt firm can reorganize without creditors’ cash demands shredding the bankrupt’s business. Not so for the bankrupt’s derivatives counterparties, who, unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors. Their right to jump to the head of the bankruptcy repayment line, in ways that even ordinary secured creditors cannot, weakens their incentives for market discipline in managing their dealings with the debtor because the rules reduce their concern for the risk of counterparty failure and bankruptcy. If derivatives counterparties and financial repurchase creditors, who are treated similarly well in bankruptcy, were made to account better for counterparty risk, they would be more likely to insist that there be stronger counterparties on the other side of their derivatives bets, thereby insisting for their own good on strengthening the financial system. True, because derivatives counterparties bear less risk, nonprioritized creditors bear more and those nonprioritized creditors thus have more market-discipline incentives to assure themselves that the debtor is a safe bet. But the derivatives markets’ other creditors—such as the United States—are poorly positioned either to consistently monitor the derivatives debtors well or to fully replicate the needed market discipline. Bankruptcy policy should harness private incentives for counterparty market discipline by cutting back the extensive advantages Chapter 11 and related laws now bestow on these investment channels. More generally, when we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability. Repeal would end the de facto bankruptcy subsidy of these financing channels. Yet the major financial reform package Congress enacted in response to the financial crisis lacks the needed changes.
Mark J. Roe & Michael Troege, Degradation of the Financial System Due to the Structure of Corporate Taxation (Eur. Corp. Governance Inst. (ECGI) – Law Working Paper No. 317/2016, July 3, 2016).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Taxation
Sub-Categories:
Commercial Law
,
Finance
,
Financial Reform
,
Financial Markets & Institutions
,
Business Organizations
,
Corporate Governance
,
Taxation - Corporate
,
Taxation - Federal
Type: Other
Abstract
egulators have sought since the 2008 financial crisis to further strengthen the financial system. Yet a core source of weakness and a powerful additional instrument for strengthening the financial system persists unchanged and absent from the regulatory agenda — namely the relentless impact of the corporate tax on the choice between risky debt and safer equity. The tax penalty for equity and the concomitant boost for debt undermines the capital adequacy efforts that have been central to the post-crisis reform agenda. Yet this result is not inevitable. By repurposing tax tools used elsewhere in the world, we show how the safety-undermining impact of the current corporate tax can be ended or even reversed. The best trade-off of goals and practical potential is, first, to reduce the corporate income tax burden on bank equity levels above the required minimum, by according an imputed deduction for the cost of equity capital above the regulatory-required amount. This tax benefit can then, second, be made revenue-neutral to the finances by offsetting it, such as by decreasing the tax deductibility of the riskiest classes of financial system liabilities. That offsetting tax rate can, we show, be quite low, because the financial system’s debt base is wide while its equity base is narrow. Standard bank regulation is command-and-control style. Regulators order what banks can and cannot do; banks resist, lobby to reverse and undermine the commands, find transactional alternatives, and distort their behavior when approaching regulatory constraints. Regulators cannot in many areas know as much as the regulated; with a tax instrument, they do not need to know as much. Existing cross-country and cross-state data show the tremendous potential from this reform to incentivize more safely capitalized banks. The magnitude of the safety benefit should rival the size of all the post-crisis regulation to date. Thus the main thesis we bring forward is not a small or technical claim but a call for a major shift in regulatory style. Authors
Mark J. Roe, Bankruptcy and Corporate Reorganization: Legal and Financial Materials (Foundation Press 2016 (4th ed.)).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Legal Profession
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Commercial Law
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
,
Shareholders
,
Fiduciaries
,
Legal Education
Type: Book
Abstract
This casebook for a basic bankruptcy course takes a deal-oriented finance approach to bankruptcy, with a focus on business bankruptcy. The student will not only learn the major elements of bankruptcy and corporate reorganization in chapter 11 of the Bankruptcy Code, but also the major facets of bankruptcy that influence financing transactions. The hidden message behind these materials is how to understand complex financial deal-making and how to integrate finance with law, in the context of bankruptcy.
Mark J. Roe, The Trust Indenture Act of 1939 in Congress and the Courts in 2016: Bringing the SEC to the Table, 129 Harv. L. Rev. F. 360 (2016).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Finance
,
Investment Products
,
Commercial Law
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
Type: Article
Abstract
Distressed firms with publicly issued bonds often seek to restructure the bonds’ payment terms to better reflect the firm’s weakened repayment capabilities and thereby avoid a bankruptcy. But Depression-era securities law bars the bondholders from agreeing via a binding out-of-bankruptcy vote to new payment terms, thus requiring individualized consent to the new payment terms, despite that such binding votes are commonplace now in bankruptcy and elsewhere. Recent judicial application of this securities law rule to bond recapitalizations has been more consistent than it had previously been, with courts striking down restructuring deals that twisted bondholders’ arms into consenting to unwanted deals. These coercive bond exchanges first became common in the 1980s, when many hostile tender offers for public companies had a similarly coercive deal structure. The coercive deal structure in these takeover offers was brought forward then to justify wide managerial countermeasures, but this structure disappeared in takeovers. However, it persisted in bond exchange offers. While these court decisions striking down the coercive bond exchanges faithfully apply Depression-era securities law to thwart issuers from twisting bondholders’ arms into exchanging, the bond market and distressed firms would be better served by exempting fair votes that bind all bondholders to new payment terms. The Securities and Exchange Commission now has authority to exempt fair restructuring votes from this now out-of-date securities law.
Mark J. Roe & Stephen Adams, Restructuring Failed Financial Firms in Bankruptcy: Selling Lehman’s Derivatives Portfolio, 32 Yale J. on Reg. 363 (2015).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
Type: Article
Edward R. Morrison, Mark J. Roe & Christopher S. Sontchi, Rolling Back the Repo Safe Harbors, 69 Bus. Law. 1015 (2014).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Commercial Law
,
Corporate Bankruptcy & Reorganization
,
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Shareholders
Type: Article
Abstract
Recent decades have seen substantial expansion in exemptions from the Bankruptcy Code’s normal operation for repurchase agreements. These repos, which are equivalent to very short-term (often one-day) secured loans, are exempt from core bankruptcy rules such as the automatic stay that enjoins debt collection, rules against prebankruptcy fraudulent transfers, and rules against eve-of-bankruptcy preferential payment to favored creditors over other creditors. While these exemptions can be justified for United States Treasury securities and similarly liquid obligations backed by the full faith and credit of the United States government, they are not justified for mortgage-backed securities and other securities that could prove illiquid or unable to fetch their expected long-run value in a panic. The exemptions from baseline bankruptcy rules facilitate this kind of panic selling and, according to many expert observers, characterized and exacerbated the financial crisis of 2007–2009. The exemptions from normal bankruptcy rules should be limited to United States Treasury and similar liquid securities, as they once were. The more recent expansion of these exemptions to mortgage-backed securities should be reversed.
Mark J. Roe, Clearinghouse Overconfidence, 101 Calif. L. Rev. 1641 (2013).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Financial Reform
,
Financial Markets & Institutions
,
Business Organizations
,
Corporate Governance
,
Corporate Bankruptcy & Reorganization
Type: Article
Abstract
Regulatory reaction to the 2008-2009 financial crisis focused on complex financial instruments that deepened the crisis. A consensus emerged that these risky financial instruments should move through safe, strong clearinghouses, which would be bulwarks against systemic risk, and that the destructive impact of the failures during the crisis of AIG, Lehman Brothers, and the Reserve Primary Fund could have been softened or eliminated had strong clearing-houses been in place. Via the Dodd-Frank Wall Street Reform Act, Congress instructed regulators to construct clearinghouses through which these risky financial instruments would trade and settle. Clearinghouses could cut financial risk, reduce contagion, and halt a local financial problem before it becomes an economy-wide crisis. But clearinghouses are weaker bulwarks against financial contagion, financial panic, and systemic risk than is commonly thought. They may well be unable to defend the economy against financial stress such as that of the 2008-2009 crisis. Although they are efficient financial platforms in ordinary times, they do little to reduce systemic risk in crisis times. They generally do not reduce the core risk targeted-that the failure of a financial firm will cause other firms to fail-but rather transfer that risk of loss to others. The major reduction in risk among the inside-the-clearinghouse traders is largely achieved by pushing that risk elsewhere, often to a systemically dangerous spot. Financial contagion can thus side-step the clearinghouse fortress and bring down other core financial institutions. Worse, clearinghouses could not have readily handled the major stresses that afflicted the economy in 2008-2009, could well have transmitted and magnified them, and can only weakly affect the type of financial stress that Congress targeted with Dodd-Frank. When we add in the other weaknesses of the new clearinghouses-as too-big-to-fail institutions, as institutions whose members' incentives to contain clearinghouse riskiness are weaker than the public's, and as institutions that will not be easy to regulate-even the direction of clearinghouses' impact on systemic risk is uncertain. The stakes are high in correctly assessing the value of clearing-houses in containing systemic risk. Much like an overconfidence inspired by powerful military fortresses that an invading enemy can side-step, the reigning overconfidence in clearinghouses lulls regulators to be satisfied that they have done much to arrest problems of contagion and systemic risk by building up clearing-houses, when they have not.
Mark J. Roe & Joo-Hee Chung, How the Chrysler Reorganization Differed from Prior Practice, 5 J. Legal Analysis 399 (2013).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Contracts
,
Commercial Law
,
Corporate Bankruptcy & Reorganization
,
Business Organizations
,
Corporate Governance
,
Corporate Law
Type: Article
Mark J. Roe & Frederico C. Venezze, A Capital Market, Corporate Law Approach to Creditor Conduct, 112 Mich. L. Rev. 59 (2013).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Commercial Law
,
Contracts
,
Corporate Governance
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Law
Type: Article
Abstract
The problem of creditor conduct in distressed firms — for which policymakers ought to have the economically-sensible repositioning of the distressed firm as a central goal — has vexed courts for decades. Because courts have not come to coherent, stable doctrine to regulate creditor behavior and because they do not focus on using doctrine to facilitate the sensible repositioning of the distressed firm, social costs arise and those costs may be substantial. It’s easy to see why developing a good rule here has been hard to achieve: A rule that facilitates creditor operational intervention going beyond ordinary collection on a defaulted loan can induce creditors to intervene perniciously, to shift value to themselves even at the price of mismanaging the debtor. But a rule that confines creditors to no more than collecting their debt can allow failed managers to continue mismanaging the distressed firm, with the only real managerial alternative — the creditor — paralyzed by judicial doctrine. The doctrinal difficulty and the potential for creditor paralysis arise from unclear and inconsistent judicial doctrine. Some courts hold that it’s the creditor’s inequitable control of the debtor that is the characteristic that leads to creditor liability. Others rule that the creditor contract rights go beyond simply suing and collecting, fully allowing the creditor to condition its own forbearance from suing on the debtor complying with the creditor’s wishes, even if the conditions are costly to the firm’s other creditors. Worse for encouraging positive creditor engagement, the doctrinal standard via which courts shift from protected contract rights to perniciously-exercised control is obscure. Leading cases have the same basic facts, sometimes even the same court, but sharply differing results. Creditor control is the key doctrinal metric; but the creditor’s goal is the better metric for judicial focus. Here we show, first, that there is often no on-the-ground, operational difference between these two standards — pernicious control and free-wheeling contract enforcement — and that this lack of sharp difference helps to explain why the judicial results are vexing, contradictory, and costly. We next show how similar problems are dealt with differently in corporate law settings — by courts evaluating the questioned transaction for business judgment deference to boards of directors . Then we show how putting a layer of basic corporate duties — entire fairness for conflicted transactions and business judgment rule deferential review for non-conflicted transactions — atop the creditor intervention doctrines clarifies the creditor in control problem and lights up a conceptual way out from the problem. A safe harbor for creditors is plausible — if courts could reduce the extent of creditor conflict for critical decisions — and would both encourage constructive creditor intervention and discourage detrimental value-shifting creditor intervention. And then we show that modern financial markets yield a practical way out, using this corporate doctrine as the map: Modern capital markets’ capacity to build options, credit default swaps, and contracts for equity calls provides new mechanisms that, when combined with the classic corporate doctrinal overlay, can better inform courts and parties on how to evaluate and structure creditor entry into managerial decisionmaking. The capital markets and corporate doctrine combination can create a doctrinal conduit to better incentivize capital market players to improve distressed firms than the current doctrines regulating creditor conduct.
Mark J. Roe & Frederick Tung, Breaking Bankruptcy Priority: How Rent-Seeking Upends the Creditors' Bargain, 99 Va. L. Rev. 1235 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Shareholders
,
Fiduciaries
Type: Article
Abstract
Bankruptcy reallocates value in a faltering firm. The bankruptcy apparatus eliminates some claims and alters others, leaving a reduced set of claims to match the firm’s diminished capacity to pay. This restructuring is done according to statutory and agreed-to contractual priorities, so that lower-ranking claims are eliminated first and higher ranking ones are preserved to the extent possible. Bankruptcy scholarship has long conceptualized this reallocation as a hypothetical bargain among creditors: creditors agree in advance that if the firm falters, value will be reallocated according to a fixed set of predetermined rules and contracts. In any given reorganization case, creditors may contest how the priority rules are applied — arguing over which creditor is prior and by how much. But once creditors’ relative status under the fixed priority rules is determined or compromised, the lowest-ranking financiers are eliminated. If there is not enough value left to go around for a group of equal-ranking creditors, creditors in that lowest-ranked group share proportionately. In this paper, we argue that over the long haul, the normal science of Chapter 11 reorganization differs from this creditors’ bargain. The bargain is never fixed because creditors regularly attempt to alter the priority rules and often succeed. Priority is in fact up for grabs. Bankruptcy should be reconceptualized as an ongoing rent-seeking contest in which creditors continually seek to break priority — to obtain categorical changes in priority rules in order to jump themselves ahead of competing creditors. Creditors seek to break priority by inventing innovative transactional structures, by persuading courts to validate their priority jumps with new doctrine, or by inducing Congress to enact new rules. Because these breaks are often successful, creditors must continually adjust to other creditors’ successful jumps. They can adjust to a priority break either by accepting it and modifying their terms for future transactions, or by attempting to suppress it with countermeasures. In recent years, major priority jumps have come from transactional innovation — such as special purpose vehicles — and from judicial sanction — via roll-up financing and critical vendor payment doctrines. And they have come from lobbying Congress. Financial industry participants obtained jumps from Congress for derivatives and repurchase agreements in the 1980s and 1990s, concessions that facilitated the financing that exacerbated the 2007-2009 financial crisis. Priority jumping, and the subsequent acquiescence, reaction, and reversal, are also part of bankruptcy history, from the equity receivership to the chapter X reforms of the 1930s to the 1978 Bankruptcy Code. We explain how priority jumping interacts with finance theory and how it should lead us to reconceptualize bankruptcy not as a simple, or even a complex, creditors’ bargain, but as a dynamic process with priority contests fought in a three-ring arena of transactional innovation, doctrinal change, and legislative trumps. The process of breaking bankruptcy priority, of reestablishing it, or of adapting to it is where bankruptcy lawyers and judges spend a large portion of their time and energy. While a given jump’s end-state (when a new priority is firmly established) may sometimes be efficient, bankruptcy rent-seeking overall has significant pathologies and inefficiencies.
Mark J. Roe, Corporate Short-termism -- In the Boardroom and in the Courtroom, 68 Bus. Law. 977 (2013).
Categories:
Corporate Law & Securities
Sub-Categories:
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Fiduciaries
,
Shareholders
Type: Article
Abstract
A long-held view in corporate circles has been that furious rapid trading in stock markets has been increasing in recent decades, justifying corporate governance and corporate law measures that would further shield managers and boards from shareholder influence, to further free boards and managers to pursue their view of sensible long-term strategies in their investment and management policies. Here, I evaluate the evidence in favor of that view and find it insufficient to justify insulating boards from markets further. While there is evidence of short-term stock market distortions, the view is countered by several underanalyzed aspects of the American economy, each of which alone could trump a prescription for more board autonomy. Together they make the case for further judicial isolation of boards from markets untenable. First, even if the financial markets were, net, short-term oriented, one must evaluate the American economy from a system-wide perspective. As long as venture capital markets, private equity markets, and other conduits mitigate, or reverse, much of any short-term tendencies in public markets, then a potential short-term problem is largely local but not systemic. Second, the evidence that the stock market is, net, short-termist is inconclusive, with considerable evidence that stock market sectors often overvalue the long term. Third, managerial mechanisms inside the corporation, including compensation packages with a duration that is shorter than typical institutional stock market holdings, and managerial labor markets across firms, including managerial efforts to get good results on their watch, are important sources of short-term distortions; insulating boards from markets further would exacerbate these managerial short-term-favoring mechanisms. Fourth, courts are not well positioned to make this kind of basic economic policy, which, if determined to be a serious problem, is better addressed with policy tools unavailable to courts. And, fifth, the widely held view that short-term trading has increased dramatically in recent decades over-interpret, the data; the duration for holdings of many of the country’s major stockholders, such as mutual funds run by Fidelity and Vanguard, and major pension funds, does not seem to have shortened. Rather, a high-velocity trading fringe has emerged, and its rise affects average holding periods, but not the holding period for the country’s ongoing major stockholding institutions. The view that stock market short-termism should affect corporate lawmaking fits snugly with two other widely supported views. One is that managers must be free from tight stockholder influence, because without that freedom boards and managers cannot run the firm well. Whatever the value of this view and however one judges the line between managerial autonomy and managerial accountability to stockholders should be drawn, short-termism provides no further support for managerial insulation from the influence of financial markets. The autonomy argument must stand or fall on its own. Similarly, those who argue that employees, customers, and other stakeholders are due more consideration in corporate governance point to pernicious short-termism to support their view further. But these stakeholder considerations can be long-term and they can be short-term. As such, the best view of the evidence is similarly that the pro-stakeholder view must stand or fall on its own. It gains no further evidence-based, conceptual support from a fear of excessive short-termism in financial markets. Overall, system-wide short-termism in public firms is something to watch for carefully, but not something that today should affect corporate lawmaking.
Mark J. Roe, Capital Markets and Financial Politics: Preferences and Institutions, in The Oxford Handbook of Corporate Governance (Mike Wright, Donald S. Siegel, Kevin Keasey & Igor Filatotchev eds., 2013).
Categories:
Corporate Law & Securities
,
Banking & Finance
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Business Organizations
,
Corporate Governance
,
Corporate Bankruptcy & Reorganization
Type: Book
Mark J. Roe, Derivatives Markets in Bankruptcy, 55 Comp. Econ. Stud. 519 (2013).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Contracts
,
Commercial Law
,
Financial Reform
,
Financial Markets & Institutions
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
Type: Article
Abstract
By treating derivatives and financial repurchase agreements much more favorably than it treats other financial vehicles, American bankruptcy law subsidizes these arrangements relative to other financing channels. By subsidizing them, the rules weaken market discipline during ordinary financial times in ways that can weaken financial markets, thereby exacerbating financial failure during an economic downturn or financial crisis emanating from other difficulties, such as an unexpectedly weakened housing and mortgage market in 2007 and 2008. Moreover, and perhaps unnoticed, because this favorable treatment in the Bankruptcy Code is readily available only for short-term financing arrangements, the Bankruptcy Code thereby favors short-term financing arrangements over more stable longer term arrangements. While some policymakers and proponents of bankruptcy's favorable treatment justify it as reducing financial contagion, there is reason to think that the safe harbors do not reduce contagion meaningfully and did not reduce it in the recent financial crisis, but instead contributed to runs and weakened market discipline. A basic application of the Modigliani & Miller framework suggests that the risks policymakers might hope the favored treatment would eliminate are principally shifted from inside the derivatives and repurchase agreement markets to creditors who are outside that market. The most important outside creditor is the United States, as de jure or de facto guarantor of too-big-to-fail financial institutions.
Mark J. Roe, A Spatial Representation of Delaware-Washington Interaction in Corporate Lawmaking, 2012 Colum. Bus. L. Rev. 552.
Categories:
Government & Politics
,
Corporate Law & Securities
Sub-Categories:
Securities Law & Regulation
,
Corporate Law
,
Corporate Governance
,
Shareholders
,
Congress & Legislation
,
State & Local Government
Type: Article
Abstract
Delaware and Washington interact in making corporate law. In prior work I showed how Delaware corporate law can be, and often is, confined by federal action. Sometimes Washington acts and preempts the field, constitutionally or functionally. Sometimes Delaware tilts toward or follows Washington opinion, even if that opinion does not square perfectly with its own consensus view of the best way to proceed. And sometimes Delaware affects Washington activity, effectively coopting a busy Washington from acting in ways that do not accord with Delaware’s major constituents’ view of best practice. Delaware influences Washington decision-making when Delaware is positioned between its own ultimate preferences (determined in part by its primary constituencies’ consensus position) and Washington’s prevailing preferences. Since Congress has a long and complex agenda, if key players in Washington become satisfied that the Delaware legal outputs are close enough to their own preferences, Delaware can induce Washington to desist from going further. At the Columbia Symposium on Delaware corporate lawmaking, I presented a straight-forward spatial model paralleling spatial models that political scientists have used to illustrate other contexts of government jurisdictional interaction. In this article, I describe and set forth that model to illustrate Delaware-Washington interaction in the last decade’s making of proxy access rules.
Mark J. Roe, Capital Markets and Financial Politics: Preferences and Institutions, in The Oxford Handbook of Capitalism (Dennis C. Mueller ed., 2012).
Categories:
Banking & Finance
,
Government & Politics
Type: Book
Abstract
For capital markets to function, political institutions must support capitalism in general and the capitalism of financial markets in particular. Yet the shape, support, and extent of capital markets are often contested in the polity. Powerful elements — from politicians to mass popular movements — have reason to change, co-opt, and remove value from capital markets. And the competing capital markets’ players themselves have reason to seek rules that favor their own capital channels over those of others. How these contests are settled deeply affects the form, extent, and effectiveness of capital markets. And investigation of the primary political economy forces shaping capital markets can lead us to better understand economic, political, and legal institutions overall. Much important work has been done in recent decades on the vitality of institutions. Less well emphasized, however, is that widely-shared, deeply-held preferences, often arising from the interests and opinions that prevail at any given time, can sometimes sweep away prior institutions, establish new ones, or, less dramatically but more often, sharply alter or replace them. At crucial times, preferences can trump institutions, and how the two interact is well-illustrated by the political economy of capital markets. Since North’s (1990) famous essay, academic work has focused on the importance of institutions for economic development. Here, I emphasize the channels by which immediate preferences can trump institutional structure in determining the shape and extent of capital markets.
Mark J. Roe & David Skeel. Assessing the Chrysler Bankruptcy, 108 Mich. L. Rev. 727 (2010).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Contracts
,
Finance
,
Secured Transactions
,
Banking
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
,
Shareholders
Type: Article
Abstract
Chrysler entered and exited bankruptcy in 42 days, making it one of the fastest major industrial bankruptcies in memory. It entered as a company widely thought to be ripe for liquidation if left on its own, obtained massive funding from the United States Treasury, and exited via a pseudo sale of its main assets to a new government-funded entity. The unevenness of the compensation to prior creditors raised concerns in capital markets, which we evaluate here. We conclude that the Chrysler bankruptcy cannot be understood as complying with good bankruptcy practice, that it resurrected discredited practices long thought interred in the 19th and early 20th century equity receiverships, and that its potential, if followed, for disrupting financial markets surrounding troubled companies in difficult economic times is more than small.
Mark J. Roe, Delaware's Shrinking Half-Life, 62 Stan. L. Rev. 125 (2009).
Categories:
Corporate Law & Securities
,
Taxation
,
Government & Politics
Sub-Categories:
Corporate Law
,
Business Organizations
,
Securities Law & Regulation
,
Shareholders
,
Corporate Governance
,
Congress & Legislation
,
State & Local Government
,
Taxation - State & Local
,
Taxation - Corporate
Type: Article
Abstract
A revisionist consensus among corporate law academics has begun to coalesce that, after a century of academic thinking to the contrary, states do not compete head-to-head on an ongoing basis for chartering revenues, leaving Delaware alone in the ongoing interstate charter market. The revisionist view pushes us to consider how free Delaware is to act. Where and when would it come up against boundaries, punishments, and adverse consequences? When do other states (and Washington) constrain Delaware? Recent state corporate lawmaking helps us to define those boundaries in terms of potential state competition and to see that the critical actors are not other states’ lawmakers directly, but Delaware’s own corporate constituents who, if disgruntled, can induce other states to enact new laws. Moreover, analysis of previously unassembled chartering revenue data from Delaware’s Secretary of State’s office displays a vital dimension of state competition, once thought to be relatively unimportant, but that’s becoming increasingly powerful: Delaware’s tax base is eroding, and it’s eroding faster in the past decade or so than ever. Delaware must move ever faster to replenish that erosion. The dynamism of American business interacts with even a lackluster state-based corporate chartering market to put powerful pressure on Delaware, whose business base is persistently eroding as firms merge, close, and restructure.
Mark J. Roe & Jordan Siegel, Finance and Politics: A Review Essay Based on Kenneth Dam's Analysis of Legal Traditions in The Law-Growth Nexus, 47 J. of Econ. Literature 782 (2009).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Legal Profession
,
Disciplinary Perspectives & Law
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Economics
,
Business Organizations
,
Corporate Law
,
Corporate Governance
,
Law & Economics
,
Legal History
Type: Article
Abstract
Strong financial markets are widely thought to propel economic development, with many in finance seeing legal tradition as fundamental to protecting investors sufficiently for finance to flourish. Kenneth Dam, in the Law-Growth Nexus, finds that the legal tradition view inaccurately portrays how legal systems work, how laws developed historically, and how government power is allocated in the various legal traditions. Yet, after probing the legal origins’ literature for inaccuracies, Dam does not deeply develop an alternative hypothesis to explain the world’s differences in financial development. Nor does he challenge the origins core data, which could be origins’ trump card. Hence, his analysis will not convince many economists, despite that his legal learning suggests conceptual and factual difficulties for the legal origins explanations. Yet, a dense political economy explanation is already out there and the origins-based data has unexplored weaknesses consistent with Dam’s contentions. Knowing if the origins view is truly fundamental, flawed, or secondary is vital for financial development policymaking, because policymakers who believe it will pick policies that imitate what they think to be the core institutions of the preferred legal tradition. But if they have mistaken views, as Dam indicates they might, as to what the legal traditions’ institutions really are and which types of laws really are effective, or what is really most important to financial development, they will make policy mistakes ─ potentially serious ones.
Howell E. Jackson & Mark J. Roe., Public and Private Enforcement of Securities Laws: Resource-Based Evidence, 93 J. Fin. Econ. 207 (2009).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Government & Politics
,
Civil Practice & Procedure
Sub-Categories:
Financial Markets & Institutions
,
Securities Law & Regulation
,
Corporate Law
,
Corporate Governance
,
Remedies
,
Private Law
,
Practice & Procedure
,
Courts
Type: Article
Abstract
Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators’ resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently available evidence.
Mark J. Roe, Juries and the Political Economy of Legal Origin, 35 J. Comp. Econ. 294 (2007).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Government & Politics
,
Legal Profession
,
Disciplinary Perspectives & Law
,
International, Foreign & Comparative Law
Sub-Categories:
Commercial Law
,
Fiduciary Law
,
Financial Markets & Institutions
,
Business Organizations
,
Corporate Governance
,
Corporate Law
,
Law & Economics
,
Courts
,
Foreign Law
,
Legal History
Type: Article
Abstract
Legal origin has been brought forward as a key influence on modern finance, because common law institutions protect investors better than do civil law institutions, it is claimed. These institutional differences are said, in the legal origin explanation, to have been hard-wired into nations centuries ago. Daniel Klerman and Paul Mahoney challenge the legal origin description of the jury as emerging and achieving prominence in 12th- and 13th-century England while remaining unimportant in France. That contrast has been offered as a key difference between common and civil law, one dependent on the differences in relative power between the English monarch and the French one in the 13th century. But the investigation of the jury here should give pause to those promoting the overall legal origin thesis. The first reason to hesitate is that the jury is not central to protecting outside investors in common law nations. Indeed America's premier corporate court—the Delaware Chancery court—sits without a jury, and the usual view in legal circles is that the jury's absence (and the resulting decision-making by expert judges, not juries) is a strength of the court, not a weakness. The second reason is that Britain did not generally transfer the jury system to its colonies, because to have done so would have conflicted with its colonial goals. That is not a secondary point: political economy issues regularly trump issues like legal origin—colonial policy was just one example of how political goals displace secondary institutions. The third reason is that analysis for the jury differences between civil and common law nations depends on political economy differences centuries ago. But if political economy differences determined institutional differences in the earlier centuries, it is plausible that political economy differences in the intervening centuries would also have affected financial outcomes. Indeed modern political economy differences that lead some nations to support capital markets and others to denigrate them could explain modern financial differences as much as, or more than, 13th century political differences.
Mark J. Roe, Legal Origins and Modern Stock Markets, 120 Harv. L. Rev. 460 (2006).
Categories:
Banking & Finance
,
Corporate Law & Securities
,
Legal Profession
Sub-Categories:
Banking
,
Economics
,
Financial Markets & Institutions
,
Finance
,
Financial Reform
,
Corporate Governance
,
Corporate Law
,
Securities Law & Regulation
,
Business Organizations
,
Legal History
Type: Article
Abstract
Legal origin — civil vs. common law — is said in much modern economic work to determine the strength of financial markets and the structure of corporate ownership, even in the world’s richer nations. The main means are thought to lie in how investor protection and property protection connect to civil and common law legal origin. But, I show here, although stockholder protection, property rights, and their supporting legal institutions are quite important, legal origin is not their foundation. Modern politics is an alternative explanation for divergent ownership structures and the differing depths of securities markets in the world’s richer nations. Some legislatures respect property and stock markets, instructing their regulators to promote financial markets; some do not. Brute facts of the twentieth century — the total devastation of many key nations, wrecking many of their prior institutions — predict modern postwar financial markets’ strength well and tie closely to postwar divergences in politics and policies in the world’s richest nations. Nearly every core civil law nation suffered military invasion and occupation in the twentieth century — the kinds of systemic shocks that destroy even strong institutions — while no core common law nation collapsed under that kind of catastrophe. The interests and ideologies that thereafter dominated in the world’s richest nations and those nations’ basic economic tasks (such as postwar reconstruction for many) varied over the last half century, and these differences in politics and tasks made one collection of the world’s richer nations amenable to stock markets and another indifferent or antagonistic. These political economy ideas are better positioned than legal origin concepts to explain the differing importance of financial markets in the wealthy West.
Mark J. Roe, Political Determinants of Corporate Governance: Political Context, Corporate Impact (Oxford Univ. Press 2003).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Commercial Law
,
Financial Markets & Institutions
,
Finance
,
Corporate Governance
,
Business Organizations
,
Corporate Law
,
Fiduciaries
,
Shareholders
,
Mergers & Acquisitions
,
Securities Law & Regulation
Type: Book
Abstract
Before a nation can produce, it must achieve social peace. That social peace has been reached in different nations by differing means, some of which have then been embedded in business firms, in corporate ownership patterns, and in corporate governance structures. The large publicly held, diffusely owned firm dominates business in the United States despite its infirmities, namely the frequently fragile relations between stockholders and managers. But in other economically advanced nations, ownership is not diffuse but concentrated. It is concentrated in no small measure because the delicate threads that tie managers to shareholders in the public firm fray easily in common political environments, such as those in the continental European social democracies. Social democracies press managers to stabilize employment, to forego some profit-maximizing risks with the firm, and to use up capital in place rather than to downsize when markets no longer are aligned with the firm's production capabilities. Since managers must have discretion in the public firm, how they use that discretion is crucial to stockholders, and social democratic pressures induce managers to stray farther than otherwise from their shareholders' profit-maximizing goals. Moreover, the means that align managers with diffuse stockholders in the United States-incentive compensation, hostile takeovers, and strong shareholder-wealth maximization norms-are weaker and sometimes denigrated in continental social democracies. Hence, public firms there have higher managerial agency costs, and large-block shareholding has persisted as shareholders' best remaining way to control those costs. Social democracies may enhance total social welfare, but if they do, they do so with fewer public firms than less socially responsive nations. The author therefore uncovers not only a political explanation for ownership concentration in Europe, but also a crucial political prerequisite to the rise of the public firm in the United States, namely the weakness of social democratic pressures on the American business firm.
Mark J. Roe, Delaware's Politics, 118 Harv. L. Rev. 2491 (2005).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Governance
,
Corporate Law
,
Judges & Jurisprudence
,
Courts
,
State & Local Government
Type: Article
Abstract
Delaware makes the corporate law governing most large American corporations. Since Washington can take away any, or all, of that lawmaking, a deep conception of American corporate law should show how, when, and where Washington leaves lawmaking authority in state hands, and how it affects what the states do. The interest groups and ideas in play in Delaware are narrow, the array in Congress wide. Three key public choice results emanate from this difference. First, interest groups powerful enough to dominate Delaware lawmaking forgo a winner-take-all strategy because federal players may act if they see state results as lopsided. Second, the major state-level players usually want to minimize federal authority in making corporate law, because a local deal cuts in fewer players; a federal deal splits the pie with outsiders. Third, we can delineate the space where the states have room to maneuver from where they risk federal action. Delaware law typically represents the status quo. It's when its law is the first on the ground - as it often is because the federal agenda is large and Delaware is small - that it gains most of its discretion vis-a-vis the federal authorities. When it moves first, especially when its two main players - managers and investors - agree on what to do, it sets the initial content of American corporate law. Federal authorities might then change the state-made result, and players and ideologies absent in Delaware but big in Washington affect the federal result. Those new players and ideas give the original Delaware players reason to resist federal action. Doctrines that limit federal effort are public-regarding justifications for deferring to interests that prevail on the state level. But when Delaware cannot act first - either because media saliency puts the matter on the federal agenda or because its primary players disagree - Delaware loses its dominance. I analogize the relationship between Delaware and Congress to that between federal agencies and Congress. Federal agencies have discretion and first-mover advantages, but their independence even when wide is not without limits, ending when they provoke Congress. So it is with Delaware.
Mark J. Roe, Regulatory Competition in Making Corporate Law in the United States -- And Its Limits, 21 Oxford Rev. Econ. Pol'y 232 (2005).
Categories:
Corporate Law & Securities
,
International, Foreign & Comparative Law
Sub-Categories:
Corporate Law
,
Comparative Law
,
European Law
Type: Article
Abstract
American corporate-law scholars have focused on jurisdictional competition as an engine-usually as the engine-making American corporate law. Recent decisions in the European Court of Justice open up the possibility of similar competition in the EU. That has led analysts to wonder whether a European race would mimic the American, which depending on one`s view is a race to the top-promoting capital markets efficiency-or one to the bottom-demeaning it by giving managers too much authority in the American corporation. But the academic race literature underestimates Washington`s role in making American corporate law. Federal authorities are regularly involved, regularly make law governing the American corporation-from shareholder voting rules, to boardroom composition, to dual class stock-and they could do even more. In structure, the United States has two corporate lawmaking powers-the states (primarily Delaware) and Washington. We are only beginning to understand how they interact, as complements and substitutes, but the foundational fact of American corporate lawmaking during the twentieth century is that whenever there is a big issue-the kind of corporate policy decision that could strongly affect capital costs-Washington acted or considered acting. We cannot understand the structure of American corporate lawmaking by examining state-to-state jurisdictional competition alone
Convergence and Persistence in Corporate Governance Systems (Mark J. Roe & Jeffrey Gordon eds., Cambridge Univ. Press 2004).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Business Organizations
,
Shareholders
Type: Book
Abstract
Corporate governance is on the reform agenda all over the world. How will global economic integration affect the different systems of corporate ownership and governance? Is the Anglo-American model of shareholder capitalism destined to become the template for a converging global corporate governance standard or will the differences persist? This reader contains classic work from leading scholars addressing this question as well as several new essays. In a sophisticated political economy analysis that is also attuned to the legal framework, the authors bring to bear efficiency arguments, politics, institutional economics, international relations, industrial organization, and property rights. These questions have become even more important in light of the post-Enron corporate governance crisis in the United States and the European Union's repeated efforts at corporate integration.
Mark J. Roe, Delaware's Competition, 117 Harv. L. Rev. 588 (2003).
Categories:
Corporate Law & Securities
,
Government & Politics
Sub-Categories:
Corporate Law
,
Securities Law & Regulation
,
State & Local Government
,
Congress & Legislation
Type: Article
Abstract
One of corporate law's enduring issues has been the extent to which state-to-state competitive pressures on Delaware make for a race to the top or the bottom. States, or at least some of them, are said to compete with their corporate law to get corporate tax revenue and ancillary benefits. Delaware has "won" that race, with the overwhelming number of American large corporations chartering there. Here I argue that this long-standing debate is misconceived. Delaware's chief competitive pressure comes not from other states but from the federal government. When the issue is big, the federal government takes the issue or threatens to do so, or Delaware players are conscious that if they mis-step, Federal authorities could step in. These possibilities of ouster, threat, and consciousness have conditioned Delaware's behavior. Moreover, even if Delaware were oblivious to the Federal authorities, those authorities can, and do, overturn Delaware law. That which persists is tolerable to the Federal authorities. This reconception a) explains corporate law developments and data that neither theory of state competition can explain well, b) fits several developments in takeover law, going private transactions, and the rhetoric of corporate governance in Delaware, and c) can be detected in corporate law-making in Washington and Wilmington from the very beginning in the early 20th century "origins" of Delaware's dominance right up through last summer's Sarbanes-Oxley corporate governance law and the corporate governance failure in Enron and WorldCom. This analysis upsets the long-standing analysis of state corporate law competition as a strong race (whether to the top or to the bottom) because when a corporate issue is important, the federal government takes it over, or threatens to do so, or Delaware fears federal action. As such, we cannot tell whether Delaware, if it indeed raced to the top, did so because of the looming federal "threat". Nor can we tell whether Delaware, if it raced to the bottom, a) did so because national politics meant that, had they taken the locally efficient path, Congress, subject to wider pressures than is Delaware, would have taken the issue away, or b) would have instead raced to the top on other, more important issues that directly affected the mechanisms of a race to the top, had the states fully controlled them. Nor can we tell if that which persists is that which the Federal players approved of, or at least found tolerable. Too many of the truly important decisions, the ones that could affect capital costs - the mechanism driving the race-the-top theory - are taken away from Delaware or are at risk of removal or the Delaware actors know could be taken away if they seriously damaged the national economy or riled powerful interests. That is not to say that what happens at the state level in corporate law is trivial, but that the results are ambiguous in terms of the race debate. If efficiency is the usual result, then the Federal vertical element could correspond to the strengths of other organizational structures (like separating proposals from ratification in decision-making, of the checks and balances in the M-form corporation). If inefficiency is the usual result, we do not know whether the states, if free to compete without a federal "veto" possibility, would have raced toward efficiency. When we add this "vertical," Federal-state competition atop the horizontal state competition in corporate law, the state race debate - one that has stretched across the 20th century from Brandeis to Cary and beyond - is rendered empirically and theoretically indeterminate.
Mark J. Roe, Can Culture Constrain the Economic Model of Corporate Law?, 69 U. Chi. L. Rev. 1255 (2002).
Categories:
Corporate Law & Securities
,
Disciplinary Perspectives & Law
Sub-Categories:
Corporate Law
,
Law & Economics
Type: Article
Abstract
The economic model of corporate law could, with a few simple moves, be seen as potentially having cultural limits. Or, better put, the economic model works well in the United States because not much impedes Coasean-style re-bargaining among the corporate players. Begin with the economic model without limit: Takeovers persisted in the face of anti-takeover law, one can argue, due to executive compensation that paid senior managers to stop strongly opposing takeovers. But executive compensation cannot be varied everywhere as easily as it can be raised in the Untied States. Where it cannot be easily varied, this kind of a Coasean re-bargain is harder than it is here. More generally, culture a) could affect the quality of institutional substitutes, b) could degrade some organizational-types but not others, and c) could reconfigure even a persisting economic model by choosing among equally effective arrangements. Other basic structures of corporate law - indeed, one could imagine even the public firm with diffuse ownership itself - could be subject to the degree to which local norms (and culture) allow parties to vary their deals smoothly. When norms make key variations costly, boundaries to the economic model of a type rarely present in the American corporation appear. I sketch out, with the help of the Symposium's papers, where those boundaries can be glimpsed.
Mark J. Roe, Corporate Law's Limits, 31 J. Legal Stud. 233 (2002).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Corporate Governance
,
Shareholders
Type: Article
Abstract
A strong theory has emerged that the quality of corporate law primarily determines whether ownership and control separate, particularly to the extent law stymies controllers' self-dealing transactions that damage minority stockholders. But in several rich nations, shareholders seem satisfactorily protected, but separation is narrow. Something else has impeded separation. Separation should be narrow if shareholders face very high managerial agency costs if ownership diffused. But these agency costs are not corporate law's focus. Judicial doctrine attacks self-dealing, not business decisions that are bad for stockholders. Indeed, the business judgment rule puts beyond direct legal inquiry most key agency costs - such as over-expansion, over-investment, and reluctance to take on profitable but uncomfortable risks. Thus, even if a nation's core corporate law is 'perfect,' it directly eliminates self-dealing, not most managerial mistake or most misalignment with shareholders. If the risk of managerial misalignment varies widely from nation-to-nation, or from firm-to-firm, ownership structure should also vary widely, even if conventional corporate law tightly protected shareholders everywhere from insider machinations. I show why this variation in managerial alignment is likely to have been deep.
Mark J. Roe, Political Determinants of Corporate Governance (Oxford Univ. Press 2003).
Categories:
Corporate Law & Securities
,
International, Foreign & Comparative Law
Sub-Categories:
Corporate Governance
,
Comparative Law
Type: Book
Abstract
The political and social predicates that make the large firm possible and that shape its form are not always taken into account, despite the fact that variation in the political and social environment can deeply affect which firms, which ownership structures, and which governance arrangements survive and prosper. Focussing on the US, the larger nations in continental Europe, and Japan, Mark Roe uses statistical and qualitative analyses to explore the relationship between politics, history, and business organization.
Mark J. Roe, Rents and Their Corporate Consequences, 53 Stan. L. Rev. 1463 (2001).
Categories:
Corporate Law & Securities
Sub-Categories:
Corporate Law
,
Shareholders
,
Corporate Governance
Type: Article
Abstract
Product markets are weaker in some nations than they are in others. Weaker product markets have more monopolies and more monopoly profits, both of which affect politics and corporate governance structures. They affect corporate governance structures directly by increasing managerial agency costs to shareholders, which shareholders then seek to reduce. One would expect corporate governance structures, laws, and practices to differ in nations with monopoly-induced high agency costs from those prevailing in nations with more competition, fewer monopolies, and lower agency costs. The monopoly profits also affect corporate governance structures indirectly by setting up a fertile field for conflict inside the firm as the corporate players - shareholders, managers, and employees - seek to grab those monopoly profits for themselves. And we might speculate that these rents when large enough affect democratic politics and law-making: directly by making monopolists political targets (and political forces); and indirectly as the players inside the firm seek to capture those monopoly profits through political action, with political parties and ideologies (and, in time, laws and standards) that parallel the players' places inside the firm. Data from the industrial organization, finance economics, and political science literature is consistent.
Mark J. Roe & Edward R. Morrison, Bank Resolution and Bankruptcy: The Role of the Repo Safe Harbors, 8 Ann. Rev. Fin. Econ. (2016).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Banking
,
Finance
,
Financial Markets & Institutions
,
Financial Reform
,
Corporate Bankruptcy & Reorganization
,
Business Organizations
,
Corporate Law
Type: Article
Mark J. Roe & Massimiliano Vatiero, Corporate Governance and Its Political Economy (Harv. John M. Olin Ctr. for L., Econ., & Bus., Res. Paper No. 927, May 2015).
Categories:
Banking & Finance
,
Corporate Law & Securities
Sub-Categories:
Commercial Law
,
Financial Markets & Institutions
,
Corporate Law
,
Corporate Governance
,
Business Organizations
,
Corporate Bankruptcy & Reorganization
,
Fiduciaries
,
Shareholders
Type: Other
Abstract
To fully understand governance and authority in the large corporation, one must attend to politics. Because basic dimensions of corporate organization can affect the interests of voters, because powerful concentrated interest groups seek particular outcomes that deeply affect large corporations, because those deploying corporate and financial resources from within the corporation to buttress their own interests can affect policy outcomes, and because the structure of some democratic governments fits better with some corporate ownership structures than with others, politics can and does determine core structures of the large corporation. In this review piece for the Oxford Handbook on Corporate Governance, we analyze the generalities and then look at core aspects of corporate governance that have been, and continue to be, politically influenced and sometimes politically driven: first, the historically fragmented ownership of capital in the United States; second, the postwar power of labor in Europe and its corporate impact; and, third, the ongoing power of the American executive and the American board as due in part to their influence on political and legal outcomes.

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