Faculty Bibliography

Special purpose acquisition companies (SPACs) were the financial-legal hit of 2021, before they weren't. Breaking records and displacing, to an extent, conventional initial public offerings (C-IPOs), even as C-IPOs also boomed, SPACs spiked, in part, because-in addition to myths about their financial attributes, which others have de-bunked several myths about SPAC law circulated widely and persistently. SPAC promoters claimed that (1) securities regulations ban projections from being used in C-IPOs, (2) liability related to projections was lower and more certain in SPACs than it was (and is), (3) the Securities and Exchange Commission (SEC) registration process delays C-IPOs more than SPACs, (4) the SEC changed SPAC accounting rules in early 2021, (5) this "change" was the primary reason the SPAC wave slowed and peaked, and (6) the Investment Company Act clearly does not apply to SPACs. Consistent with these being myths, de-SPACs from 2021 are experiencing significant levels of litigation-even higher than in C-IPOs. These myths were aimed primarily not at unsophisticated retail investors, but business journalists, sophisticated SPAC sponsors, and owner-managers of SPAC targets. They illustrate a broader and under-appreciated fact that complex financial-legal innovation permits promoters to exploit the "credence good" character of professional advice, perpetuate "deep fraud," and distort markets and asset prices more and longer than conventional theory assumes. To moderate deep fraud's market distortions, proposed SEC reforms should be finalized to improve SPAC disclosure, enhance investor understanding of their risks, and reduce regulatory uncertainties that contribute to legal myths about SPACs, but the inherent complexity of the product may require an ongoing role for regulators to speak clearly about SPAC law and its uncertainties.

Index funds present a governance dilemma. On the one hand, index funds provide huge benefits to individual investors, such as low fee and low opportunity cost diversification. On the other hand, their success has so concentrated ownership as to challenge the legitimacy and accountability of customary delegated governance. Given their benefits, legislation should be cautious, provisional, practical and cost-effective. It should rely on Securities and Exchange Commission (SEC) oversight to adjust to evolving markets, and enlist rather than try to supplant market forces. Senate Bill 4241 does not meet these criteria, nor do other blunt efforts to transfer voting power from index funds to investors or other institutions, or worse, to strip investors of governance rights altogether. Better would be reforms such as (a) low-cost quarterly reporting, (b) qualitative disclosures on fund voting policy formation, (c) complex-level conflict of interest rules, and (d) SEC-supervised pilots in which funds provide investors with practical ways to provide information about how they would like governance rights used. Clarifying SEC authority to regulate index providers (e.g., S&P) would also be useful. Finally, the SEC should have at least as much authority to supervise bespoke, risky products that exploit the “index” brand, but lack conventional index funds’ investor-friendly attributes, as it does over index funds themselves.

[...]the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. [...]a coordinated global disclosure system has great potential benefits, but achieving one will take careful attention to institutional design. [...]companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. Funding needs to be reliable and adequate, both now and over a reasonable time period into the future, and should not detract from other essential elements of the system for public company disclosures.

In a recent statement,[1] Acting Chief Accountant Paul Munter highlighted a number of important financial reporting considerations for SPACs.[2] Among other things, that statement highlighted challenges associated with the accounting for complex financial instruments that may be common in SPACs.

Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs).

Merger and acquisition deals are governed by merger clauses which are negotiated between the bidder and target in order to communicate deal terms, specify risk sharing between the parties, and describe dispute management provisions in case of litigation. In a large sample of manually collected U.S. deal contracts involving publicly traded bidders and targets, we construct merger clauses indices based on legal scholars’ ex-ante prediction and examine the relationship between announcement returns and different types of merger clauses. We find that bidder protective clauses correlate with higher bidder returns while target protective clauses and pro-competition clauses correlate with higher target returns. We also find that bidder and target protective indices have larger impacts on announcement abnormal returns for “bad” deals than for “good” deals. Finally, we find that the inclusion of more bidder protective clauses leads to lower deal completion rates while the inclusion of more target protective clauses and pro-competition clauses has no impact on deal completion rates. These results are consistent with the expert lawyer/efficient contracting view of Cain, Macias, and Davidoff Solomon (2014), and Coates (2016), and against merger contracts as boilerplate agreements.

Three ongoing mega-trends are reshaping corporate governance: indexing, private equity, and globalization. These trends threaten to permanently entangle business with the state and create organizations controlled by a small number of individuals with unsurpassed power. The essay focuses on indexation. After providing background, the essay describes the rise of and reasons for indexation, noting that “passive” indexed investing takes a variety of forms. Data on indexation are presented — with the bottom line that indexation has progressed farther than most realize, because foreign ownership, institutional indexation, and “closet” indexation are often neglected by observers. Index providers’ incentives, resources, and methods are reviewed, with an emphasis on the how such providers have greater practical importance than simpler analytical approaches might suggest. The essay ends with an outline of policy options, and preliminary analyses of which seem likely to address the “Problem of Twelve” — the likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.

This chapter examines how mergers, acquisitions, and restructuring are regulated, both within the formal body of corporate law and as that law interacts with other bodies of law such as securities (including listing standards), antitrust, industry-specific regulation, and regulations of cross-border transactions. It begins with an overview of relevant terminology and scope of M&A and restructuring and how they differ from other corporate transactions or activities. It then considers major types of M&A transactions, the core goals of corporate law or governance, and other bodies of law (antitrust, industry-based regulation, regulation of foreign ownership of business, and tax) that give special treatment to M&A and restructuring, and sometimes interact with corporate law and governance. It also looks at laws that constrain M&A transactions and those that facilitate them. It concludes by summarizing empirical research and discussing what variations in types and modes of regulation governing M&A and restructuring transactions imply.

Merger and acquisition deals are governed by merger clauses which are negotiated between the bidder and target in order to communicate deal terms, specify risk sharing between the parties, and describe dispute management provisions in case of litigation. In a large sample of manually collected U.S. deal contracts involving publicly traded bidders and targets, we construct merger clauses indices based on legal scholars’ ex-ante prediction and examine the relationship between announcement returns and different types of merger clauses. We find that bidder protective clauses correlate with higher bidder returns while target protective clauses and pro-competition clauses correlate with higher target returns. We also find that bidder and target protective indices have larger impacts on announcement abnormal returns for “bad” deals than for “good” deals. Finally, we find that the inclusion of more bidder protective clauses leads to lower deal completion rates while the inclusion of more target protective clauses and pro-competition clauses has no impact on deal completion rates. These results are consistent with the expert lawyer/efficient contracting view of Cain, Macias, and Davidoff Solomon (2014), and Coates (2016), and against merger contracts as boilerplate agreements.

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt out” rights or practical ability to avoid subsidizing corporate political expression with which they disagree. Nor do individuals have the practical option to refrain from putting their savings into equity investments, as doing so would impose damaging economic penalties and ignore conventional financial guidance for individual investors.Most individual shareholders cannot obtain full information about a corporation’s speech or political activities, even after the fact, nor can most shareholders prevent their savings from being used for political activity with which they disagree. More generally, the Court's focus on whether union non-members are effectively forced to fund political speech or activity with which they disagree should reflect the fact that most Americans must routinely fund speech with which they disagree. While some of this compulsion is from practical reality rather than law there are numerous examples outside the union context of laws that require individuals to fund expressive activities. There is, simply put, very little way for most individuals in modern America to avoid subsidizing speech with which they disagree.

Effective corporate governance is a crucial foundation for economic growth, and by providing accountability and legitimacy to large-scale businesses, it is a core part of America’s success story. The Committee asked for comment on the role that law plays in corporate and shareholder disclosures and governance, and how they could be improved, as well as on a number of bills introduced into Congress that address different aspects of corporate governance. I comment generally on corporate governance, and then on five of the seven bills, including bills addressing cybersecurity risk and governance, proxy advisors, and reforms to Section 13(d) blockholder disclosures.

Reverse termination fees (RTFs) are required payments for bidders to “walk away” from a merger or acquisition, and vary significantly in size and design, even within apparently similar deals. Using a large sample of manually collected U.S. deal contracts involving publicly traded bidders and targets, we examine the impact of different types of RTFs. Consistent with efficient contract theory, we find that inefficient RTF sizes and triggers correlate with significantly lower bidder abnormal returns, while efficient RTF sizes and triggers correlate with significantly higher bidder abnormal returns. Consistent with signaling theory, we also find evidence that the inclusion of some RTF triggers in the merger agreements reveals private information to the market, correlating with significant abnormal returns. Our findings have implications for how practitioners approach the design and negotiation of RTFs.

Keith Sherin, CEO of GE Capital, faced a decision on which hinged billions of dollars and the fate of one of America’s most storied companies. On his desk sat two secret analyses: Project Beacon, a proposal to spin off most of GE Capital to GE shareholders, and Project Hubble, a proposal to sell off GE Capital in parts. A third document sketched out the implications should GE “stay the course” on its present strategy: a continued, massive build-up of regulatory and compliance personnel to meet GE Capital’s obligations as a “SIFI”—systemically important financial institution—in the wake of the 2010 Dodd-Frank Act. No path forward was clear. A divestiture, either through a spin-off or sell-off, would reduce GE’s size and financial connectedness and address market unease about GE’s position as the seventh-largest U.S. financial institution. It would also unlock substantial value not currently reflected in the stock. Each faced major obstacles and execution risks, however. In particular, no one knew the precise cut-off for a SIFI designation or the time required to shed the designation. If the process took too long, or generated unexpected costs, a divestiture might destroy more value than it would create. Retaining GE Capital was risky, too, of course. Which set of risks was the right one to propose that the GE board accept?

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.

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.

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt out” rights or practical ability to avoid subsidizing corporate political expression with which they disagree. Nor do individuals have the practical option to refrain from putting their savings into equity investments, as doing so would impose damaging economic penalties and ignore conventional financial guidance for individual investors.

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.

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.

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.

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.

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.

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.

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.

In a hand-coded sample of M&A contracts from 2007-08, risk allocation provisions exhibit wide variation. Earn-outs are the least common means to allocate risk, indemnities are most common, followed by price adjustment clauses. Techniques for mitigating enforcement costs – escrows, holdbacks, and seller financing – are common. Target SEC registration and ownership dispersion correlate negatively with the use and extent of risk sharing. Target-owners retain risk more frequently, but not universally or exclusively, in industries in which current liabilities vary more, and when buyers and targets are in different industries. Bidder and target law firm agents match on bid value and prior deal experience, but law firm mismatches are common, and both law firm experience and experienced-based mismatches correlate with the use, variance, and design of risk allocation provisions. While asymmetric information and incentives are important, so are transaction and agency costs, implying roles for lawyers to serve as transaction-cost engineers and for policy-makers to set binding default rules of property, tort and contract law. Specific policy implications include: contract statutes of limitations should be shorter; default law should require minimum amounts in controversy and caps on post-closing contract liability; and lawyers should disclose to clients their M&A experience and typical outcomes of specific risk-allocation provisions.

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.

Amid an economic downturn caused in part by financial deregulation, it is odd to most people outside the Beltway that Congress should be actively considering (and indeed have passed in the House) a raft of proposal for more financial deregulation. Yet the politics for both parties require efforts to generate job growth, without spending or taxing, and some deregulatory proposals may plausibly do that. The following testimony takes up three themes related to pending proposals to revise securities laws to (among other things) deregulate widely held but unlisted companies and banks, to permit unregistered "crowdfinancing," and to loosen constraints on small public offerings: (1) the proposals under review all raise the same general trade-off, which is best understood not as economic growth vs. investor protection, but as increasing economic growth by reducing the costs of capital-raising vs. reducing economic growth by raising the costs of capital; (2) no one can with any degree of certainty predict whether any proposal on its own, much less in combination, will increase job growth or reduce it, because the evidence that would allow one to make that prediction with confidence is not available; and (3) the proposals are thus all best viewed as proposals for risky but potentially valuable experiments, and should be treated as such – with an open mind, but also with caution and care. A general suggestion follows: any proposal should contain a sunset, with the SEC directed to study the effects of the proposal during a "test" phase, and authorized to re-adopt the proposals if their benefits exceed their costs. Specific comments on each bill are contained in Part III of the testimony.

The Supreme Court's January 2010 Citizens United decision to permit corporations to spend unlimited sums to influence federal elections was premised on a pair of yet-unfulfilled promises: Corporations would disclose their expenditures, and shareholders would be able to police such spending. The best chance to fulfill those promises may now rest with the Securities and Exchange Commission. The SEC could require disclosure of political spending by public companies and facilitate action by shareholders to sign off on such spending.

The Supreme Court’s January 2010 Citizens United decision to permit corporations to spend unlimited sums to influence federal elections was premised on a pair of yet-unfulfilled promises: Corporations would disclose their expenditures, and shareholders would be able to police such spending. The best chance to fulfill those promises may now rest with the Securities and Exchange Commission. The SEC could require disclosure of political spending by public companies and facilitate action by shareholders to sign off on such spending. Contrary to the consensus view, however, SEC action may prove to be a favor to the owners of the affected corporations. Despite reflexive opposition to the disclosure of political spending from many self-appointed business advocates, research we are publishing Wednesday suggests that disclosure of political activity might benefit corporate valuations and, at the least, mandatory disclosure would pose no threat of a detrimental effect.

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.

The C case describes the remedy that Laster imposes, his rationale for doing so, and the final outcome of the sale of Del Monte. Learning Objective: To explore the responsibilities that investment bankers as advisors have to their clients, as well as the challenge boards of directors face in properly executing their fiduciary duties. As in the B case, the issue of proper remedies for the shareholders can be explored.

n February 2011, Judge Laster of the Delaware Chancery Court was considering a suit claiming that Del Monte board members had breached their fiduciary duty to shareholders by not pursuing the best transaction for Del Monte. In the course of the discovery phase of the trial, the plaintiffs, and Del Monte's board, had learned that the company's financial advisor, Barclays Capital, had also been working with KKR and its partners to create a bid process that could favor them. In addition to the fee from Del Monte for advising on a successful sale, Barclays also desired to play a leading role in the lucrative financing that the private equity firms would organize to fund the deal following a successful bid. The plaintiffs asked the court to delay the shareholder vote on the merger to solicit additional bidders.

The B case describes Laster's ruling and thoughts. Del Monte's board had violated its fiduciary duty to shareholders by allowing Barclays to play a dual role, for the seller and the buyer, that disadvantaged the Del Monte shareholders. Laster saved his most severe criticism for Barclays, suggesting that, among other things, it had misled its client's board. Learning Objective: To explore the responsibilities that investment bankers as advisors have to their clients, as well as the challenge boards of directors face in properly executing their fiduciary duties. In the B case, the issue of proper remedies for the shareholders can be explored.

The Supreme Court’s Citizens United decision to let corporations spend unlimited sums in federal elections was premised on a pair of promises: Corporations would disclose expenditures, and shareholders would police such spending. Those promises remain unfulfilled: of $266 million spent by outside groups in 2010, half was spent by groups that revealed nothing about their funders, double the total spending by outside groups in 2006. The best chance to fulfill those promises may now rest with the SEC. Contrary to consensus views, SEC action may benefit owners of affected firms. We estimate industry-adjusted price-to-book ratios of 80 companies in the S&P 500 that have policies calling for disclosure of electioneering. After controlling for size, leverage, research and development, growth and political activity, we find disclosing companies had 7.5 percent higher ratios than other S&P 500 companies in 2010. Our data are inconsistent with claims that disclosure is harmful, and are consistent with the idea that well-managed companies responsive to shareholder concerns tend to be valued more highly than other companies.

Two empirical literatures tie the displacement of CEOs of widely-held companies to the poor performance of their firms - the turnover and mergers and acquisitions (M&A) literatures. In this paper we demonstrate a strong link between CEO turnover and friendly acquisitions of target firms in the S&P 500 between 1992 and 2004. We find that acquisitions and internal CEO turnover are most likely to occur at the same point in a CEO’s tenure, roughly five years after her initial appointment. We conjecture that deals are potential alternatives to CEO dismissal by the board or imminent CEO retirement. We explore interactions among CEO dismissals, retirements and resignations, and acquisitions on the one hand, and firm performance and CEO tenure on the other. We also investigate more specific hypotheses relating tenure to a CEO’s age, status as an inside or outside appointee, and the level of deal activity in the M&A market. Among our key findings is that the probability of a deal remains constant over the upper half of the age distribution of our sample CEOs, even though their probability of retiring increases sharply. This suggests that - contrary to our conjecture - impending retirement is not among the stronger incentives driving the management of target firms to seek friendly buyers. Finally, this paper contributes on the methodological level by comparing multinomial logistic regression - the traditional methodology of turnover research - to competing risk regression, a methodology adapted from epidemiological and medical research and recently introduced into the empirical finance literature.

This report marks the culmination of the Program on the Legal Profession's Corporate Purchasing Project—more than four years of scholarly research dedicated to examination of the ways in which S&P 500 legal departments hire and manage outside counsel, drawing from six academic papers. How are relationships between clients and service providers in the corporate legal market evolving, and why? Answering this critically important question requires both the availability of unbiased quantitative information about how large corporations make law firm hiring and assessment decisions and a robust qualitative and theoretical framework to evaluate broader variations and trends. This novel empirical data is drawn from surveys and interviews of 166 chief legal officers (“CLOs”) of S&P 500 companies—one-third of all such large publicly traded companies. Specifically, this paper explores four topics of substantial importance about which there is little systematic information: • How do these companies evaluate the quality of legal service providers when making hiring and legal management decisions? • Under what circumstances do these companies discipline or terminate their relationship with their law firms? • How do these companies evaluate whether to follow “star” lawyers when they change law firms? • In what ways do these companies manage the intersection between law and public relations?

In Jones v. Harris, the Supreme Court rejected Judge Easterbrook's decision for the Seventh Circuit to narrow the grounds on which a mutual fund shareholder could win a fiduciary duty case against a mutual fund adviser under the Investment Company Act. In this article, I assess the likely impact of Jones and evaluate the Supreme Court's decision to exercise what might be called "judicial restraint" in its analysis. I show that the decision is unlikely to have a significant impact on fiduciary duty cases, and present preliminary data consistent with the idea that such cases are currently being brought against the wrong defendants (advisers to large funds) and not against the right ones (advisers charging extraordinarily high fees). I suggest that the "judicial restraint" exercised in Jones is in fact pernicious in this context, one in which courts must necessarily interpret a vague statute.

In Citizens United, the Supreme Court relaxed the ability of corporations to spend money on elections, rejecting a shareholder-protection rationale for restrictions on spending. Little research has focused on the relationship between corporate governance – shareholder rights and power – and corporate political activity. This paper explores that relationship in the S&P 500 to predict the effect of Citizens United on shareholder wealth. The paper finds that in the period 1998-2004 shareholder-friendly governance was consistently and strongly negatively related to observable political activity before and after controlling for established correlates of that activity, even in a firm fixed effects model. Political activity, in turn, is strongly negatively correlated with firm value. These findings – together with the likelihood that unobservable political activity is even more harmful to shareholder interests – imply that laws that replace the shareholder protections removed by Citizens United would be valuable to shareholders.

Ownership dispersion is a first-order determinant of M&A practices. Firms with dispersed ownership are more salient, and tend to be larger, but dispersion varies significantly among even large US businesses, and affects M&A deal size, duration, techniques, contract terms, and outcomes. These effects arise directly from the economics of dispersion, but also from interactions between economics and law. Dispersion creates transaction costs and heterogeneous beliefs and preferences that have straightforward effects on M&A deal size, techniques, and some contract terms. But dispersion also has less intuitive, indirect, and important effects as mediated through laws that among other things compensate for agency costs and collective action problems. Each key body of law for M&A – contract law, corporate law, securities law, and antitrust law – is shaped in practice by ownership of target firms. These effects are tested in 20 hypotheses on how ownership dispersion affects M&A, with comprehensive M&A data from the 1990s and 2000s, and a new detailed hand-coded matched sample of 120 recent public and private target M&A contracts. The data show the importance of ownership to M&A deal structure, choice of consideration, bid duration, completion rates, risk-allocation, and dispute resolution. Appreciation of how pervasive and powerful the effects of ownership are on M&A should improve contracting and has implications for investment bankers, boards, courts, and researchers in choosing comparable transactions for valuation, benchmarking, doctrinal analogies, drafting models, teaching M&A in business and law schools, and econometric modeling of M&A.

The DISCLOSE Act (H.R. 5175) is an important, corrective response to the shock of Citizens United. I am a corporate law scholar, and former corporate lawyer (having been a partner at Wachtell Lipton), and I do not view myself as expert in constitutional law. I will not engage the question of whether Citizens United was or was not consistent with Supreme Court precedent generally, or whether the DISCLOSE Act is constitutional. I can say with confidence, however, that Citizens United radically unsettled long-standing expectations of corporate owners about corporate governance and federal election activity, and that the DISCLOSE Act will assist corporate owners, at a reasonable cost, in trying to address the new governance risks that Citizens United creates. I will comment on three aspects of the DISCLOSE Act that will improve corporate governance – the disclosure requirements, the endorsement requirements, and the inclusion of conduits in the new disclosure regime – as well as the foreign control provisions, each of which I favor.