Accountability and responsibility in corporate governance

Notre Dame Law Review

Volumn 81, Issue 4, 2006, Pages 1431-1493

  Ribstein, Larry E ^a  

^a UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN   (United States)

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EID: 33749983655     PISSN: 07453515     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (302)

1. See generally JOEL BAKAN, THE CORPORATION: THE PATHOLOGICAL PURSUIT OF PROFIT AND POWER (2004);
2. LAWRENCE E. MITCHELL, CORPORATE IRRESPONSIBILITY: AMERICA'S NEWEST EXPORT (2001);
3. RALPH NADER ET AL., TAMING THE GIANT CORPORATION (1976);
4. CHRISTOPHER STONE, WHERE THE LAW ENDS (1975);
5. Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. REV. 733 (2005);
6. Douglas Litowitz, Are Corporations Evil?, 58 U. MIAMI L. REV. 811 (2004).
7. Litowitz, supra note 1.
8. See BAKAN, supra note 1; RALPH ESTES, TYRANNY OF THE BOTTOM LINE: WHY CORPORATIONS MAKE GOOD PEOPLE DO BAD THINGS (1996);
9. MARJORIE KELLY, THE DIVINE RIGHT OF CAPITAL: DETHRONING THE CORPORATE ARISTOCRACY (2001); MITCHELL, supra note 1; Elhauge, supra note 1.
10. See Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247 (1999).
11. See generally ADOLF A. BERLE, JR. & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY (1932).
12. See, e.g., BAKAN, supra note 1; MITCHELL, supra note 1.
13. See Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U. L. REV. 547 (2003).
14. See infra Parts I.B, IV.A.
15. See Elhauge, supra note 1, at 863-66 (arguing that contracts compelling managers to maximize profits should be unenforceable); Larry E. Ribstein, The Mandatory Nature of the ALI Code, 61 GEO. WASH. L. REV. 984, 1000-02 (1993) (discussing the mandatory nature of the ALI Code's social responsibility duty).
16. See Reuven S. Avi-Yonah, Corporations, Society, and the State: A Defense of the Corporate Tax, 90 VA. L. REV. 1193, 1218-25 (2004).
17. For an overview of some regulatory strategies, see Edward L. Rubin, Images of Organizations and Consequences of Regulation, 6 THEORETICAL INQUIRIES L. 346 (2005), available at http://www.bepress.com/til/default/vol6/iss2/art4.
18. See THOMAS F. MCINERNEY, INT'L DEV. LAW ORG., PUTTING REGULATION BEFORE RESPONSIBILITY: THE LIMITS OF VOLUNTARY CORPORATE SOCIAL RESPONSIBILITY (2005), available at http://www.idli.org/DLRC/vdj/vdj3_2005.pdf.
19. See, e.g., Elhauge, supra note 1, at 802-03.
20. See ROBERT E. MCCORMICK & ROBERT D. TOLLISON, POLITICIANS, LEGISLATION AND THE ECONOMY: AN INQUIRY INTO THE INTEREST GROUP THEORY OF GOVERNMENT (1981);
21. MANCUR OLSON, JR., THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS (1965).
22. See OLSON, supra note 14; Gary Becker, A Theory of Competition Among Pressure Groups for Political Influence, 98 Q.J. ECON. 371 (1983);
23. Robert Tollison, Public Choice and Legislation, 74 VA. L. REV. 339 (1988).
24. See OLSON, supra note 14, at 132-67.
25. See STONE, supra note 1.
26. See Elhauge, supra note 1, at 758-59, 797-99.
27. See ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP § 1.03 (1988 & Supp. 2006); THOM HARTMANN, UNEQUAL PROTECTION: THE RISE OF CORPORATE DOMINANCE AND THE THEFT OF HUMAN RIGHTS (2002).
28. Although this is the traditional characterization, a partnership is viewed as a legal entity for many purposes. See UNIF. P'SHIP ACT § 201, 6 U.L.A. 91 (1997); BROMBERG & RIBSTEIN, supra note 19, § 1.03. Henry Hansmann and Reinier Kraakman describe entity features that support business activity through all types of firms, including partnerships. Henry Hansmann & Reinier Kraakman, The Essential Role of Organizational Law, 110 YALE L.J. 387 (2000). What Hansmann and Kraakman call "affirmative asset partitioning" separates business property from that of the owners. Id. at 394-95. Hansmann and Kraakman contrast this with "defensive asset partitioning," or limited liability, discussed in more detail below, which protects firm owners' individual property from business creditors' claims. Id. at 395-96. The partnership form has a weaker form of "affirmative asset partitioning" than the corporation. It is not clear, however, that this technical distinction matters for purposes of constitutional law and other implications of entity characterization.
29. Note, however, that the law compensates for this problem by devaluing the firm's rights. Entity characterization rationalizes giving the firm a lower level of constitutional protection than if rights had been ascribed to individual owners or managers. See Larry E. Ribstein, The Constitutional Conception of the Corporation, 4 SUP. CT. ECON. REV. 95 (1995);
30. Larry E. Ribstein, Corporate Political Speech, 49 WASH. & LEE L. REV. 109 (1992). Corporate speech may receive an even lower level of protection when it is characterized as "commercial." See infra text accompanying note 54.
31. The board's function is summarized in DEL. CODE ANN. tit. 8, § 141 (a) (2001) (providing that the corporation is managed "by or under the direction of a board of directors").
32. See, e.g., id. § 141 (2001 & Supp. 2005) (director election); id. § 242 (2001) (charter amendment); id. § 251 (2001 & Supp. 2005) (merger); id. § 271 (sale of assets); id. § 275 (dissolution).
33. See KELLY, supra note 3, at 156.
34. See REINIER KRAAKMAN ET AL., THE ANATOMY OF CORPORATE LAW: A COMPARATIVE AND FUNCTIONAL APPROACH 62-65 (2004).
35. See Alan J. Meese, The Team Production Theory of Corporate Law: A Critical Assessment, 43 WM. & MARY L. REV. 1629 (2002).
36. See infra Part IV.A.2.
37. See MITCHELL, supra note 1, at 129, 161.
38. See supra Part I.A.
39. See infra Part IV.A.3.
40. See Vantagepoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1116 (Del. 2005) (reaffirming the internal affairs rule and applying Delaware law to a Delaware corporation doing business in California); RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 302(2) (1971).
41. See Larry E. Ribstein, The Important Role of Non-Organization Law, 40 WAKE FOREST L. REV. 751 (2005).
42. See infra Part IV.C.
43. See G. Mitu Gulati et al., Connected Contracts, 47 UCLA L. REV. 887 (2000).
44. See, e.g., Ruth V. Aguilera et al., Putting the S Back in Corporate Social Responsibility: A Multi-Level Theory of Social Change in Organizations, 31 ACAD. MGMT. REV. (forthcoming 2006), available at http://ssrn.com/abstract= 820466 (reviewing the literature);
45. M. Orlitzky et al., Corporate Social and Financial Performance: A Meta-Analysis, 24 ORG. STUD. 403 (2003) (arguing that, in light of recent data, government regulation is unnecessary to produce corporate social responsibility).
46. See Blair & Stout, supra note 4.
47. See Michael C. Jensen, Value Maximization, Stakeholder Theory, and the Corporate Objective Function, 12 BUS. ETHICS Q. 235 (2002).
48. See Thomas Donaldson & Lee E. Preston, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, 20 ACAD. MGMT. REV. 65 (1995).
49. See Abagail McWilliams & Donald Siegel, Corporate Social Responsibility: A Theory of the Firm Perspective, 26 ACAD. MGMT. REV. 117 (2001);
50. Anant K. Sundaram & Andrew Inkpen, The Corporate Objective Revisited, 15 ORG. SCI. 350 (2004).
51. See David P. Baron, Private Politics, Corporate Social Responsibility, and Integrated Strategy, 10 J. ECON. & MGMT. STRATEGY 7 (2001).
52. See Elhauge, supra note 1, at 814-18.
53. See Greg Jarrell & Sam Peltzman, The Impact of Product Recalls on the Wealth of Sellers, 93 J. POL. ECON. 512 (1985);
54. Jonathon M. Karpoff & John R. Lott, The Reputational Penalty Firms Bear from Commuting Criminal Fraud, 36 J.L. & ECON. 757 (1993);
55. see also William D. Bradford, Discrimination, Legal Costs and Reputational Costs (Nov. 30, 2004) (unpublished study, on file with the University of Washington Department of Finance and Business Economics), available at http://ssrn.com/abstract=679622 (showing evidence that firms sued for discrimination incur a reputational penalty reflected in the reduced value of their equity in addition to the legal costs of the suit).
56. See Jason Scott Johnston, Signaling Social Responsibility: On the Law and Economics of Market Incentives for Corporate Environmental Performance (Univ. of Pa. Inst. for Law & Econ., Research Paper No. 05-16, 2005), available at http://ssrn.com/abstract=725103 (arguing that, in the absence of mandatory disclosure, most firms will engage only in "cheap talk" that does not permit meaningful comparisons between firms in an industry).
57. SAVE THE TIGER (Paramount Pictures 1973).
58. DO THE RIGHT THING (Universal Pictures 1989).
59. See Ian Lee, Corporate Law, Profit Maximization and the "Responsible" Shareholder, STAN. J.L. BUS. & FIN., Spring 2005, at 31;
60. Joshua Graff Zivin & Arthur A. Small, A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility, 5 TOPICS IN ECON. ANALYSIS & POL'Y, No. 1 (2005), available at http://www.bepress.com/cgi/viewcontent.cgi? article=1369&context=bejeap.
61. Michael S. Knoll, Ethical Screening in Modern Financial Markets: The Conflicting Claims Underlying Socially Responsible Investment, 57 BUS. LAW. 681 (2002).
62. For recent evidence on returns of social investment funds, see Meir Statman, Socially Responsible Indexes: Composition, Performance, and Tracking Errors, 32 J. PORTFOLIO MGMT. (forthcoming 2006), available at http://ssrn.com/abstract=705344 (showing that social responsibility investment indexes did better than the S&P 500 during the stock market boom of the late 1990s but lagged during the bust of the early 2000s).
63. Knoll, supra note 47, at 706-07.
64. See David P. Baron, Corporate Social Responsibility and Social Entrepreneurship, (Stan. Graduate Sch. of Bus., Research Paper No. 1916, 2005), available at http://ssrn.com/abstract=861145 (discussing how entrepreneurs' ability to invest in "corporate social responsibility" firms may increase opportunities for social giving). Another possible example of this phenomenon is Google which, like Ben & Jerry's, explicitly promises social responsibility. These promises arguably were consistent with developing a brand in a business that depended heavily on public trust, indicating the difficulty of distinguishing market-driven from altruistic behavior.
65. See Victor Fleischer, Brand New Deal: The Google IPO and the Branding Effect of Corporate Deal Structures (UCLA Sch. of Law, Law & Econs. Research Paper No. 05-18; Geo. Univ. Law Ctr., Law & Econs. Research Paper No. 790928, 2005), available at http://ssrn.com/abstract=790928.
66. See Knoll, supra note 47, at 718. These returns may be subject to a slight discount to the extent that socially-responsible portfolios do not diversify away unsystematic risk. See id. at 695-96.
67. See 17 C.F.R. § 240.14a-8 (2005).
68. See Cynthia A. Williams, The Securities and Exchange Commission and Corporate Social Transparency, 112 HARV. L. REV. 1197 (1999); Johnston, supra note 43, at 104-08.
69. See infra text accompanying note 83-85 (discussing how, in the absence of regulation, consumers may prefer "moral wiggle room," which firms might supply by engaging in "cheap talk").
70. This issue was raised in Kasky v. Nike, Inc., 45 P.3d 243 (Cal. 2002), cert. dismissed, 539 U.S. 654 (2003), in which the Supreme Court granted certioriari but then dismissed the writ as improvidently granted. Nike, Inc. v. Kasky, 539 U.S. 654 (2003). See also Legal Opinion Letter by Larry E. Ribstein, Wash. Legal Found. (Feb. 14, 2003), available at http://www.wlf.org/upload/ 021403LOLRibstein.pdf.
71. See R.A. Johnson & D.W. Greening, The Effects of Corporate Governance and Institutional Ownership Types on Corporate Social Performance, 42 ACAD. MGMT. J. 564 (1999);
72. Edward B. Rock, The Logic and (Uncertain) Significance of Institutional Shareholder Activism, 79 GEO. L.J. 445, 479-81 (1991);
73. Roberta Romano, Public Pension Fund Activism in Corporate Governance Reconsidered, 93 COLUM. L. REV. 795, 801-19 (1993);
74. Stewart J. Schwab & Randall S. Thomas, Realigning Corporate Governance: Shareholder Activism by Labor Unions, 96 MICH. L. REV. 1018, 1033-34 (1998).
75. See Stephen M. Bainbridge, The Case for Limited Shareholder Voting Rights, 53 UCLA L. REV. 601, 634 n.88 (2006) (noting that "the most activist institutions - union and state and local employee pension funds - may have interests that diverge substantially from those of other investors").
76. See supra text accompanying note 41.
77. See Elhauge, supra note 1, at 799-800.
78. See id. at 787-92, 827-28.
79. See Michael P. Vandenbergh, The Private Life of Public Law, 105 COLUM. L. REV. 2029, 2043-66 (2005); Johnston, supra note 43.
80. See Johnston, supra note 43; see also Vandenbergh, supra note 60, at 2045-51 (discussing monitoring through asset purchase agreements).
81. Vandenbergh, supra note 60, 2043-66.
82. See Johnston, supra note 43, at 103-10.
83. See Daniel W. Greening & Daniel B. Turban, Corporate Social Performance as a Competitive Advantage in Attracting a Quality Workforce, 39 BUS. & SOC'Y 254 (2000).
84. See David B. Montgomery & Catherine A. Ramus, Corporate Social Responsibility Reputation Effects on MBA Job Choice (Stan. Graduate Sch. of Bus., Working Paper No. 1805, 2004), available at http://ssrn.com/abstract= 412124.
85. See Aguilera et al., supra note 35 (manuscript at 8-17).
86. See Steven Greenhouse, How Costco Became the Anti-Wal-Mart, N.Y. TIMES, July 17, 2005, § 3, at 1.
87. For example, Hyperion promised to subsidize employees' purchases of fuel efficient automobiles, citing among other reasons the sophistication of its workforce. See Erin White & Jeffrey Ball, Green Perk Offered for Green Car, WALL ST. J., Nov. 29, 2004, at B4.
88. This is distinguishable from workers' direct participation as such in corporate governance. There is evidence that, when this happens, it causes firms to diverge from shareholder wealth maximization. See Olubunmi Faleye et al., When Labor Has a Voice in Corporate Governance, 41 J. FIN. & QUANTITATIVE ANALYSIS (forthcoming 2006), available at http://ssrn.com/abstract=697179.
89. See Douglas A. Kysar, Preferences for Processes: The Process/Product Distinction and the Regulation of Consumer Choice, 118 HARV. L. REV. 525 (2004) (discussing how consumers may derive utility from "voting" on particular practices);
90. see also Ray Fisman et al., Corporate Social Responsibility: Doing Well by Doing Good? (Preliminary Draft Paper, 2005), available at http://ssrn.com/abstract=813286 (presenting data showing that corporate social responsibility is more prevalent in consumer-oriented industries).
91. See STONE, supra note 1, at 88-92.
92. See Rob Harrison, Corporate Social Responsibility and the Consumer Movement, 13 CONSUMER POL'Y REV. 127, 128 (2003); McWilliams & Siegel, supra note 39, at 119-22.
93. The "commercial" nature of Nike's speech was at issue in the Nike case, discussed supra note 54 and accompanying text. The use of social responsibility as a branding device arguably supports characterizing the speech as commercial and therefore as entitled to a lower level of constitutional protection. See Johnston, supra note 43, 111-15.
94. See Benjamin Klein & Keith B. Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. POL. ECON. 615 (1981).
95. Trademark law protects the firm's property right in this brand information. See Sidney A. Diamond, The Historical Development of Trademarks, 65 TRADEMARK REP. 265, 288-90 (1975).
96. See Johnston, supra note 43, at 70-72. For a general discussion of credence goods, see Michael R. Darby & Edi Karni, Free Competition and the Optimal Amount of Fraud, 16 J.L. & ECON. 67 (1973).
97. See Baron, supra note 40, at 7; Timothy J. Feddersen & Thomas W. Gilligan, Saints and Markets: Activists and the Supply of Credence Goods, 10 J. ECON. & MGMT. STRATEGY 149, 153-54 (2001).
98. See Gordon L. Clark & Tessa Hebb, Why Should They Care? The Role of Institutional Investors in the Market for Corporate Global Responsibility, 37 ENV'T & PLAN. A 2015 (2005).
99. See David L. Engel, An Approach to Corporate Social Responsibility, 32 STAN. L. REV. 1, 69 & n.266 (1979). Conversely, firms facing more competition have more incentive to differentiate themselves from their competitors, including through socially-responsible behavior. See Fisman et al., supra note 70 (showing evidence that corporate social responsibility has a greater effect on profitability in competitive industries).
100. See Rachel Schurman, Fighting "Frankenfoods": Industry Opportunity Structures and the Efficacy of the Anti-Biotech Movement in Western Europe, 51 SOC. PROBS. 243, 253-56 (2004).
101. See Mark E. Bagnoli & Susan G. Watts, Selling to Socially Responsible Consumers: Competition and the Private Provision of Public Goods, 12 J. ECON. & MGMT. STRATEGY 419, 434 (2003);
102. Orace Johnson, Corporate Philanthropy: An Analysis of Corporate Contributions, 39 J. BUS. 489, 494-95 (1966).
103. See Michael J. Fishman & Kathleen M. Hagerty, Mandatory Versus Voluntary Disclosure in Markets with Informed and Uninformed Customers, 19 J.L. ECON. & ORG. 45, 48, 52-55 (2003).
104. See Jason Dana et al., Exploiting Moral Wriggle Room: Behavior Inconsistent with a Preference for Fair Outcomes (June 24, 2003) (unpublished manuscript, on file with the Harvard Law School Library), available at http://emlab.berkeley.edu/users/webfac/dellavigna/e218_f03/Fair.pdf.
105. See Johnston, supra note 43, at 78-79. For an example, see Holman W. Jenkins, How It Became Safe to Embrace Global Warming, WALL ST. J., July 6, 2005, at A15.
106. See Kysar, supra note 70, 579-80; see also Johnston, supra note 43, at 103-10 (arguing for mandatory disclosure of socially-relevant information to consumers and investors).
107. See United Paperworkers Int'l Union v. Int'l Paper Co., 985 F.2d 1190 (2d Cir. 1993).
108. For discussions of social disclosure laws and their constitutional implications, see Kysar, supra note 70, at 574-79; Johnston, supra note 43, at 107.
109. See Johnston, supra note 43, at 69, 84-88.
110. See Elhauge, supra note 1, at 750-51.
111. See Kysar, supra note 70, at 601-24 (collecting evidence of consuming based on processes by which products are produced); Johnston, supra note 43, at 82-84 (same).
112. See infra text accompanying note 124.
113. See ALFRED D. CHANDLER, The Visible Hand: The Managerial Revolution in American Business (1977).
114. See JOHN MICKLETHWAIT & ADRIAN WOOLDRIDGE, THE COMPANY: A SHORT HISTORY OF A REVOLUTIONARY IDEA 131, 142-46, 183-84 (2003);
115. Naomi R. Lamoreaux et al., Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History, 108 AM. HIST. REV. 404 (2003);
116. Richard N. Langlois, Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History, 5 ENTERPRISE & SOC'Y 355 (2004), available at http://es.oxfordjournals.org/cgi/reprint/5/3/355.
117. See Gary Rivlin, Who's Afraid of China?, How Dell Became the World's Most Efficient Computer Maker, N.Y. Times, Dec. 19, 2004, § 3, at 1.
118. Note that Nike has aided this process by voluntarily disclosing its suppliers. See Johnston, supra note 43, at 121.
119. Glenn Burkins, Government Links Retailers to Sweatshops, WALL ST. J., Dec. 15, 1997, at B5A.
120. See supra text accompanying note 74.
121. See Vandenbergh, supra note 60, at 2060-61; Johnston, supra note 43, at 34.
122. See Robert E. Spekman et al., Corporate Social Responsibility and Global Supply Chain Management: A Normative Perspective 9 (Darden Bus. Sch., Working Paper No. 04-05, 2005), available at http://ssrn.com/abstract=655223.
123. See Vandenbergh, supra note 60, at 2058-59.
124. See Johnston, supra note 43, at 34-35.
125. Id.
126. Relationships between firms and their home communities might be threatened by a recent ruling, pending before the Supreme Court as this Article goes to print, holding that a state investment tax credit to encourage local investment violated the Commerce Clause. See Cuno v. DaimlerChrysler, Inc., 386 F.3d 738 (6th Cir. 2004), cert. granted sub nom. DaimlerChrysler Corp. v. Cuno, 126 S. Ct. 36 (2005), and Wilkins v. Cuno, 126 S. Ct. 36 (2005).
127. See Vandenbergh, supra note 60, at 2064-66.
128. See Neil Gunningham et al., Social License and Environmental Protection: Why Businesses Go Beyond Compliance, 29 LAW & SOC. INQUIRY 307 (2004).
129. See supra text accompanying note 14.
130. See Aguilera et al., supra note 35 (manuscript at 32-37).
131. An interesting example is the anti-Coke campaign in India spearheaded by a one-man NGO, which has significantly hampered Coke's activities in India. See Steve Stecklow, Virtual Battle: How a Global Web of Activists Gives Coke Problems in India, WALL ST. J., June 7, 2005, at A1.
132. See Johnston, supra note 43, at 103-10.
133. See supra text accompanying note 26.
134. See MITCHELL, supra note 1, at 3; Elhauge, supra note 1, at 739-40.
135. See Jonathan R. Macey, An Economic Analysis of the Various Rationales for Making Shareholders the Exclusive Beneficiaries of Corporate Fiduciary Duties, 21 STETSON L. REV. 23 (1991); Meese, supra note 26;
136. Lynn A. Stout, Bad and Not-So-Bad Arguments for Shareholder Primacy, 75 S. CAL. L. REV. 1189 (2002).
137. See Henry N. Butler & Fred S. McChesney, Why They Give at the Office: Shareholder Welfare and Corporate Philanthropy in the Contractual Theory of the Corporation, 84 CORNELL L. REV. 1195 (1999);
138. Faith Stevelman Kahn, Pandora's Box: Managerial Discretion and the Problem of Corporate Philanthropy, 44 UCLA L. REV. 579 (1997);
139. Eric Helland & Janet Kiholm Smith, Corporate Philanthropy, 12 J. CORP. FIN. (forthcoming 2006), available at http://ssrn.com/abstract=472161.
140. 571 A.2d 1140 (Del. 1989).
141. 170 N.W. 668 (Mich. 1919).
142. See Edward B. Rock, Corporate Law Through an Antitrust Lens, 92 COLUM. L. REV. 497, 519-23 (1992).
143. See Elhauge, supra note 1, at 760-61 (citing Cindy R. Alexander & Mark A. Cohen, Why Do Corporations Become Criminals? Ownership, Hidden Actions, and Crime as an Agency Cost, 5 J. CORP. FIN. 1, 18 (1999)).
144. Id. at 761.
145. See Cindy R. Alexander & Mark A. Cohen, Why Do Corporations Become Criminals? Ownership, Hidden Actions, and Crime as an Agency Cost, 5 J. CORP. FIN. 1, 31 (1999).
146. LUCIAN A. BEBCHUK & JESSE A. FRIED, PAY WITHOUT PERFORMANCE (2004);
147. Lucian A. Bebchuk et al., Managerial Power and Rent Extraction in the Design of Executive Compensation, 69 U. CHI. L. REV. 751 (2002).
148. Bebchuk and Fried's critics argue that the problem is not as serious as Bebchuk and Fried suggest or reject Bebchuk and Fried's proposed solutions. See Stephen M. Bainbridge, Executive Compensation: Who Decides?, 83 TEX. L. REV. 1615 (2005) (reviewing BEBCHUCK & FRIED, supra);
149. John E. Core et al., Is U.S. CEO Compensation Inefficient Pay Without Performance?, 103 MICH. L. REV. 1142, 1143-44 (2005) (arguing that Bebchuck and Fried identified isolated, and not systematic, problems);
150. Jeffrey N. Gordon, Executive Compensation: If There's a Problem, What's the Remedy? The Case for "Compensation Disclosure and Analysis," 31 J. CORP. L. 695 (forthcoming 2006), available at http://ssrn.com/abstract=686464. These critics do not, however, refute Bebchuk and Fried's point that managers are using their power to reward themselves.
151. See generally Engel, supra note 79, at 70 (stating that "management cannot be expected to discern, on a regular basis and with any degree of certainty, that particular acts of substantive altruism are called for by consensus social goals" (footnote omitted)).
152. See MILTON FRIEDMAN WITH ROSE D. FRIEDMAN, CAPITALISM AND FREEDOM 133-34 (2002).
153. See HENRY I. MILLER & GREGORY M. CONKO, THE FRANKENFOOD MYTH: HOW PROTEST AND POLITICS THREATEN THE BIOTECH REVOLUTION 117 (2004).
154. See generally Schurman, supra note 80, at 245 (arguing that particular industrial vulnerabilities played a key role in recent successes by the antibiotech movement against agricultural corporations selling GM foods in Europe). Note that firms might have self-interested reasons for refusing to sell GM products. See Thomas P. Lyon, 'Green' Firms Bearing Gifts, 26 REGULATION, Fall 2003, at 36, 37-38, available at http://ssrn.com/abstract=511366 (noting that DuPont supported regulation of chloro-fluorocarbons after developing alternatives, and that Alcoa supported emission control after having developed emission reduction materials).
155. See Robert Phillips et al., What Stakeholder Theory Is Not, 13 BUS. ETHICS Q. 479 (2003).
156. See Jensen, supra note 37.
157. For discussions of these problems generally, see Timur Kuran & Cass R. Sunstein, Availability Cascades and Risk Regulation, 51 STAN. L. REV. 683 (1999);
158. Cass R. Sunstein, Cognition and Cost-Benefit Analysis, 29 J. LEGAL STUD. 1059 (2000)
159. See generally Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 MICH. L. REV. 338 (1997) (discussing an esteem theory of norms).
160. Id. at 409-12. See Eric A. Posner, Law, Economics, and Inefficient Norms, 144 U. PA. L. REV. 1697 (1996) (discussing problems that arise from faulty individual and social cognition).
161. For the contrary argument, see supra text accompanying note 41.
162. See Blair & Stout, supra note 4, at 276-87.
163. See id. at 303-05.
164. See Elhauge, supra note 1, at 813-14.
165. See supra text accompanying note 120.
166. See Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 HARV. L. REV. 833 (2005) (arguing that shareholders should be allowed "to initiate and vote to adopt changes in the company's basic corporate governance arrangements");
167. Lucian Arye Bebchuk, Letting Shareholders Set the Rules, 119 HARV. L. REV. (forthcoming 2006), available at http://ssrn.com/abstract=891823 (making arguments for increased shareholder power).
168. For responses to Bebchuk, see Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment, 119 HARV. L. REV. (forthcoming 2006), available at http://ssrn.com/abstract=808584 (arguing that if shareholder empowerment were value enhancing, shareholders would insist on such rights, and that in publicly held firms even institutional investors have strong incentives to remain passive);
169. Leo E. Strine, Jr., Towards a True Corporate Republic: A Traditionalist Response to Lucian's Solution for Improving Corporate America, 119 HARV. L. REV. (forthcoming 2006), available at http://ssrn.com/abstract=883720 (arguing that Bebchuk's proposal may undermine managers in favor of unaccountable institutional intermediaries and suggesting reforms to address Bebchuk's concerns that are more consistent with current American system of corporate governance).
170. See Iman Anabtawi, Some Skepticism About Increasing Shareholder Power, 53 UCLA L. REV. 561 (2006); Bainbridge, supra note 56, at 634 n.88.
171. See Bainbridge, supra note 56, at 629-30.
172. See Michael Schroeder, CEOs Fight Making It Easier for Holders To Stop Board Picks, WALL ST. J., May 27, 2005, at C4 (discussing moves in this direction by some firms).
173. See Security Holder Director Nominations, 68 Fed. Reg. 60,784 (proposed Oct. 23, 2003). The rule faced strong opposition and has not been adopted.
174. See Michael C. Jensen, Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, 76 AM. ECON. REV. (PAPERS & PROC.) 323 (1986).
175. Even outside the specific context of leveraged buyout, creditors can exercise significant control, or influence governance because of the general threat of control, through covenants in loan agreements. See Douglas G. Baird & Robert K. Rasmussen, Private Debt and the Missing Lever of Corporate Governance 4 (Vanderbilt Law & Econs., Research Paper No. 05-08, Univ. of Chi. Law & Econs., Olin Working Paper No. 247, 2005), available at http://ssrn.com/abstract=692023. This type of control is more important in disciplining serious waste and mismanagement of assets than in controlling ineffective use of assets through accumulation of excess cash. Indeed, these creditor protections may even impede strong controls on excess cash like those discussed infra Part IV.B.
176. This is in fact the basic situation that Jensen and Meckling described in their classic article about agency costs. See Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. FIN. ECON. 305 (1976).
177. See FRANK H. EASTERBROOK & DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW 93, 98-99 (1991);
178. see also Stephen M. Bainbridge, The Business Judgment Rule as Abstention Doctrine, 57 VAND. L. REV. 83 (2004);
179. E. Norman Veasey, What Happened in Delaware Corporate Law and Governance from 1992-2004? A Retrospective on Some Key Developments, 153 U. PA. L. REV. 1399, 1421-28 (2005). For a further discussion of limits on judicial supervision, see infra text accompanying notes 163-65.
180. 1 AM. LAW INST., PRINCIPLES OF CORPORATE GOVERNANCE: ANALYSIS & RECOMMENDATIONS § 2.01 (b), at 55 (1994) [hereinafter ALI PRINCIPLES].
181. See Ribstein, supra note 9, at 1001-02.
182. ALI PRINCIPLES, supra note 144, § 4.01 (c) (3).
183. 237 N.E.2d 776 (Ill. App. Ct. 1968).
184. Id. at 778.
185. Id. at 780.
186. For an analysis of the decision as an example of courts' abstaining from second-guessing business judgments, see Bainbridge, supra note 143, at 95-99.
187. Shlensky, 237 N.E.2d at 780.
188. 746 A.2d 244 (Del. 2000) (holding that questionable employment contract nevertheless met the loose business judgment standard).
189. Id. at 253.
190. See In re Walt Disney Co. Derivative Litig., No. Civ.A. 15452, 2005 WL 1875804 (Del. Ch. Aug. 9, 2005) (entering judgment for defendant after trial); In re Walt Disney Co. Derivative Litig., 825 A.2d 275 (Del. Ch. 2003) (denying motion to dismiss).
191. See Jensen, supra note 37.
192. Id. at 235.
193. Id. at 237.
194. 488 A.2d 858 (Del. 1985).
195. Id. at 880-82.
196. Thus, in Brehm v. Eisner, 746 A.2d 244 (Del. 2000), the Delaware Supreme Court exonerated the board mainly because it relied on a compensation expert although this expert had made the seemingly obvious mistake of failing to add up the termination benefits under the contract. Id. at 261-62. On remand the amended complaint was upheld mainly because it alleged that the board had not, in fact, relied on the expert. In re Walt Disney Co. Derivative Litig., 825 A.2d 275 (Del. Ch. 2003). The court entered judgment for the defendant after trial. In re Walt Disney Co., No. Civ.A. 15452, 2005 WL 1875804 (Del. Ch. Aug. 9, 2005). As this Article goes to press, the case is pending on appeal.
197. See DEL. CODE ANN. tit. 8, § 102(b)(7) (2001); Veasey, supra note 143, at 1428 (noting that "personal liability of directors solely for due care violations has largely become moot by reason of section 102(b) (7) of the DGCL").
198. See In re Walt Disney Co., 2005 WL 1875804, at *51 (entering judgment after trial because plaintiff had failed to make the requisite showing of bad faith).
199. See John C. Coffee, Jr., The Unfaithful Champion: The Plaintiff as Monitor in Shareholder Litigation, LAW & CONTEMP. PROBS., Summer 1985, at 5, 79-81.
200. See Robert B. Thompson & Randall S. Thomas, The Public and Private Faces of Derivative Lawsuits, 57 VAND. L. REV. 1747 (2004) (analyzing the prevalence of derivative litigation). Although Thompson and Thomas find little evidence of costly strike litigation in the few remaining suits, the small number of cases indicates that such suits are not performing a large role in corporate governance. They found a more salutary effect in the smaller subgroup of derivative litigation involving suits by minority against controlling shareholders.
201. Robert B. Thompson & Randall S. Thomas, The New Look of Shareholder Litigation: Acquisition-Oriented Class Actions, 57 VAND. L. REV. 133 (2004). However, Vice-Chancellor Strine had a considerably less favorable appraisal of such suits in In re Cox Communications, Inc. Shareholders Litigation, 879 A.2d 604 (Del. Ch. 2005), in which he disparaged the role of plaintiff's counsel and accordingly significantly reduced a fee request.
202. See Elhauge, supra note 1, at 862-63 (observing that opting out of managers' discretion to maximize profits would be unenforceable).
203. DEL. CODE ANN. tit. 8, § 203 (2001 & Supp. 2002).
204. See Amir N. Licht, The Maximands of Corporate Governance: A Theory of Values and Cognitive Style, 29 DEL. J. CORP. L. 649, 700-05 (2004) (reviewing these statutes and the voluminous commentary).
205. Pub. L. No. 90-439, 82 Stat. 454 (1968) (codified as amended at 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (2000)).
206. See Larry E. Ribstein, Takeover Defenses and the Corporate Contract, 78 GEO. L.J. 71 (1989).
207. Robert B. Thompson & D. Gordon Smith, Toward a New Theory of the Shareholder Role: "Sacred Space" in Corporate Takeovers, 80 TEX. L. REV. 261 (2001).
208. Compare Lawrence A. Hamermesh, Corporate Democracy and Shareholder-Adopted By-Laws: Taking Back the Street?, 73 TUL. L. REV. 409 (1998) (arguing that shareholders do not have this power),
209. with Jonathan R. Macey, The Legality and Utility of the Shareholder Rights Bylaw, 26 HOFSTRA L. REV. 835 (1998) (arguing in favor of shareholder power).
210. 493 A.2d 946 (Del. 1985).
211. 500 A.2d 1346 (Del. 1985).
212. See Jennifer Arlen & Eric Talley, Unregulable Defenses and the Perils of Shareholder Choice, 152 U. PA. L. REV. 577 (2003).
213. See Stephen M. Bainbridge, Unocal at 20: Director Primacy in Corporate Takeovers, 31 DEL. J. CORP. L. (forthcoming 2006) (manuscript at 65-99), available at http://ssrn.com/abstract=796224 (reviewing cases decided under Unocal and concluding that the test gives courts a useful mechanism for determining when directors have abused their power).
214. Robert Daines & Michael Klausner, Do IPO Charters Maximize Firm Value? Antitakeover Protection in IPOs, 17 J.L. ECON. & ORG. 83 (2001).
215. See Lucian Arye Bebchuk, Why Firms Adopt Antitakeover Arrangements, 152 U. PA. L. REV. 713, 739-45 (2003).
216. Michael Klausner, Institutional Shareholders, Private Equity, and Antitakeover Protection at the IPO Stage, 152 U. PA. L. REV. 755, 762 (2003) (discussing possible roles of institutional shareholders and private equity).
217. See Lynn A. Stout, The Shareholder as Ulysses: Some Empirical Evidence on Why Investors in Public Corporations Tolerate Board Governance, 152 U. PA. L. REV. 667, 711 (2003).
218. See infra Part IV.C (discussing this consideration as a reason for not adopting partnership-type accountability mechanisms).
219. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (permitting directors opposing a takeover to consider the impact on "constituencies" other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally)).
220. See Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140 (Del. 1989); see also supra text accompanying note 114.
221. See Elhauge, supra note 1, at 828-29.
222. See Licht, supra note 167, at 703 (noting that the statutes "have played a negligible part, if any, in litigation involving directors' decisions").
223. See Jesse Eisinger, Hedge-Fund Activism Wins Plaudits, but the Focus Is Really on Firms' Cash, WALL ST. J., Oct. 12, 2005, at C1 (discussing private equity's role in changes at Time Warner, McDonald's, Kmart, and Sears, among other firms).
224. See Eugene F. Fama & Michael C. Jensen, Separation of Ownership and Control, 26 J.L. & ECON. 301 (1983).
225. See generally Jensen & Meckling, supra note 142.
226. See supra text accompanying note 185.
227. See Frank H. Easterbrook, Two Agency Cost Explanations of Dividends, 74 AM. ECON. REV. 650 (1984) (proposing this idea with reference to corporate dividends).
228. See Larry E. Ribstein, Why Corporations?, 1 BERKELEY BUS. L.J. 183, 197 (2004).
229. See Steven A. Bank, Tax, Corporate Governance, and Norms, 61 WASH. & LEE L. REV. 1159, 1218-19, 1223-28 (2004).
230. See infra note 225 and accompanying text.
231. See Jeffrey R. Brown et al., Executive Financial Incentives and Payout Policy 4-5 (Nat'l Bureau of Econ. Research, Working Paper No. 11002, 2004), available at http://ssrn.com/abstract=631182.
232. See William G. Christie & Vikram Nanda, Free Cash Flow, Shareholder Value, and the Undistributed Profits Tax of 1936 and 1937, 49 J. FIN. 1727, 1749-50 (1994). Note that the effect of the Act was somewhat ambiguous because it also imposed double taxation. See infra text accompanying note 215.
233. John Goodgame, Master Limited Partnership Governance, 60 BUS. LAW. 471, 490-504 (2005).
234. Id. at 479 (quoting Chuck Saletta, Fool on the Hill: Growth in the Pipeline, MOTLEY FOOL, Jan. 31, 2003, http://www.fool.com/news/foth/2003/ foth030131.htm).
235. See I.R.C. § 7704(a) (West Supp. 2005) (defining publicly traded partnerships eligible for flow-through taxation); see also id. §§ 856-860 (providing for partial flow-through taxation of real estate investment trusts).
236. See Goodgame, supra note 195, at 480-82 (discussing tax and business considerations relating to nature of MLP assets).
237. See Easterbrook, supra note 189, at 654 (noting that "[n]ew investors are better than old ones at chiseling down agency costs"); Goodgame, supra note 195, at 501-04.
238. See REVISED UNIF. LTD. P'SHIP ACT § 701 (amended 1985), 6A U.L.A. 446 (2003); UNIF. P'SHIP ACT § 31, 6 U.L.A. 370 (2001).
239. UNIF. LTD. P'SHIP ACT § 601 (a), 6A U.L.A. 71-72 (2003).
240. I.R.C. § 2704 (b) (2000) (providing that taxation of intra-family transfers of business organization interests depends on state statutory exit rights).
241. See DEL. CODE ANN. tit. 6, § 17-1101 (2005); Larry E. Ribstein, Fiduciary Duties and Limited Partnership Agreements, 37 SUFFOLK U. L. REV. 927 (2004) (discussing judicial application of the Delaware opt-out provision). The use of these provisions in MLPs is discussed in Goodgame, supra note 195, at 485-90, 494-98.
242. Goodgame, supra note 195, at 491-94.
243. Id. at 498-99.
244. See supra text accompanying notes 181-185.
245. Since the social responsibility issue does not arise in MLPs as a matter of fiduciary duty, it follows that it would not constrain any power the members have to transfer control. Cf. In re Marriott Hotel Props. II Ltd. P'ship, No. Civ.A. 14961, 2000 WL 128875, at *17 (Del. Ch. Jan. 24, 2000) (holding that, given the structure of the limited partnership, the general partner did not have a Unocal duty to protect the limited partners in connection with a tender offer by the general partner's parent).
246. See supra text accompanying note 140-142.
247. For a discussion of the tradeoffs between preferred and common, particularly regarding liquidation preferences, see William W. Bratton, Venture Capital on the Downside: Preferred Stock and Corporate Control, 100 MICH. L. REV. 891, 916 (2002).
248. See, e.g., Sanders v. Devine, No. Civ. A. 14679, 1997 WL 599539, at *5-6 (Del. Ch. Sept. 24, 1997) (preferred shareholders have no cause of action for breach of fiduciary duty in connection with cash-out merger if they received their contractual liquidation preference); Winston v. Mandor, 710 A.2d 835, 836 (Del. Ch. 1997) (no breach of fiduciary duty as to corporate actions permitted by certificate); Moore Bus. Forms, Inc. v. Cordant Holdings Corp., No. Civ.A. 13911, 1995 WL 662685, at *5-6 (Del. Ch. Nov. 2, 1995) (holding that fiduciary rights of preferred stockholders depend on whether the dispute arises from rights and obligations the preferred share with common shareholders); Bratton, supra note 209 (discussing duties owed to preferred shareholders in venture capital situation). Note, however, that in venture capital-backed startups preferred shareholders may exercise the dominant power, leaving the common shareholders vulnerable to opportunism. See Jesse M. Fried & Mira Ganor, Agency Costs of Venture Capital Control in Startups, 81 N.Y.U. L. REV. (forthcoming 2006) (manuscript at 2-3), available at http://ssrn.com/abstract=784610. This would also differ from the partnership structure, where there is only one widely held class of equity-type shares.
249. See Ribstein, supra note 190.
250. See I.R.C. § 7704 (West Supp. 2005).
251. See id. §§ 856-860.
252. See Jennifer Arlen & Deborah M. Weiss, A Political Theory of Corporate Taxation, 105 YALE L.J. 325, 356-61 (1995).
253. See Steven A. Bank, Corporate Managers, Agency Costs, and the Rise of Double Taxation, 44 WM. & MARY L. REV. 167, 183-98 (2002) [hereinafter Bank, Agency Costs];
254. Steven A. Bank, The Story of Double Taxation: A Clash over the Control of Corporate Earnings [hereinafter Bank, Story], in BUSINESS TAX STORIES 153 (Steven A. Bank & Kirk J. Stark eds., 2005) (discussing the adoption of double taxation in 1936).
255. Bank, Agency Costs, supra note 215, at 184-85.
256. See supra text accompanying note 5.
257. See Bank, Agency Costs, supra note 215, at 184-85.
258. Id. at 198-99.
259. Id. at 200-03.
260. Id. at 222-23.
261. The proposal involved a Comprehensive Business Income Tax (CBIT). See U.S. DEP'T OF THE TREASURY, REPORT OF THE DEPARTMENT OF THE TREASURY ON INTEGRATION OF THE INDIVIDUAL AND CORPORATE TAX SYSTEMS 39-60 (1992) [hereinafter INTEGRATION REPORT], available at http://www.treasury.gov/offices/ tax-policy/library/integration-paper/.
262. See PRESIDENT'S ADVISORY PANEL OF FEDERAL TAX REFORM, FINAL REPORT 162-63 (Nov. 2005), available at http://www.taxreformpanel.gov/final-report/ TaxReform_Ch7.pdf (proposing flat tax on net positive cash flow of all businesses);
263. Press Release, U.S. Dep't of the Treasury, Fact Sheet: The President's
264. See Bank, Story, supra note 215, at 178-80; Steven A. Bank, A Capital Lock-in Theory of the Corporate Income Tax, 96 GEO. L.J. (forthcoming 2006) (manuscript at 6 n.22) [hereinafter Bank, Capital], available at http://ssrn.com/abstract=861244.
265. Pub. L. No. 108-27, § 302(a), 117 Stat. 752, 760-61 (codified as amended at I.R.C. § 1(h))
266. Alon Brav et al., Payout Policy in the 21st Century, 77 J. FIN. ECON. 483 (2005).
267. See Bank, Capital, supra note 224 (manuscript at 49); William W. Bratton, The New Dividend Puzzle, 93 GEO. L.J. 841, 846-47 (2004).
268. See Jeff D. Opdyke, Tax Cut, Shareholder Pressure Stoke Surge in Stock Dividends, WALL ST. J., Jan. 18, 2005, at A1 (noting that in 2004, following enactment of the JGTRRA, dividends were up twelve percent and 1288 companies increased their dividends, and that since the dividend-tax cut S&P 500 companies announced 421 dividend increases, twenty-four companies started paying dividends for the first time - the greatest increase ever in dividend initiations);
269. Gene Amromin et al., How Did the 2003 Dividend Tax Cut Affect Stock Prices and Corporate Payout Policy? (Fin. & Econ. Discussion Series, Working Paper No. 2005-57, 2005), available at http://ssrn.com/abstract=873879 (showing some increase in dividends, but small effect on total payouts since firms reduced share repurchases);
270. Nadarajan Chetty & Emmanuel Saez, Do Dividend Payments Respond to Taxes? Preliminary Evidence from the 2003 Dividend Tax Cut 21 (Nat'l Bureau of Econ. Research, Working Paper 10900, 2004), available at http://www.nber.org/ papers/w10572 (showing that nearly 150 firms initiated dividend payments after the tax cut, that these were mostly regular rather than special dividends, that firms that had been paying dividends increased them, that these effects are significant relative to company size and occur across differences regarding profits and other firm characteristics, and that the effects are more marked than for the Tax Reform Act of 1986, which reduced the top individual tax rate on dividends significantly but led mainly to a temporary increase in special dividends). The experience after the JGTRRA indicates that managers may be more sensitive to tax considerations than Brav et al., supra note 226, at 22, predicted, since that survey reported that only one percent of managers questioned said their firms would definitely initiate dividends in response to the JGTRRA.
271. Brown et al., supra note 193, at 5.
272. See Bratton, supra note 227, at 855-58; see also Amromin et al., supra note 228 (showing some increase in dividends, but small effect on total payouts since firms also reduced share repurchases).
273. See Henry N. Butler, Corporation-Specific Anti-Takeover Statutes and the Market for Corporate Charters, 1988 WIS. L. REV. 365 (discussing the politics of enacting these statutes).
274. See Pub. L. No. 90-439, 82 Stat. 454 (1968) (codified as amended at 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) (2000)); see also supra note 168 and accompanying text.
275. See I.R.C. § 511 (a) (1) (2000); Goodgame, supra note 195, at 474 n.18; Ribstein, supra note 32, at 770.
276. Pub. L. No. 108-357, 118 Stat. 1418.
277. See id. § 331 (codified as amended in scattered sections of 26 U.S.C.); Goodgame, supra note 195, at 506.
278. See I.R.C. § 856(c) (West Supp. 2005).
279. Larry E. Ribstein, The Evolving Partnership, 26 J. CORP. L. 819 (2001) (discussing the evolution of check-the-box).
280. See Larry E. Ribstein, Unlimited Contracting in the Delaware Limited Partnership and Its Implications far Corporate Law, 16 J. CORP. L. 299 (1991).
281. See I.R.C. § 7704.
282. Arlen & Weiss, supra note 214, at 367-68 (explaining check-the-box along these lines).
283. Pub. L. No. 107-204, 116 Stat. 745.
284. See KOSE JOHN ET AL., CORPORATE LIMITED LIABILITY AND THE DESIGN OF CORPORATE TAXATION 2 (1991).
285. Hideki Kanda & Saul Levmore, Taxes, Agency Costs, and the Price of Incorporation, 77 VA. L. REV. 211, 255-56 (1991).
286. See Avi-Yonah, supra note 10.
287. See Larry E. Ribstein, The Deregulation of Limited Liability and the Death of Partnership, 70 WASH. U. L.Q. 417, 467-73 (1992).
288. See INTEGRATION REPORT, supra note 222, at 27-37.
289. Id.
290. See Bank, Capital, supra note 224 (manuscript at 5).
291. See Simplification of Entity Classification Rules, 61 Fed. Reg. 66,584 (1996) (to be codified at 26 C.F.R. pts. 1, 301, 602).
292. Margaret M. Blair, Locking in Capital: What Corporate Law Achieved for Business Organizers in the Nineteenth Century, 51 UCLA L. REV. 387 (2003).
293. See CHANDLER, supra note 92, at 287-89; Blair, supra note 250, at 398-404; Naomi R. Lamoreaux & Jean-Laurent Rosenthal, Corporate Governance and the Plight of Minority Shareholders in the United States Before the Great Depression 1-11 (Nat'l Bureau of Econ. Research, Working Paper No. 10900, 2004), available at http://www.nber.org/papers/W10900 (observing that parties formed corporations during the late nineteenth and early twentieth century where they expected high profitability that might be jeopardized by untimely dissolution, despite the risk of controlling owner opportunism facilitated by corporate continuity).
294. Strong owner powers also may have the additional consequence of preventing the development of an entity "personality" through consistent decisionmaking over time. See Edward B. Rock, The Corporate Form as a Solution to a Discursive Dilemma, 15 J. INSTITUTIONAL & THEORETICAL ECON. (forthcoming (2006)) (manuscript at 11), available at http://ssrn.com/abstract= 803866.
295. See Ribstein, supra note 190.
296. See supra Part II.D.
297. See generally Larry E. Ribstein, A Statutory Approach to Partner Dissociation, 65 WASH. U. L.Q. 357 (1987).
298. See Lamoreaux & Rosenthal, supra note 251.
299. Kate Litvak, Governance Through Exit: Default Penalties and Walkaway Options in Venture Capital Partnership Agreements, 40 WILLAMETTE L. REV. 771 (2004).
300. See id. It may be that investors are constrained by reputational considerations from exercising their liquidity rights. See Victor Fleischer, Fickle Investors, Reputation, and the Clientele Effect in Venture Capital Funds, 40 WILLAMETTE L. REV. 813 (2004). But even if Fleischer's criticism is correct, this just suggests that liquidity rights are underutilized rather than impracticable.
301. See Litvak, supra note 257, at 790-97.
302. See supra text accompanying note 249.