The new federal corporation law?

George Washington Law Review

Volumn 77, Issue 3, 2009, Pages 685-707

  Cunningham, Lawrence A ^a  

^a GEORGE WASHINGTON UNIVERSITY   (United States)

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EID: 67650562950     PISSN: 00168076     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (180)

1. Robert B. Ahdieh, Trapped in a Metaphor: The Limited Implications of Federalism for Corporate Governance, 77 GEO. WASH. L. REV. 255, 255 (2009).
2. Id. at 256-57.
3. Id. at 257.
4. Id. at 257-58, 265, 292.
5. Id. at 257.
6. See id. at 257-58.
7. See id.
8. Id. at 258.
9. See id. at 258, 283 (noting scholarship produced by Henry Manne, William Carney, Jonathan Macey and David Haddock, and Susan Phillips and Richard Zecher).
10. See id. at 259-60, 281, 290-91.
11. See id. at 260.
12. Id. at 260-61, 297.
13. Id. at 260-61, 304-05.
14. Rivals include the nature of the firm, private contract versus social control, agency theory, shareholder-manager relations, limited liability, and the internal affairs doctrine. See infra text accompanying notes 92-94.
15. Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in scattered sections of 11,15,18, 28, and 29 U.S.C.).
16. See Ahdieh, supra note 1, at 260, 296-97; infra text accompanying notes 80-84.
17. See, e.g., William W. Bratton, Corporate Law's Race to Nowhere in Particular, 44 U. TORONTO L.J. 401, 401 (1994); Renee M. Jones, Rethinking Corporate Federalism in the Era of Corporate Reform, 29 J. CORP. L. 625, 627-28 (2004).
18. See Ahdieh, supra note 1, at 290, 296-97, 305; infra text accompanying notes 95-96.
19. See Ahdieh, supra note 1, at 260,267-68,273, 304; infra text accompanying notes 86-90.
20. See Ahdieh, supra note 1, at 306.
21. See id. at 297.
22. Id. at 270-71, 293-96.
23. See id. at 293 & n.151.
24. Id. at 293-96.
25. Id. at 294-95.
26. Id. at 260.
27. DEP'T OF THE TREASURY, THE DEPARTMENT OF THE TREASURY BLUEPRINT FOR AMODERNIZED FINANCIAL REGULATORY STRUCTURE 5-22 (2008) [hereinafter TREASURY BLUEPRINT, available at http://www.treas.gov/press/ releases/reports/Blueprint.pdf.
28. See, e.g., GROUP OF THIRTY, FINANCIAL REFORM: A FRAMEWORK FOR FINANCIAL STABILITY 17-18, 21 (2009) [hereinafter GROUP OF THIRTY REPORT available at http://www.group30.org/pubs/reformreport.pdf.
29. Ahdieh, supra note 1, at 256-58.
30. See William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 YALE L.J. 663, 663-70 (1974).
31. See Ralph K. Winter, Jr., State Law, Shareholder Protection, and the Theory of the Corporation, 6 J. LEGAL STUD. 251, 254-62 (1977).
32. See id. at 256.
33. See Ahdieh, supra note 1, at 262-63, 266-67.
34. id. at 266-67.
35. See id. at 267
36. Id. at 268.
37. See id. at 268-69.
38. See id. at 269, 273, 281-82.
39. Id. at 281.
40. Id. at 258, 273, 281-82.
41. See id. at 268, 273.
42. See id.
43. See id. at 281-82.
44. Id. at 273.
45. See id.
46. Id. at 285-86.
47. Id. at 296-98.
48. See id. at 260-61, 296-98.
49. Id. at 272-73.
50. W. at 260-61.
51. See id.
52. See id. at 260-61, 296-98.
53. Id. at 293-96.
54. Id. at 292-94; see also infra text accompanying notes 113-14.
55. Ahdieh, supra note 1, at 294.
56. See id. at 295-96.
57. See id. at 295-96.
58. Id.
59. Id. at 294.
60. id. at 294-95.
61. 61 Id.
62. See id. at 295-96.
63. Id. at 296.
64. Id.
65. See supra text accompanying notes 39-46.
66. Ahdieh, supra note 1, at 299-302.
67. See supra text accompanying notes 43-47.
68. See Ahdieh, supra note 1, at 295-96.
69. Id. at 296.
70. See id.
71. See E. Merrick Dodd, Federal Corporation Act, 53 YALE L.J. 812, 813 (1944) (noting that early proposals for federal corporation law were "compulsory").
72. See infra text accompanying notes 106-35.
73. See Joel Seligman, The Case for Federal Minimum Corporate Law Standards, 49 Md. L. REV. 947, 947-49, 971-74 (1990); see infra text accompanying notes 106-08.
74. Ahdieh, supra note 1, at 296.
75. Id.
76. See id. at 297.
77. See id.
78. Id. at 260, 297.
79. See id. at 297.
80. See, e.g., John C. Coffee, Jr. & Hillary A. Sale, Redesigning the SEC: Does the Treasury Have a Better Idea?, 95 VA. L. REV. (forthcoming Dec. 2009).
81. See, e.g., Lawrence A. Cunningham, The Sarbanes-Oxley Yawn: Heavy Rhetoric, Light Reform (And It Just Might Work), 35 CONN. L. REV. 915, 974-77 (2003).
82. See, e.g., Donna M. Nagy, Playing Peekaboo with Constitutional Law: The PCAOB and Its Public/Private Status, 80 NOTRE DAME L. REV. 975, 977-78, 980 (2005); Michael A. Perino, Enron's Legislative Aftermath: Some Reflections on the Deterrence Aspects of the Sarbanes-Oxley Act of 2002, 76 ST. JOHN'S L. REV. 671, 672, 674 (2002).
83. See, e.g., Jonathan R. Macey, A Pox on Both Your Houses: Enron, Sarbanes-Oxley and the Debate Concerning the Relative Efficacy of Mandatory Versus Enabling Rules, 81 WASH. U. L.Q. 329, 349-55 (2003); Larry E. Ribstein, Bubble Laws, 40 HOUS. L. REV. 77, 86-90 (2003).
84. See Robert B. Thompson, Preemption and Federalism in Corporate Governance: Protecting Shareholder Rights to Vote, Sell, and Sue, 62 LAW & CONTEMP. PROBS. 215,233 (1999). Similar confrontations occur in related fields, such as insurance and banking. See, e.g., Jonathan R. Macey & Geoffrey P. Miller, The McCarran-Ferguson Act of1945: Reconceiving the Federal Role in Insurance Regulation, 68 N.Y.U. L. REV. 13, 20 (1993); Geoffrey P. Miller, Legal Restrictions on Bank Consolidation: An Economic Analysis, 77 IOWA L. REV. 1083,1105-08 (1992); Arthur E. Wilmarth, Jr., Too Big to Fail, Too Few to Serve? The Potential Risks of Nationwide Banks, 77 IOWA L. REV. 957, 994-97 (1992).
85. See supra text accompanying notes 77-79.
86. See Ahdieh, supra note 1, at 305.
87. See id. at 303-04
88. See id.
89. See, e.g., Lawrence A. Cunningham, From Random Walks to Chaotic Crashes: The Linear Genealogy of the Efficient Capital Market Hypothesis, 62 GEO. WASH. L. REV. 546, 547-48 (1994); Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 VA. L. REV. 549, 553 (1984); Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950-2005: Of Shareholder Value and Stock Market Prices, 59 STAN. L. REV. 1465, 1541 (2007); Jeffrey N. Gordon & Lewis A. Kornhauser, Efficient Markets, Costly Information, and Securities Research, 60 N.Y.U. L. REV. 761, 765 (1985).
90. See, e.g., WILLIAM W. BRATTON, CORPORATE FINANCE: CASES AND MATERIALS 6-38 (6th ed. 2008); JESSE H. CHOPER ET AL., CASES AND MATERIALS ON CORPORATIONS 195-203 (6th ed. 2004); LAWRENCE E. MITCHELL ET AL., CORPORATE FINANCE AND GOVERNANCE: CASES, MATERIALS, AND PROBLEMS FOR AN ADVANCED COURSE IN CORPORATIONS 221-275 (3d ed. 2006); LAWRENCE E. MITCHELL & DALIA TSUK MITCHELL, CORPORATIONS: CASES AND MATERIALS 204-206 (2006).
91. See Ahdieh, supra note 1, at 257.
92. Id. at 261.
93. Id. at 297 n.164, 305.
94. See, e.g., LARRY D. SODERQUIST ET AL., CORPORATIONS AND OTHER BUSINESS O RGANIZATIONS: CASES, MATERIALS, PROBLEMS xvi-xxvi (6th ed. 2005) (listing the following topics in the table of contents that have little or nothing to do with federalism or state competition: limited liability and veil piercing, capitalization and dividends, oppression, cumulative voting, fiduciary duties of directors and controlling shareholders, changes in control, and derivative litigation and indemnification). By comparison, the foregoing casebook devotes a total of six pages to the "race" issue, emphasizing the substantial congruence of corporation law across states. See id. at 19-20, 227-30.
95. See Ahdieh, supra note 1, at 290, 297, 305.
96. See, e.g., id. at 270-72, 302-03.
97. See id. at 281, 302-03, 306-07.
98. See id. at 260-61, 297-98, 305-06.
99. See id. at 297-98, 306-07.
100. See supra text accompanying notes 22, 53-64.
101. See infra text accompanying notes 109-10.
102. See Thompson, supra note 84, at 223.
103. See Dodd, supra note 71, at 812, 818.
104. See Richard A. Booth, A Chronology of the Evolution of the MBCA, 56 Bus. LAW. 63, 63 (2000).
105. See Mark J. Loewenstein, A New Direction for State Corporate Codes, 68 U. COLO. L. REV. 453, 453-54 (1997) (noting that although the Model Act includes some mandatory provisions, their continued existence "is in doubt," and overall the Model Act "reflects th[e] trend toward enabling acts").
106. See Thompson, supra note 84, at 223.
107. See Larry E. Ribstein, The Mandatory Nature of the ALI Code, 61 GEO. WASH. L. REV. 984, 985, 999-1000 (1993); see also Thompson, supra note 84, at 223 & n.52.
108. See Seligman, supra note 73, at 949, 971-74.
109. Lawrence A. Cunningham, A Prescription to Retire the Rhetoric of "Principles-Based Systems" in Corporate Law, Securities Regulation, and Accounting, 60 VAND. L. REV. 1411,1446 (2007) (citing Sean J. Griffith & Myron T. Steele, On Corporate Law Federalism: Threatening the Thaumatrope, 61 Bus. LAW. 1, 20-23 (2005)).
110. Id. (citing Mark J. Roe, Institutional Foundations for Securities Markets in the West 1, 5-7 (Dec. 17, 2002) (unpublished manuscript, on file with author), available at http:// www.wzb.eu/alt/ism/conf/conf03/ papers/roe.pdf (Sept. 19, 2003 version))
111. See id. at 1420-23, 1446-52.
112. See id. at 1446-52.
113. See Charles M. Yablon, The Historical Race Competition for Corporate Charters and the Rise and Decline of New Jersey: 1880-1910, 32 J. Corp. L. 323, 333 (2007).
114. See, e.g., Ehud Kamar, A Regulatory Competition Theory of Indeterminacy in Corporate Law, 98 COLUM. L. REV. 1908, 1927 (1998) (suggesting that "the indeterminacy of Delaware [corporation] law.. enhances [its] competitive advantages").
115. See, e.g., Frank H. Easterbrook & Daniel R. Fischel, Mandatory Disclosure and the Protection of Investors, 70 VA. L. REV. 669, 680-85 (1984).
116. See Cunningham, supra note 109, at 1447-48.
117. See id. at 1446-47.
118. See id. at 1431, 1447-48.
119. See infra text accompanying notes 148-58.
120. See Cunningham, supra note 109, at 1482-83.
121. See generally Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204,116 Stat. 745 (codified in scattered sections of 11, 15, 18, 28, and 29 U.S.C.). See also Cunningham, supra note 81, at 941-75.
122. See 15 U.S.C. §§ 78J-1, 7241-7244, 77t, 78u, 78m, 7262.
123. See id. § 7245.
124. See id. § 78o-6.
125. See id. § 7244.
126. See id. § 78J-1.
127. See id.
128. See id. §§ 7128-7219.
129. Id. § 7265.
130. See id. § 7265(a).
131. Id. § 7264.
132. See, e.g., Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L.J. 1521, 1602-03 (2005).
133. See, e.g., Lyman P.Q. Johnson & Mark A. Sides, The Sarbanes-Oxley Act and Fiduciary Duties, 30 WM. MITCHELL L. REV. 1149, 1195 (2004).
134. See Simon Lome, Sarbanes-Oxley: The Pernicious Beginnings of Usurpation?, 6 SEC. IN ELEC. AGE, NO. 4, AT 1 (2002), REPRINTED IN E. NORMAN VEASEY & R. FRANKLIN BALOTTI, WHAT ALL BUSINESS LAWYERS & LITIGATORS MUST KNOW ABOUT DELAWARE LAW D EVELOPMENTS 651, 660 (2005) (contending that the Sarbanes-Oxley Act "adds to what can be a suffocatingly complex regulatory environment").
135. See Katherine Schipper, Principles-Based Accounting Standards, 17 Acer. HORIZONS 61, 61 (2003) (noting discussions suggesting, either implicitly or explicitly, that the "U.S. abandon the current allegedly 'rules-based' system").
136. TREASURY BLUEPRINT, supra note 27.
137. See id. at 1.
138. See id. at 1-3, 21-22.
139. See id. at 5-22.
140. See id. at 12-13.
141. See id. at 11-12.
142. See id. at 11-12,115-18.
143. Id. at 11-12.
144. Id. at 11.
145. See id. at 110-11.
146. See id. at 12-13.
147. See id. at 111-13.
148. See id. at 11-12, 109-11. The Treasury Blueprint lists the following additional topics in securities and futures regulation that it envisions requiring melding as the SEC and CFTC merge: margin accounts and trading, customer funds, customer suitability, short selling, insurance for institutional insolvency, SRO mergers, and agency funding. Id. at 116-18.
149. Id. at 115.
150. See Howard M. Friedman, The Impact ofNSMIA on State Regulation of Broker-Dealers and Investment Advisers, 53 Bus. LAW. 511, 513-17, 561 (1998).
151. See Roberta S. Karmel, Is the Shingle Theory Dead?, 52 WASH. & LEE L. REV. 1271, 1273 (1995).
152. See id. at 1273,1295-96.
153. See John H. Walsh, Right the First Time: Regulation, Quality, and Preventive Compliance in the Securities Industry, 1997 COLUM. BUS. L. REV. 165, 174 (1997). See generally Lewis D. Lowenfels & Alan R. Bromberg, Broker-Dealer Supervision: A Troublesome Area, 25 SETON HALL L. REV. 527 (1994).
154. See NAT'L FUTURES ASS'N, NFA MANUAL/RULES (2008), available at http://www.nfa. futures.org/nfamanual/manualFinancial.asp.
155. See TREASURY BLUEPRINT, supra note 27, at 115.
156. See United States v. O'Hagan, 521 U.S. 642, 669 (1997); see also In re Cady, Roberts & Co., 40 S.E.C. 907, 112 (1961).
157. See In re Cady, Roberts & Co., 40 S.E.C. at 112. For state law approaches, see Diamond v. Oreamuno, 248 N.E.2d 910, 912-15 (N.Y. 1969), and Brophy v. Cities Service Co., 70 A.2d 5, 7-8 (Del. Ch. 1949).
158. See Harvey L. Pitt & Karen L. Shapiro, Securities Regulation by Enforcement: A Look Ahead at the Next Decade, 7 YALE J. ON Reg. 149, 156-57, 199-202 (1990).
159. TREASURY BLUEPRINT, supra note 27, at 117.
160. See id. at 117-18.
161. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196-97 (1976); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730 (1975).
162. TREASURY BLUEPRINT, supra note 27, at 118.
163. Although the Treasury Blueprint is not explicit on this point, the result could include having the Securities and Exchange Commission effectively dis-imply such private rights of action. See Joseph A. Grundfest, Disimplying Private Rights of Action Under the Federal Securities Laws: The Commission's Authority, 107 Harv. L. Rev. 961, 964-68 (1994).
164. See TREASURY BLUEPRINT, supra note 27, at 117-18.
165. Notably, a competing proposal by the Group of Thirty explicitly and directly references reform proposals concerning corporation law. See GROUP OF THIRTY REPORT, supra note 28, at 19, 39-46.
166. See, e.g., N.Y. STOCK EXCH., LISTED COMPANY MANUAL § 312.00 (1999), available at http://www.nyse.com/regulation/nyse/1182508124422.html (dealing with Shareholder Approval Policy).
167. Existing dispute resolution mechanisms used by the Financial Industry Regulatory Authority ("FINRA"), the self-regulatory organization for the securities industry, may be adapted for this purpose. See FINRA, About FINRA, http://www.finra.org/AboutFINRA/index.htm (last visited Mar. 19, 2009).
168. Stephen J. Choi & Andrew T. Guzman, Portable Reciprocity: Rethinking the International Reach of Securities Regulation, 71 S. CAL. L. REV. 903, 907 (1998).
169. Roberta Romano, Empowering Investors: A Market Approach to Securities Regulation, 107 YALE LJ. 2359, 2361-64, 2399-2401 (1998).
170. See Howell E. Jackson, A System of Selective Substitute Compliance, 48 HARV. INT'L L.J. 105,105-07 (2007); see also Ethiopis Tafara & Robert J. Peterson, A Blueprint for Cross-Border Access to U.S. Investors: A New International Framework, 48 HARV. INT'L L.J. 31, 31-33 (2007).
171. See, e.g., John C. Coffee, Jr., Racing Towards the Top?: The Impact of Cross-Listings and Stock Market Competition on International Corporate Governance, 102 COLUM. L. REV. 1757, 1770 (2002); Andreas M. Fleckner, Stock Exchanges at the Crossroads, 74 FORDHAM L. REV. 2541, 2543, 2549-50 (2006).
172. See, e.g., James D. Cox, Regulatory Duopoly in U.S. Securities Markets, 99 COLUM. L. REV. 1200, 1229-33 (1999).
173. See Chris Brummer, Stock Exchanges and the New Markets for Securities Laws, 75 U. CHI. L. REV. 1435, 1435-39 (2008).
174. See id. at 1451-55.
175. See supra text accompanying notes 136-64.
176. See Brummer, supra note 173, at 1473-77.
177. See TREASURY BLUEPRINT, supra note 27, at 1-5, 21-22.
178. See id. at 5-22.
179. See supra text accompanying notes 53-58.
180. Evidence of this interest appears in a proposal competing with the Treasury Blueprint, published by the Group of Thirty. See GROUP OF THIRTY REPORT, supra note 28, at 18, 33-37. This report prescribes international regulatory coordination to establish order in global capital markets rather than to promote U.S. capital market competitiveness, the aim of the Treasury Blueprint. See Lawrence A. Cunningham & David Zaring, The Three or Four Approaches to Financial Regulation, 78 GEO. WASH. L. REV. (forthcoming Nov. 2009).