Professor Bainbridge...on law, politics, religion, culture & food

Corporate Governance Rant

Mike O'Sullivan at Corp Law Blog has a great post -- nay, rant -- on the on-going saga of corporate governance reform. Money quote:

"Any corporate governance reform looks great when viewed through an Enron or WorldCom lens. Many of these reforms look less attractive when viewed through a GE lens, a Berkshire Hathaway lens or a [FILL IN YOUR FAVORITE PUBLIC COMPANY] lens. Instead of asking "Would this reform stick it to Ken Lay?" you should ask "Would this reform hobble Jeffrey Immelt, Warren Buffett or [FILL IN YOUR FAVORITE CEO]?"

Exactly! Go read the whole thing. After which, you might want to read my article on the federalism implications of corporate governance reform. In it, I note that there has been a creeping - but steady - federalization of corporate governance law. Taken together, these developments constitute the most dramatic expansion of federal regulatory power over corporate governance since the New Deal.

No one seriously doubts that Congress has the power under the Commerce Clause to create a federal law of corporations if it chooses. The question of who gets to regulate public corporations thus is not one of constitutional law but rather of prudence and federalism. In this essay, I advance both economic and non-economic arguments against federal preemption of state corporation law. Competitive federalism promotes liberty as well as shareholder wealth. When firms may freely select among multiple competing regulators, oppressive regulation becomes impractical. If one regulator overreaches, firms will exit its jurisdiction and move to one that is more laissez-faire. In contrast, when there is but a single regulator, exit is no longer an option and an essential check on excessive regulation is lost.

Abolishing Veil Piercing: A Review

PROF UNTANGLES CORPORATE WEB WITH LAW AND ECONOMICS: "Lawyers who have no recollection of hearing or seeing the words 'law' and 'economics' in the same sentence at any time during law school might have a vague notion that 'law and economics' is something the 7th U.S. Circuit Court of Appeals does when Judge Richard A. Posner or Judge Frank H. Easterbrook is on the panel. This veil of ignorance is pierced by a new article on piercing the veil. Using law and economics analysis, Stephen Bainbridge (a professor at UCLA Law School and visiting professor at Harvard) concludes that courts should abolish veil piercing when it comes to holding individual shareholders liable for corporate debts. Yet Bainbridge also believes courts should keep a variation of veil piercing for use against affiliated corporations. Stephen M. Bainbridge, 'Abolishing Veil Piercing,' 26 Journal of Corporation Law 479."

It's actually a very good summary of both the law and economics methodology and the doctrinal analysis used in that article. As they correctly summarize my conclusion: "So law and economics analysis condemns veil piercing against individuals but -- on what Bainbridge considers a "close question" -- blesses the remedy in appropriate cases against affiliated corporations."

The corporate canon

A reader once asked me to suggest a canon of corporate law works analogous to my colleague Vic Fleischer's Tax Canon. Here are my nominees for books every corporate lawyer, especially every economically-minded corporate lawyer should own (with links to Amazon):

Corporation Law: Modern Texts
ALI: Principles of Corporate Governance
Berle and Means: Modern Corporation and Private Property
Butler and Ribstein: The Corporation and the Constitution
Clark: Corporate Law
Easterbrook and Fischel: The Economic Structure of Corporate Law [review here]
Klein and Coffee: Business Organization and Finance
Manning: Legal Capital
Roe: Strong Managers, Weak Owners [review here]

Corporation Law: Classic Texts
Conard: Corporations in Perspective
Wormser: Disregard of the Corporate Fiction and Allied Corporation Problems

Corporation Law: Law Review Article Collections
Gevurtz: Corporate Law Anthology
Romano: Foundations of Corporate Law

Corporate Governance and Economics
Coase: The Firm, the Market, and the Law [review here]
Chandler: The Visible Hand: The Managerial Revolution in American Business
Davis: Corporations: A Study of the Origin and Development
Jensen: A Theory of the Firm: Governance, Residual Claims, and Organizational Forms [review here]
Malkiel: A Random Walk Down Wall Street [review here]
Micklethwait and Wooldridge: The Company: A Short History of a Revolutionary Idea [review here]
Williamson: The Economic Intstitutions of Capitalism [review here]
Williamson: The Mechanisms of Governance [review here]

Shameless self-serving plug for my books
Corporation Law and Economics
Mergers and Acquisitions
Securities Law: Insider Trading

McKesson HBOC, Inc. v. New York State Common Retirement Fund, Inc.

2003 WL 21920240 (9th Cir. 2003):

The corporate form protects shareholders by limiting their liability and their direct control over the corporation. See Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, Inc., 456 F.Supp. 831, 838 (D.Del.1978) ('One of the major features of the corporate form of organization is that it insulates shareholders from personal liability for the debts of the corporation.'); see also Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. Corp. L. 479, 482 (2001) ('Shareholders of public corporations are effectively immune from veil piercing claims.').

Heh.