Faculty Scholarship Digest
On a regular basis, Dean Michaels prepares a memorandum summarizing recent scholarship published by members of the Moritz faculty. The College boasts 50+ faculty members with national and international reputations. The range of influential and innovative legal scholarly works produced by our distinguished faculty reflects a variety of perspectives, interests, and areas of expertise. (See Archives)
October, 2011 Report
Steven M. Davidoff, Uncomfortable Embrace: Federal Corporate Ownership in the Midst of the Financial Crisis, 95 Minn. L. Rev. 1733 (2011).
This article examines and assesses corporate ownership by the federal government spurred by the financial crisis of 2008. Steven has described the government’s approach in effectively acquiring AIG, Citigroup, GM, Chrysler, GMAC and in holding very significant interests in Bank of America and the TARP recipients as “regulation by deal,” and the case-by-case description of the acquisition and treatments in this case demonstrates the aptness of the phrase, “as each new rescue and deal brought different ownership terms and models.” The article’s description of each approach is instructive not only for understanding the individual events, but also for some broader generalizations. Although the government sometimes acted like a private equity firm in making its acquisitions, to a substantial degree negotiating commercial terms, it acted much more like an institutional investor after acquisition, relying on extrinsic market forces and norms for its post-acquisition control, as opposed to the very close management control that is often the very point of private equity acquisitions. At the same time, the article notes that, unlike an institutional investor, the government did not have the alternative of selling its stake on the public market and that in a private company (which the government’s acquisitions had become), the independent directors that institutional investors increasingly rely upon do not face the same market pressures that affect their behavior in the public company context. So, in some ways, the government was like a venture capitalist, except one that did not want to invest more money. In short, Steven concludes, no single-investor model or unifying theory can capture this experience.
The article emphasizes the government’s aversion (under both Presidents Bush and Obama) to obtaining post-acquisition formal corporate control, even by the basic mechanism of the right to replace a majority of the Board of Directors, as well as its consistent high priority on divestiture of ownership, even at the expense of profit-maximization. The article ascribes this approach to political cultural necessities, but also suggests that it may not be a bad thing, because the pressure for political (noneconomic) direction of government controlled entities was so strong. Moreover, Steven is careful to note that the government may have exercised soft power to control its acquisitions to a much greater degree than its arrangements formally authorized. In a concluding section, the article notes that while these government interventions certainly succeeded in aggregate (the government recovered most of its investments and avoided a much worse economic crisis), fuller “resort to commercial principles . . . is likely to provide the greatest benefit to the government and the nation.” Particularly post-investment, the article describes, departure from these principles tended to lead to private benefits that impose both economic and political costs.
John Quigley, Palestine is a State: A Horse with Black and White Stripes is a Zebra, 32 Mich. J. Int’l L. 749 (2011).
John has recently published a Cambridge University Press book arguing the statehood of Palestine and now stands as a leading legal authority for that position, with frequent invited participation in debates and fora on the issue. This article is John’s response to an article in the same journal by Professors Daniel Benoliel & Ronen Perry a substantial part of which is a reply to a separate article of John’s making the case for Palestinian statehood. Here the discussion rises again in the context of the jurisdiction of the International Criminal Court to investigate and prosecute war crimes in the 2008-09 war in Gaza. Because the Palestinian Authority conferred jurisdiction on the Court, if Palestine is a state, that action would give the ICC jurisdiction. The article responds to five specific arguments Benoliel and Perry made in response to John’s arguments and finds all of them wanting in legal analysis. So much so, John concludes, that “the failure of authors who reject Palestinian statehood to find persuasive arguments for their view only reinforces the conclusion that Palestine is a state.”
Paul Rose, Regulating Risk by “Strengthening Corporate Governance,” 17 Conn. Ins. L.J. 1 (2011).
This article, which was part of a symposium on regulating risk, takes a close and critical look at the corporate governance provisions of the Dodd-Frank law enacted in 2010 in response to the financial crisis. Most post-mortems of the financial crisis identify inadequate risk management among financial firms as a significant part of the problem. One of the legislative responses was to make changes in federal law regarding corporate governance that were designed to enhance shareholder power. Paul notes that, as a solution to inadequate risk management, this approach assumes (i) that risk-management failures are corporate governance failures, and (ii) that shareholder empowerment, (iii) of the kind included in Dodd-Frank, will improve corporate governance. While agreeing on the first point, Paul vigorously contests the other two, suggesting that the corporate governance provisions in Dodd-Frank will be, at best, neutral, and likely harmful.
As an overarching matter, the article suggests that, other things being equal, national “one size-fits-all” mandates about corporate structure are likely to be inefficient from the start and to stifle innovation in corporate structure going forward. In supporting this argument, Paul makes reference to the empirical literature suggesting that perceived “good governance” standards as seen by ratings agencies have little or no correlation with firm performance (as in the example of Enron’s high rating for its governance structure). More specifically, Paul argues that shareholders tend to be risk-preferring, in part because of their limited downside risk, certainly so relative to taxpayers, so that the result of Dodd-Frank shareholder empowerment runs counter to the better (i.e., less risk-taking) risk-management deemed necessary in light of the crisis. Moreover, the principal method the new law uses to enhance shareholder influence, proxy access, has been shown to tend to diminish shareholder value, at a minimum because of the direct costs it imposes on firms.
Daniel P. Tokaji, The Obliteration of Equality in American Campaign Finance Law: A Transborder Comparison, 5 J. Parliamentary & Political L. 381 (2011).
This article in a Canadian journal takes a comparative look at the constitutionality of campaign finance regulation. The Supreme Court’s recent decision in Citizens United held that corporations have a constitutional right to make independent expenditures in federal elections. This has a number of consequences that have drawn heavy criticism. In Dan’s view, those objections miss “the most noxious feature of Citizens United: its rejection of equality as a democratic value.” Dan describes two kinds of equality for these purposes: “electoral equality,” which is equal impact on who is elected to office; and “policy-making equality,” which is influence on elected officials in office. To be sure, the article acknowledges, valuing such equality has been rejected as a justification for campaign finance regulation since Buckley v. Valeo in 1976. Yet, Dan demonstrates, the Court had occasionally given weight to both electoral-equality and policy-making equality considerations, albeit under a rubric of “anti-corruption,” in certain cases. In Citizens United, the article explains, the Court slammed shut even this backdoor consideration of equality, leaving equality as “the Voldemort of U.S. campaign finance jurisprudence[,] . . . the idea that must not be named.” Since “the really important question [in campaign finance] is how to promote equality without diminishing competition,” the complete banishment of equality even from the discussion (a discussion now relegated to a battle between liberty and anti-corruption), is highly destructive to the political system.
Dan contrasts this outcome with the Canadian approach, describing three leading cases in which Canada’s Supreme Court recognized equality as a legitimate interest in campaign finance regulation. Even though in two of the three cases the Court struck down the equality-protecting provisions because of countervailing harms, the article demonstrates the substantial difference that results from allowing equality to be a part of the discussion. As far as a change in U.S. law goes, the article sees little other than a (one-of-five Justice) change in the makeup of the Supreme Court that will change the course of U.S. campaign finance jurisprudence.
Rick Daley, Teacher’s Manual to Real Estate Development Law (West 2011).
Most teacher’s manuals are special in their own way, as they frequently capture the casebook author(s)’s teaching style and individual pedagogic tricks of the trade. If so, then this book is extra special, because the text that it supports is designed to teach real estate development through a soup to nuts experiential simulation. Rick spent several years perfecting these materials to the acclaim and appreciation of Moritz students, and this manual goes a long way to making his simulation course accessible to other teachers in the field. In addition to the usual syllabus, schedule and comments, and questions and answers for each chapter, the Teacher’s Manual includes thirteen PowerPoint Presentations (e.g., Project Economics, Designing and Constructing the Project), eight written assignments (e.g., Letter of Intent, Construction Loan Agreement), and six in-class exercises (e.g., Mock Negotiation of Provisions of Land Contract, Mock City Council Meeting), as well as a set of supplemental course materials, all closely integrated with the text. The result is the foundation for an outstanding class that teaches not only the substance of real estate law, but also a great deal about the practice of law generally that is of great value even to students who will never work with real estate after graduation.
Stephanie Renee Hoffer (w/Peter Postlewaite), International Taxation, Corporate and Individual (6th Ed.) (Car. Acad. Press 2011).
The latest edition of this handsome, leading two-volume treatise in a constantly evolving field maintains its currency as well as the other features that have made it a go-to resource in the area: clear and comprehensible writing, thoughtful, accurate and complete coverage, and valuable footnotes to deeper treatments of particular issues.
Daniel P. Tokaji (w/Daniel Hays Lowenstein & Richard L. Hasen), 2011 Supplement to Election Law, Cases and Materials (4th Ed. Carolina Academic Press).
Daniel P. Tokaji (w/Daniel Hays Lowenstein & Richard L. Hasen), 2011 Supplement to Election Law, Cases and Materials (4th Ed. Carolina Academic Press). This is the third annual supplement to Dan and his co-authors supplement to the current edition of their leading casebook, and it is up to 150 pages, reflecting the consistent activity in this burgeoning field. This supplement contains new material on gerrymandering, post-election lawsuits and public financing of elections, including reference to several recent articles by Moritz faculty, reflecting the College’s great strength in this area.
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