All posts tagged: Business Law

The Life (and Death?) of Corporate Waste

At first glance, corporate law’s waste doctrine makes little sense. The classic definition of waste—a transaction “for consideration so disproportionately small as to lie beyond the range at which any reasonable person might be willing to trade,” an act equivalent to “gift” or “spoliation” of corporate assets—suggests that waste should never arise, for what corporation would ever enter into a transaction so absurd, absent self-dealing or gross negligence? Yet waste claims are regularly made. The conventional wisdom is that waste claims never succeed; but empirical studies show that’s wrong, and some of the most significant corporate law cases of the last two decades have dealt with waste. Respected judges have called for the doctrine’s abolition, referring to it as a “vestige” and memorably deriding it as the mythical “Loch Ness Monster” of corporate law; still, waste survives. It is a remnant of ultra vires, a doctrine proclaimed dead for over a hundred years—but waste is not dead. It confounds our model of managerial responsibility; after decades in which discussion of directors’ and officers’ duties have …

Professor Jonathan Lipson – Making America Worse: Jobs and Money at Trump Casinos, 1997-2010

Professor Jonathan Lipson’s working paper, Making America Worse: Jobs and Money at Trump Casinos, 1997-2010, caused enough of a stir when it was released in late September to earn a spot on the Clinton campaign’s website. Since then, the paper, which questions Donald Trump’s claim that his business success in creating jobs means that he can also create jobs as President, has become part of the national political discourse. Lipson has discussed his findings, and his theory that bankruptcy is the real model behind Mr. Trump’s presidential campaign, in a series of op-eds; his work has also inspired widespread discussion in a variety of noteworthy publications, which are listed below. About Professor Lipson Jonathan Lipson is a nationally recognized authority on corporate bankruptcy whose work is frequently cited by leading business courts, such as the Delaware Supreme Court, the Delaware Chancery Court, and the Bankruptcy Court for the Southern District of New York. He serves on the editorial boards of The Business Lawyer and The American Bankruptcy Law Journal. He has also served as an expert in complex reorganizations, including that of Enron Corp., and …

Financial Newspaper

The Pattern in Securitization and Executive Compensation: Evidence and Regulatory Implications

The Dodd-Frank financial reforms of 2010 promised to better align risk-reward incentives by, among other things, reducing imprudent securitization (i.e., sales of financial assets) and excessive executive compensation. This would, in turn, promote systemic stability. To assess whether Dodd-Frank’s elaborate rules on securitization and compensation are likely to achieve this goal, we explore the connection between the two empirically. Using a unique dataset covering 1993-2009 — the largest of its kind — we find that securitizing banks (regulated depositaries) on average paid their CEOs twice as much as non-securitizing banks, a finding that is both statistically and economically significant. By contrast, non-bank (industrial) firms that securitized actually paid their CEOs less than non-securitizers. Because securitizing banks performed no better than other firms (non-securitizing banks or industrials), we find evidence of agency cost; because bank-originated securitizations performed especially poorly in the financial crisis, we find evidence of social cost. Our findings have important implications for Dodd-Frank, because its rules on securitization and compensation fail to account for the incentive effects of securitization by banks. Its compensation …