Governing the Modern Corporation
Welcome to my upper level Business Organizations course.
This course provides an introduction to the basic elements of U.S. corporate governance, with a focus upon Delaware corporate law. We will also reflect, from time to time, on other areas of U.S. law related to corporate governance and on corporate governance in other jurisdictions around the globe. This course is designed to familiarize you with not only the fundamentals of U.S. corporate law but also the important policy debates that shape the law’s development. Although much of our attention will be paid mastering cases, statutes, etc., we will also spend some time reflecting on what the goals of corporate law are (or should be) and whether the law is meeting those goals. This policy perspective is critical for effective lawyering because (1) it provides a standard intellectual framework that lawyers use routinely to make sense of developments in the law and (2) often clients present issues that require innovative solutions, not just application of settled law, in which cases understanding the principles behind the law will be a necessary condition for success.
Students who successfully complete this course will be able to:
Compare and contrast the distinctive features of the modern corporation and other forms of business associations.
Interpret and analyze business association statutes.
Examine the effects of limited liability on investors and on society as a whole.
Classify various factual scenarios according to the doctrines of fiduciary law.
Create and evaluate the governing documents of a business organization.
Build intuition with respect to policy arguments relating to corporate law.
The final grade in this course will be based primarily on an electronic take-home essay examination. The take-home exam will be a 3-hour essay and short answer exam available on every day of the exam period.
Classroom Participation and Dynamics
The practice of law remains an in-person, oral experience in many respects. Boards of directors bring in counsel to consult with them during a board meeting. Lawyers appear before a judge to argue a motion. A judge consults with her clerks in chambers to work through a difficult issue. A partner meets with her team to discuss ways to structure a transaction. These are all situations where an attorney must participate in legal analysis orally, and one is often put on the spot to answer a tricky question. Our classroom -- even an attenuated one during the Covid-19 pandemic -- provides a way for us to simulate these discussions in a safe environment.
For that simulation to be meaningful, it has to be (1) rigorous and (2) shared. Part of the professor’s job is ensuring the rigor. But the burden of making our class a shared experience largely falls on the students’ shoulders. Therefore, it is not enough for you only to be physically present in class. You have to be an active participant, engaged in our discussions on a daily basis. Engagement involves: (1) preparing for class by reading the assigned materials and formulating comments/questions; (2) answering and asking questions during class time; and (3) discussing concepts in your assigned small groups when the opportunity arises. In-class small groups will be used throughout the semester as a method for consolidating student learning after key issues are introduced and discussed. There will be no direct assessment of small group participation, but those who actively contribute to their groups will likely find that they will be more prepared when called upon in class.
In accordance with the Law School’s Policies and Procedures, and particularly those relating to Covid-19, students with irregular attendance and/or poor participation may earn themselves a reduction in their final grade for the class.
You are welcome to use whatever technology you would like to take notes and participate in class. I will simply note that a growing body of research suggests that, for median learners, handwriting notes is often more effective than taking notes on a laptop. However, I leave it up to you to take notes and study how you see best.
In the event that we hold class on Zoom, you're encouraged to turn your camera on to give us all a sense of community. I realize, however, that circumstances certainly arise when a student may find it best to keep their camera off. Also, if you are not participating in a class discussion, please mute your microphone.
Important University Policies
While COVID-19 conditions persist and until further notice, students and faculty are required to wear masks at all times during class; faculty are not at liberty to waive this expectation. Students who feel sick, including exhibiting symptoms commonly associated with COVID-19 (fever; cough; shortness of breath/difficulty breathing; chills; muscle pain; sore throat; new loss of taste or smell; etc.) should not attend class and should work with their instructor to develop a study plan for the duration of the illness.
Preventing Sexual Harassment
In accordance with Title IX of the Education Amendments of 1972, Brigham Young University prohibits unlawful sex discrimination against any participant in its education programs or activities. The university also prohibits sexual harassment-including sexual violence-committed by or against students, university employees, and visitors to campus. As outlined in university policy, sexual harassment, dating violence, domestic violence, sexual assault, and stalking are considered forms of "Sexual Misconduct" prohibited by the university.
University policy requires all university employees in a teaching, managerial, or supervisory role to report all incidents of Sexual Misconduct that come to their attention in any way, including but not limited to face-to-face conversations, a written class assignment or paper, class discussion, email, text, or social media post. Incidents of Sexual Misconduct should be reported to the Title IX Coordinator at email@example.com or (801) 422-8692. Reports may also be submitted through EthicsPoint at https://titleix.byu.edu/report or 1-888-238-1062 (24-hours a day).
BYU offers confidential resources for those affected by Sexual Misconduct, including the university's Victim Advocate, as well as a number of non-confidential resources and services that may be helpful. Additional information about Title IX, the university's Sexual Misconduct Policy, reporting requirements, and resources can be found at http://titleix.byu.edu or by contacting the university's Title IX Coordinator.
Students with Disabilities
Brigham Young University is committed to providing a working and learning atmosphere that reasonably accommodates qualified persons with disabilities. If you have any disability which may impair your ability to complete this course successfully, please contact the University Accessibility Center (UAC), 2170 WSC or 422-2767. Reasonable academic accommodations are reviewed for all students who have qualified, documented disabilities. The UAC can also assess students for learning, attention, and emotional concerns. Services are coordinated with the student and instructor by the UAC. If you need assistance or if you feel you have been unlawfully discriminated against on the basis of disability, you may seek resolution through established grievance policy and procedures by contacting the Equal Employment Office at 422-5895, D-285 ASB.
Mental health concerns and stressful life events can affect students’ academic performance and quality of life. BYU Counseling and Psychological Services (CAPS, 1500 WSC, 801-422-3035, caps.byu.edu) provides individual, couples, and group counseling, as well as stress management services. These services are confidential and are provided by the university at no cost for full-time students. For general information please visit https://caps.byu.edu; for more immediate concerns please visit http://help.byu.edu.
To facilitate productive and open discussions about sensitive topics about which there are differing opinions, members of the BYU community should: (1) Remember that we are each responsible for enabling a productive, respectful dialogue. (2)To enable time for everyone to speak, strive to be concise with your thoughts. (3) Respect all speakers by listening actively. (4) Treat others with the respect that you would like them to treat you with, regardless of your differences. (5) Do not interrupt others. (6) Always try to understand what is being said before you respond. (7) Ask for clarification instead of making assumptions. (8) When countering an idea, or making one initially, demonstrate that you are listening to what is being said by others. Try to validate other positions as you assert your own, which aids in dialogue, versus attack. (9) Under no circumstances should an argument continue out of the classroom when someone does not want it to. Extending these conversations beyond class can be productive, but we must agree to do so respectfully, ethically, and with attention to individuals' requests for confidentiality and discretion. (10) Remember that exposing yourself to different perspectives helps you to evaluate your own beliefs more clearly and learn new information. (11) Remember that just because you do not agree with a person's statements, it does not mean that you cannot get along with that person. (12) Speak with your professor privately if you feel that the classroom environment has become hostile, biased, or intimidating. Adapted from the Deliberation Guidelines published by The Center for Democratic Deliberation. (http://cdd.la.psu.edu/education/The%20CDD%20Deliberation%20Guidelines.pdf/view?searchterm=deliberation%20guidelines)
Our casebook for this class is Holger Spamann's Corporations (2d edition 2019). This casebook is hosted electronically and accessible free of charge on Harvard's H2O platform. If you'd like a hard copy, you can purchase one for $30 on Amazon.
The foundation for Delaware corporate law, which is the system that governs either directly or indirectly most U.S. corporations, is a statute called the Delaware General Corporation Law ("DGCL"). We will refer to it and a few other statutes frequently. The DGCL is available on legal research databases, such as Westlaw, and is publicly available here. If you'd like a hard copy statutory supplement, one for Professor Spamann's casebook is available for $10 on Amazon. Finally, Professor Spamann has also posted simplified versions of the DGCL and other relevant statutes, which the course will refer to regularly and you might consult more generally as learning aids.
Students often ask for reference books to help them with difficult concepts. Some good options include Spamann, Hirst & Rauterberg's Corporations in 100 Pages and Stephen Bainbridge's Corporate Law.
August 23, 2021 | Introduction: See class details below for reading materials.
August 25, 2021 | Introduction: Spamann Chapter 1.
August 30, 2021 | Class is cancelled.
September 1, 2021 | Introduction: Spamann Chapter 1.
September 6, 2021 | Labor Day Holiday.
September 8, 2021 | Introduction: See class details below for reading materials.
September 13, 2021 | The Statutory Foundation of the Corporate Form: Spamann Chapter 2 and see below for additional reading materials.
September 15, 2021 | Shareholder Democracy: Spamann Chapter 3
September 20, 2021 | Shareholder Democracy: Spamann Chapter 3
September 22, 2021 | The Duty of Loyalty: Spamann Chapter 4
September 27, 2021 | Class Cancelled
September 29, 2021 | Class Cancelled
October 11, 2021 | The Duty of Loyalty: Spamann Chapter 4
October 13, 2021 | The Duty of Care: Spamann Chapter 5
October 18, 2021 | The Duty of Care: Spamann Chapter 5
October 20, 2021 | Shareholder Litigation: Spamann Chapter 6
October 25, 2021 | Shareholder Litigation: Spamann Chapter 6
October 27, 2021 | Introduction to M&A: Spamann Chapter 7
November 1, 2021 | Class Cancelled
November 3, 2021 | Controlling Stockholders in M&A: Spamann Chapter 8.1
November 8, 2021 | Controlling Stockholders In M&A: Spamann Chapter 8.1
November 10, 2021 | Takeover Defenses: Spamann Chapter 9.1 - 9.3
November 15, 2021 | Takeover Defenses: Spamann Chapter 9.1 - 9.3
November 17, 2021 | Securities Trading: Spamann Chapter 10
November 22, 2021 | Class Cancelled
November 29, 2021 | Creditors: Spamann Chapter 11.1
December 1, 2021 | The Corporation's Role In Society: Spamann Chapter 12.2
August 23, 2021 | Orientation to the Elements of Corporate Law
In this class, we are going to discuss at a conceptual level the primary problems that afflict the governance of the modern corporation and the key legal tools we use to address those problems. One of the key lessons of today's conceptual introduction is that corporate governance is best thought of as a system of institutions and actors. Legislation and court decisions are not the only thing that matters in this course. In that respect, corporate governance really isn't different from other areas of law. But we are a little more explicit about the systemic characteristics of the enterprise in the Business Organizations class.
Today's discussion is also going to introduce us to the primary lens we use to understand corporate law: Financial economics. Our use of financial economics will be entirely conceptual -- we will use ideas from financial economics but not explore the mathematical models that are now commonly used to understand economic behavior. The goal here is to give you functional literacy in the lingua franca of corporate governance.
Finally, today's discussion will also introduce the comparative aspect of this course. The corporate form is used to organize economic activity around the world, but jurisdictions vary in the details of how they govern corporations. We can learn a lot about our own system here by considering alternatives.
August 25 and September 1, 2021 | The Strategic Perspective in Corporate Law
This class builds a connection between the prior class's conceptual introduction and the details of running a business. We review some of the basic characteristics of the modern corporation, and we learn some of the nuts and bolts of corporate governance. There is, however, a much more important lesson in today's readings, which can be easy to miss. The materials for today put strategy at the heart of our course. Strategy's central role is implicit in the simple pizza shop counseling exercise in today's materials, where you're asked to counsel a client considering different options for their business.
Of course, in a fundamental sense, the strategic perspective emphasized here is no different than any of your other law school classes. Throughout your law school experience, you've often been asked to simulate counseling a client who is in the process of making a decision. Maybe they are trying to make a choice about how to improve a piece of real property, trying to stop harassment they are experiencing at the workplace, trying to change gerrymandered district boundaries, or whatever. In all of these situations, your client is engaged in strategy, which we can define simply as creating and executing a plan for achieving a goal. Most of the time, we rely upon common sense and students' life experiences to fill in the details of those strategic choices. In this class, however, we are going to approach the strategic environment more systematically.
Directors and executives who make strategic choices for modern corporations are (usually) highly disciplined in their decision making. They don't just "wing it." Their primary (though not exclusive) framework in that decision-making process is a set of tools we call Corporate Finance. The tools of corporate finance are useful for strategic decision-making, because they provide a way to value the different options that are being considered.
We cannot understand corporate strategy -- and, in turn, accurately advise our clients -- without grasping how those tools are used. So, today's materials introduce us to some of the basic ideas and vocabulary of corporate finance. For many law students, this is very challenging, so you should not feel discouraged if the readings today were rough going. You're just experiencing the usual discomfort that comes with learning a new language, and please trust that you'll master it in time -- Wall Street is full of liberal arts majors who have learned these principles. Many of you will also find that, once you get your feet on the ground, these broader intellectual demands of corporate practice are a source of personal and professional reward.
September 8, 2021 | The Origins of the Modern Corporation and Its Alternatives
Today, we explore the question of where the modern corporation came from. We do so by introducing you to the work of Ron Harris, a preeminent legal historian in this area. Part of the reason to invite you to think about the historical origins of the corporate form is to help you build a theory of how corporate law evolves today. The legal institutions in our era are hardly static, after all. An important part of our class is thinking about what changes to law and economic organization should be made, and so understanding prior developments is useful.
A historical perspective is also a convenient way to think about alternatives to the corporate form. In short, it invites us to ask the question, Are there different ways of doing things? We know, of course, from prior days' readings, that there are other ways of organizing productive activity. Most simply, we could just organize everything through contracts. Furthermore, if we do allow for the creation of a business entity, it does not have to be the corporation as we now know it in the United States. Other jurisdictions, for instance, have analogues to the U.S. corporation that nevertheless have some different characteristics. Most importantly for us, there is also a diversity of business entities within the U.S. system. One can, for instance, organize economic activity through age-old forms such as sole proprietorships and general partnerships. More recently, limited partnerships, limited liability companies, and benefit corporations have become available. Today's class introduces us to these alternatives and gives us a framework for thinking about how this collection of legal institutions should evolve into the future.
Materials for Class Discussion:
September 13, 2021 | The Statutory Foundation of the Corporate Form
As you have probably learned by now, the business organizations course is a highly conceptual class. The advantage of the conceptual approach is that it gives the students a framework to understand corporate governance in a wide range of settings. And as you can see already, there are so many settings in which the corporate form is deployed that teaching you about each one in serial fashion would take years. Expedience demands that we approach this subject conceptually.
The disadvantage of the conceptual approach is that we can sometimes lose the trees for the forest, to invert the old turn of phrase. Today's class hopes to avoid that by providing a moment of consolidation within the broader conceptual introduction we've been undertaking. We work through some of the details of forming and governing a corporation. This will of course introduce you to some new ideas and rules, like every day of the class. But it also gives us a chance to ask questions and make sure we're on the same page before pushing forward to the next part of the course.
Materials for Class Discussion:
September 15 and 20, 2021 | The Basics of Corporate Democracy
In today's class, we begin our exploration of two primary tools stockholders have to discipline the board of directors: (1) stockholder voting; and (2) fiduciary duties. We will also mention a third tool, which we'll largely defer until later in the course. Can you intuit what that third tool might be? You may recall Albert Hirschman's classic description of strategies consumers (or, here, stockholders) have to address the deterioration in a company's performance: Exit, Voice, and Loyalty. What might "exit" be in the context of corporate governance?
In any event, our focus in today's class is on the the stockholder vote. We introduce the basic ground rules for stockholder voting, discuss the practical realities of voting, and then examine the foundational caselaw that is meant to protect the integrity of the vote. As we go, you'll see instances where our form of "corporate democracy" differs in fundamental respects to the political democracy we experience in the U.S. You might ask yourself how those differences lead to different costs and benefits.
Materials for Class Discussion:
JP Morgan Chase Schedule 14A (Mar. 31, 2008) -- Scroll down to bottom of the filing to see an example of a proxy card
Leo E. Strine, Jr., If Corporate Action Is Lawful, Presumably There Are Circumstances in Which It Is Equitable to Take That Action: The Implicit Corollary to the Rule of Schnell v. Chris-Craft, 60 Business Lawyer 877 (2005) (jstor).
September 22 and October 11, 2021 | Introduction to Fiduciary Duties and the Duty of Loyalty
In these classes we begin introducing you to the foundational fiduciary duties in Delaware law. We begin with an exploration of what conflicts of interest, or "self-dealing," are and how the duty of loyalty is meant to address them. This discussion takes us through classic cases, such as Meinhard v. Salmon, Guth v. Loft, and Sinclair Oil. As we proceed through these materials, be sure to focus on what facts matter most to these opinions. Corporate governance disputes are typically highly fact-specific, unsurprising given the contextual inquiry that the equitable standards of corporate law invite, and a key task for the student is to begin appreciating which of the many facts presented in an opinion are crucial. Also, as we go through these materials, ask yourself how the fiduciary duties we study interact with the principles of shareholder democracy discussed the prior week.
October 13 and 18, 2021 | The Duty of Care
In these classes, students are introduced to the duty of care, primarily through the classic case Smith v. Van Gorkum. We study the rationale behind Van Gorkum and the Delaware legislature's response shortly after the case was decided. We then turn to oversight liability and boards' obligation to act in good faith. These discussions help fill out our understanding of the duties to which boards are subject, and they also set the stage for a debate we will explore later in class about the proper scope of the modern corporation's purpose and how corporate law should police that scope.
Spamann, Chapter 5
October 20 and 25, 2021 | Shareholder Litigation
Having familiarized you with the basic structure of corporate fiduciary duties, we now turn to the key details of how shareholder litigation enforces those duties. Procedural nuances are commonplace in the law, but in corporate fiduciary duties the procedural landscape is particularly complex. Stockholder lawsuits have two basic routes: The direct action or the derivative action. These classes introduce these two courses and the requirements that must be satisfied for a lawsuit to be successful.
Spamann, Chapter 6
Pages 45-50 of the United Foods decision
Today's Slides: Shareholder Litigation
October 27, 2021 | Introduction to M&A
In today's class, we cover the basic characteristics of the M&A market and the legal infrastructure that supports it. We also introduce Delaware's doctrine of independent legal significance, which helps maintain the multiple distinct ways for acquisitions to be structured. This entire discussion sets the stage for subsequent classes that explore particular fiduciary duty issues that arise in the M&A context.
Spamann Chapter 7
Slides: Introduction to M&A
November 3 and 8, 2021 | Freeze Outs
In these classes, we consider a unique situation that arises from time to time in M&A deal: A controlling shareholder who "freezes out" or "squeezes out" the minority stockholders in an M&A transaction that benefits the controller but not the minority. These deals are a form of "minority oppression" and historically have warranted the highest standard of review in the Delaware fiduciary duty law: Entire Fairness. As we will see, however, the Delaware courts have recently provided a path for controlling stockholders to avoid entire fairness review so long as they put in place certain procedural protections that address the loyalty concerns in these types of transactions.
Spamann Chapter 8.1
Corporate Law Oral Histories Project at Univ. of Penn. Institute for Law & Economics:
For our discussion of fiduciary duty waivers in the LLC context: Delaware Limited Liability Company Act
November 10 and 15, 2021 | Defensive Measures in Hostile M&A Transactions
In these classes, we introduce students to a particularly thorny issue in corporate law: Whether a company's board of directors can adopt certain "defensive measures," such a "poison pill," to defend a company from an unsolicited buyer. We'll explore this issue in three classic cases from the 1980s -- Unocal, Moran, and Revlon -- where the typical situation involved a corporate raider attempting a hostile takeover of a company through a tender offer to the target's shareholders. The Revlon case also asks us to think about the board's duties when it shifts from defending the company from an unwanted bidder to selling the company.
Spamann Chapter 9 (only 9.1-9.3)
Slides: Defensive Measures In M&A
Corporate Law Oral Histories Project at Univ. of Penn. Institute for Law & Economics:
Kai Liekefett, The Comeback of Hostile Takeovers (2020)
November 17, 2021 | Regulating the Capital Markets
In this module, we briefly introduce students to some of the key policy issues in and doctrines for regulating the U.S. securities markets. Particular focus is given to connecting these rules to the corporate governance issues we've been exploring in the class to date. A basic introduction to securities fraud and insider trading is provided, as a launchpad for the more detailed analyses undertaken in the federal securities regulation course.
Spamann Chapter 10
Slides: Regulating the Capital Markets
November 29, 2021 | Protections for Creditors
In this class we consider what protections corporate law provides creditors in the event a company becomes insolvent. This provides a context to revisit a question that has arisen from time to time in this course: For whom in the corporation managed -- solely for shareholders or for a broader range of stakeholders?
Spamann Chapter 11.1
Slides: Protections for Creditors
December 1, 2021 | The Role of the Corporation in Society
In our final class of the semester we focus upon the seminal Citizens United case and reflect upon the nature of the corporation, such as whether it is more accurately considered an association of individuals or an entity unto itself. This also provides us with an opportunity to debate the role of the corporation in society.
Spamann Chapter 12.2
Below are four exams from the prior years that I taught the business organizations class. Please note that I used a different casebook the first two years, which led to some issues being emphasized more than what we covered in this class. For instance, we spent more time discussing the governance of alternative entities than we did this year. I think the 2016 and 2020 exams give you the best sense of what the exam will be like this year -- a single essay question and a couple of short answer questions.
As in previous years, this exam will be a three-hour open-book "take home" exam in the sense that you'll be able to check the exam out electronically any time between the start and end of the exam period. Further details, including measures to ensure academic honesty, will be circulated to the class toward the close of November.