In most countries large business enterprises today are organized as corporations. The corporation with its key attributes of independent personality, limited liability and free tradeability of shares has played a key role in most developed market economies since the 19th century and has made major inroads in emerging markets. We suggest that the resilience of the corporate form is a function of the adaptability of the legal framework to a changing environment. We analyze a country's capacity to innovate using the rate of statutory legal change, the flexibility of corporate law, and institutional change as indicators. Our findings suggest that origin countries are more innovative than transplant countries.

Corporate law as it exists in any given country today is the result of roughly 200 years of legal change and legal adaptation. Provisions that today are hailed as indicators for good corporate governance did not exist when the first statutory corporate laws were put in place. This simple insight raises the question about the evolution of corporate law. In this paper we analyze ten jurisdictions representing the three major legal families as well as transplant countries and origin countries to explore the patterns of legal change over time. We find origin countries from common law and civil law families have experienced substantial legal change and adaptation over time. By contrast, legal transplants from both legal families have often retained the transplanted law for decades despite substantial economic change. The area of corporate law where we find the most significant change over time are corporate finance provisions. Provisions concerning corporate governance structures and entry and exit rules are also investigated.

Times of heightened risk to the physical safety of their citizens inevitably cause democracies to recalibrate their institutions and processes, and to re-interpret existing legal norms, with greater emphasis on security, and less on individual liberty, than in "normal" times. This article explores the ways in which the American courts have responded to the tension between civil liberties and national security in times of crises. This history illustrates that courts have rejected both of the two polar positions that characterize public discourse on these issues. Civil libertarians argue that political bodies are too easily gripped by passions, hysteria, and self-interest in these times, and that courts therefore ought to play a central role in protecting liberty. Executive unilateralists argue that the qualities that uniquely characterize the executive branch, such as decisiveness, access to information, and efficiency, must become so dominant in these moments that few checks if any should constrain executive prerogatives. Oddly, civil libertarians and executive unilateralists find implicit consensus in the view that, in times of war, courts have tended not to play a significant role in overseeing executive power. We argue to the contrary: historically, a significant constitutional tradition of judicial scrutiny in this country during times of war does exist. But this scrutiny does not take the form of courts making first-order substantive judgments about the content of liberty or other claimed constitutional rights. Nor does it take the form of judicial assessment of how significant or credible the national security claims of the executive branch might be. Instead, judicial oversight has been focused on preserving the institutional structures and processes through which decisionmaking on these issues takes place. The judicial role has centered on the second-order question of whether the right institutional processes have been used to make the decisions at issue, rather than on what the content of the underlying rights ought to be. This approach has historically rejected or resisted most claims of executive unilateralism. When courts have upheld the government's actions, they have done so only after a judgment that Congress as well as the executive has endorsed the action. This approach has also rejected the civil libertarian framework. When courts find bilateral institutional endorsement, they have typically accepted the joint political judgment of how liberty and security tradeoffs ought to be made. By focusing on congressional endorsement of emergency measures, the courts have created a broad-based political accountability for the actions taken in the name of national security. We suggest that even if congressional endorsement is more apparent than real in some of these contexts, the judicial maintenance of this structure of rhetorical justifications sustains desirable understandings of political structure. Because the president and congress draw from different political constituencies in a presidential rather than a parliamentary system, we also raise questions about whether the American judicial approach to these questions should be limited to political systems with separated executive and legislative powers.

Analysis of Japanese corporate law reveals a striking amount of formal institutional change in the past ten years, occurring at an ever-accelerating pace.  This feature of law reform can be traced to a heightened awareness of the organizational straightjacket imposed on Japanese firms by the Commercial Code, and to a more competitive and market-responsive environment for the production of corporate law.  It has been a "sea change decade" for Japanese corporate law. 

Yet it has been an ambiguous decade for Japanese corporate practices.  Signs of change in response to the new institutional environment can be found in the areas of shareholder activism, corporate mergers and acquisitions and other organizational changes, board structure, and corporate finance.  At the same time, however, domestic institutional investors remain passive, management remains largely insulated from the market for corporate control, and "lifetime" employment practices, while covering a shrinking subset of the Japanese workforce, remain firmly in place.

This paper accounts for the observed pattern of change and non-change by analyzing the political economy of corporate law reform, the complementarities at work between corporate law and other institutions, and the relationship between corporate law and corporate governance.  Japanese corporate law has become more adaptable and responsive to "demand-side" impulses, but it also increasingly reflects the interests of Japanese management, an organized group potentially threatened by corporate law reform.  Without external pressures, Japanese managers are able to use the newfound flexibility of the corporate law to entrench themselves as well as to improve returns to shareholders.  Moreover, while the corporate law has improved, several complementary institutions needed to complete the institutional package are still incomplete.  Ultimately, corporate law bears only a limited relationship to corporate governance.  Changes in corporate practices are brought about by dynamics external to the formal corporate governance institutions.  Thus, the sea change in Japanese corporate governance must await further changes in the distribution of shareholders, in the capital markets, and in the incentive structures for management, and the further erosion of corporate norms that promote employee and managerial interests over shareholder interests.

The corporate opportunity doctrine—which operates as the principal device in U.S. law prohibiting corporate fiduciaries from diverting to their own benefit business prospects properly deemed corporate assets—often favors the development of disputed opportunities with an incumbent firm. After reframing the corporate opportunity doctrine as a "boundaries of the firm" problem, this paper demonstrates that the doctrine reflects the historical period of its development—the 1930s, when the large-scale, vertically integrated emerged as the dominant form of business organization—and reinforces, in potentially inefficient ways, this historically contingent vision of the firm. Using recent literature on the new economy and the network form of organization as a leading recent example, the paper then shows that firms are heterogeneous and evolve over time in ways that require a more flexible opportunities law. Finally, the paper suggests that alternative current legal doctrines—many of which did not exist or were incompletely elaborated when the corporate opportunity doctrine developed—now provide satisfactory substitute protection for the corporate interest in new opportunities. The Article thus concludes that repeal of the corporate opportunity doctrine, or (at a minimum) narrow judicial construction of existing doctrine, will maximize outcomes for corporations and their constituencies, including shareholders.

Securities markets have long employed Agatekeepers@ - - independent professions who pledge their reputational capital - - to protect dispersed investors. This strategy of relying on reputational intermediaries to assess, verify and certify the corporate issuer=s disclosures appears to have failed during the late 1990s, as accounting irregularities increased exponentially. Part I of this paper assesses the reasons for this failure, emphasizing both a shortfall in deterrence and the sudden shift from a cash-based to an equity-based system of executive compensation during the 1990s. Part II and III then survey the realistic regulatory options and the incomplete steps taken by the Sarbanes-Oxley Act. Breaking down these options into four categories - - structural rules, prophylactic rules, procedural rules, and liability-enhancing rules - -, Part III concludes that simply increasing the threat of liability could cause the market for gatekeeping services to fail. Instead, it proposes a shift towards stricter liability standards coupled with a ceiling on gatekeeper liability set at a level adequate to deter misconduct, but not to compensate investors. Finally, Part III proposes that the role of a new gatekeeper needs to be recognized and formalized: namely, the attorney who prepares a disclosure document, who should, it argues, be forced to provide a functionally parallel certification with regard to this issuer=s non-financial disclosures to the certification provided by the auditor with respect to financial disclosures. The feasibility and scope of such a certification requirement, along with its impact on the attorney=s other obligations to its client, are explored in Part III.

Published, Vol. 82 Tex. L. Rev., December 2003

How Juries Decide is a pathbreaking work of empirical scholarship based on experiments conducted with more than 8,000 jury-eligible citizens and more than 600 mock juries. Its basic premise—that cognitive flaws in human decisionmaking, especially those affecting the "translation" process by which moral judgments are transformed into dollar awards, lead to erratic and unprincipled punitive damages awards—has already had an important impact not only on scholarly literature but also on judicial decisionmaking in high profile suits. This Review offers a methodological, doctrinal, and institutional critique of this widely influential study, with particular emphasis on the discrepancies between the empirical data presented and the policy reforms advanced---which include, at the extreme, a call to banish the jury from punitive damages decisionmaking. The Review examines critically the authors' conclusions that jurors are "intuitive retributionists" and unable (or unwilling) to follow instructions based on the non-retributive optimal deterrence theory of punitive damages. More fundamentally, the Review challenges the authors' rigid separation between "retributive-based" punitive damages, which are linked to jurors' moral evaluations, from "remedial-based" compensatory damages (including pain and suffering), which are not. Although the authors fashion a seemingly narrowly tailored attack on jurors' assessments of punitive damages, in fact they raise fundamental questions about the civil jury system as a whole, questions that are in no relevant way confined to punitive damages. Conversely, to the extent that there is any non-retributive component to punitive damages, their attack upon the jury's ability to assess punitive damages might not be warranted across the board. What emerges is the distinct possibility that a system of non-retributive punitive damages might survive the authors' empirical challenges. Finally, How Juries Decide pays too little attention to institutional context and wholly overlooks potentially effective reforms within the existing jury system, such as those that take into account anchoring effects and regional differences among jurors—reforms that are clearly supported by their empirical findings.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=453240

It is well known that a large fraction of firms seeking to reorganize under the U.S. Bankruptcy Code will be liquidated instead, and that the liquidation decision will often be made by a bankruptcy judge.  Little is known, however, about the characteristics of optimal judicial decision-making in this context and whether the behavior of actual judges is consistent with these characteristics.  Despite the paucity of theory and evidence, it is widely suspected that judges are poor decision-makers who allow failing firms to linger under the protection of the court.  Drawing on optimal stopping theory, this study develops several new models of optimal judicial decision-making.  Each generates the same implications:  the probability (or hazard rate) of shutdown should be hump-shaped over time and decreasing in the uncertainty (or volatility) surrounding a firm's going-concern value.  These implications are tested against new data on decision-making by bankruptcy judges of the Northern District of Illinois, Eastern Division, a jurisdiction covering Chicago and outlying areas.  The data include all corporate Chapter 11 filings during 1998; the vast majority of filings involve small firms with fewer than 20 employees.  These data support the theory, and do not support conventional wisdom.  Judges rendered shutdown decisions in over 40 percent of the cases and their decision-making was consistent with the implications of the theoretical models.  This is shown using various empirical tests, including tabular comparisons and biostatistical duration models.  These findings, and the additional finding that shutdowns occur rapidly (over 70% of shutdowns occur within the first five months of a case), are surprising and suggest that the behavior of bankruptcy judges may resemble that of market actors.