Some aspects of the American legal tradition are drawn from other nations and societies, but many are distinctive. It is difficult in a short introductory course of this nature to select from among many important themes, or to delve into those themes in serious depth. Our primary emphasis will be on the American system of government as it affects the development of law, as well as on the procedure and structure of the civil litigation process. It is through the machinery of adjudication that the American legal system can be best understood. We will, therefore, study the jurisdiction and makeup of American courts. We will trace the major stages of a lawsuit in the United States. In the process we will learn about the structure of the American Constitution, about the role of judges and lawyers and about the adversary system – as well as about Alternative Dispute Resolution, the fastest-growing method of case disposition in the United States. Although our emphasis will be on civil procedure, we will be able to compare it with the American criminal and administrative justice systems in the United States. In other words, we will touch upon many of the major strands of American law in a general way. But we will look at civil litigation in some depth.
Much of the work of the contemporary business lawyer involves structuring and executing deals. Although transactions vary in their details, most deals involve similar impediments to transacting. Accordingly, this short course explores three categories of issues that commonly arise in sophisticated business transactions. First, asymmetric information can discourage parties from entering into what would be value-increasing exchanges. For example, the seller of an asset almost always has better information about it than the buyer does. This reality — combined with the fact that the seller is willing to sell — can cause buyers to be skeptical about the asset’s quality, and might even persuade them not to purchase it. A central responsibility of transactional lawyers is to help overcome the challenge presented by asymmetric information. They do so with a range of contractual and organizational responses, such as due diligence, vouching by third parties, etc.
Second, incentive problems can prevent parties from coming together to work cooperatively on valuable projects. For example, potential partners have an incentive to present themselves as hard working and highly valuable while in negotiations, but to shirk their duties once an agreement is signed, especially if their share of profits is fixed and predetermined. Another important responsibility of business lawyers is to help restrain incentive problems, which they also do through a range of techniques, such as guarantees, contingent payments, etc.
Third, legal and regulatory regimes are imperfectly drafted and conceptualized, so that economically similar arrangements are sometimes treated differently. These differences create possibilities for legal planning, so that a change in the way a transaction is structured can yield dramatically better (or worse) treatment for the parties. More generally, sophisticated transactional lawyers must help their clients navigate regulatory hurdles, and the nature of the relevant regulations – and the parties’ responses to them – can determine whether a potentially promising deal succeeds or fails.
This course develops these three themes (asymmetric information, incentive problems and inconsistent regulations) in various settings, including acquisitions, venture capital, derivative securities, and tax planning. For example, we will consider various mechanisms to bridge information problems in acquisitions, and will use venture capital funds and their market practices as examples of contractual and organizational mechanisms that deal with incentive issues. As an example of regulatory planning, we will explore selected examples involving U.S. tax rules. These various examples will expose students to a survey of selected cutting edge issues in a sophisticated transactional practice.
In this course we will consider the law of corporations and corporate governance in the United States—that is, the rules that govern the control of business enterprises under American law. We begin with basic background in U.S. corporate law, including why economic actors use corporations to pursue business affairs, how the separation of ownership and control of the corporation gives rise to agency costs, how shareholder voting to elect the corporation’s directors influences those costs, and the fiduciary duties of directors under Delaware law, the dominant source of state corporate law in the United States.
We will then turn to corporate governance, beginning with perhaps the most controversial issue in that area today: executive pay. Then, we will consider an alternative form of governance, and the one that many believe is the most important source of constraints upon senior corporate managers—mergers and acquisitions. After examining the typical structure and regulation of those transactions under Delaware law, we will then introduce contests for corporate control and Delaware law governing takeover defenses, before turning to the private-law innovation that now dominates contests for control in the United States: the poison pill. Then we will consider the role of directors’ fiduciary duties as the sale of the corporation becomes increasingly likely. Finally, we will conclude our work by turning to the acquisition of control through proxy fights, the escalating takeover arms race in the United States, and several important recent developments that will shape the future law of mergers and acquisitions in the United States.