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Current Print Edition

Volume 8, Issue 1 (2018)

The fourteenth issue of the Michigan Business & Entrepreneurial Law Review has been published! Our subscribers will find the following works inside.

8 Mich. Bus. & Entrepreneurial L. Rev. ___ (2018)

Published: Fall 2018

Articles

Kenneth McNeil & Keith Johnson, The Elephant in the Room: Helping Delaware Courts Develop Law to End Systemic Short-Term Bias in Corporate Decision-Making

Abstract: Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors dearly as well. This corporate short-termism mindset is even more troubling given that at least half of the value of the companies in the S&P 1500 is generated by expectations for realization of future value. Long-term investors therefore face a long-term expectations pipeline of hoped-for returns without a plan by corporations to back it up. The tragic result: this short-termism mindset appears to have a substantial depressing impact on long-term market returns while increasing long-term risk exposure. Both have contributed to the significantly underfunded status of many pension funds today.

Delaware courts, the primary referees of corporate director fiduciary duties in the United States, are so frustrated with the persistent effects of short-term pressures—including corporate fraud and compliance breaches—that they are actively encouraging investors to bring the right cases to help change the rules. This Article examines the effects of short-termism and the Delaware judiciary’s responses to it. It then shows how existing Delaware law could be extended to address the underlying causes of corporate short-term bias, rather than merely imposing punishment on the symptoms.

Eugene McCarthy, The Pharma Barons: Corporate Law’s Dangerous New Race to the Bottom in the Pharmaceutical Industry

Abstract: In this Article, I argue that drug companies have created a highly profitable but dangerous business model by employing the same legal tactics as the nineteenth-century “robber barons,” the group of financiers who orchestrated corporate law’s infamous race to the bottom. Like these historical financiers, drug company executives have captured the legal apparatus and regulatory bodies that oversee them. In so doing, they have transformed the law from a system of governance into a set of enabling doctrines. The pharmaceutical industry has turned legislation intended to protect the public into a legal justification for marketing ineffective and unsafe prescription drugs. Like the nineteenth-century robber barons who transformed American corporate law into a tool for maximizing wealth and limiting liability, modern-day “pharma barons” have corrupted the laws that govern the pharmaceutical industry. The law now operates in the service of the pharma barons and allows them to profit at the public’s expense.

Comments

Ryan Clements, Assessing the Evolution of Cryptocurrency: Demand Factors, Latent Value, and Regulatory Developments

Abstract: The purpose of this Comment is to analyze the roots of this fervor— including that which drove Bitcoin’s initial demand surge—and investigate whether cryptocurrency can survive a market bubble that experienced a significant correction in 2018.

Mikovhe Maphiri, The Suitability of South Africa’s Business Rescue Procedure in the Reorganization of Small-to-Medium-Sized Enterprises: Lessons from Chapter 11 of the United States Bankruptcy Code.

Abstract: South African small- to medium-sized enterprises (“SMEs”) are the bread and butter of our economy. Providing much-needed employment and developing the skills of historically disadvantaged persons formally and informally are some of the most significant benefits of SMEs in a developing country such as South Africa. However, despite these significant contributions to the socioeconomic development of the country, SMEs generally have the lowest survival rates in the world as compared to large enterprises globally, resulting in high rates of business failure and the loss of jobs which these entities create. The Companies Act of 2008 replaces the previous judicial management corporate reorganization procedure for companies in South Africa with the new business rescue model and a compromise between a company and its creditors. Business rescue provides companies in financial distress with the opportunity to reorganize, strategize, and devise reorganization measures that are useful, efficient, and capable of yielding a better return for creditors than liquidation. This Comment comparatively analyzes whether the South African corporate rescue systems, past and present, have developed in line with the needs and interests of South African SMEs in a manner that is efficient and sensitive to the inherent weakness of our economy and the distinctive needs of SMEs in a developing country such as South Africa.

Notes

Manas Kumar, The Persistent Appeal of S Corporations: How Tax Cuts Might Not Help Small Corporations

Abstract: This Note will first review the tax preferences for entity choice under the old tax regime for the sake of context. It will then compare the tax benefits of electing to C and S corporation status under the regime created by the Act. The Note will conclude with an analysis of the factors sustaining the tax appeal of pass-through firms for lower-earning businesses with special attention to the largely unaltered state of tax law and business entity choice. It proposes that the Act did not sufficiently reform the Internal Revenue Code to close up the tax advantage that high-earning corporations incur with a Subchapter S election.

Dustin Womack, Solely Beneficial: How Benefit Corporations May Change the Duty of Care Analysis for Traditional Corporate Directors in Delaware

Abstract: Rather than adding to the voluminous literature assessing the necessity of benefit corporations themselves or the possible liability of their directors, this Note concerns itself only with how benefit corporations will impact the fiduciary duty of care analysis for the directors of traditional corporations constituted in the state of Delaware. Further, this Note is only concerned with liability arising from claims alleging that a day-to-day directorial decision resulted in a breach of the duty of care. As such, this Note does not address any other potential liability predicated on other situations or duties. Finally, this Note provides general background information about the relevant legal issues discussed, but it assumes that the reader has a working familiarity with the general features of a corporate entity and the mechanics of how litigation might be brought against it.

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