Corporate Governance – Law and Business New York University Syllabus B65.3318.30/LAW-LW.10042.001

Corporate Governance – Law and Business
New York University
Term: Spring 2012
Dates: February 7- May 1
Meeting Times: Tuesday, 6:00- 9:00 pm
Classroom: Furman Hall 212
Professors: Karen Brenner/Helen Scott
Email: [email protected] / [email protected]
Offices: 40 West 4th Street, 429 / 40 Washington Square South, 338
Course Objectives:
This is a special full semester section of Corporate Governance including faculty and students from both
the Stern School of Business and the NYU School of Law. The objective is to facilitate professional
interaction and joint work between students from both schools.
The emphasis in this course is on the interdisciplinary legal and business aspects of corporate
governance. The dominance of the corporation in the modern economy has brought enormous
challenges for civil society and for the boards of directors charged with overseeing the corporation’s
affairs. The purpose of this course is to examine the evolution of US corporate governance standards;
the structure, makeup, priorities and culture of boards; shareholder and stakeholder engagement,
including shareholder activism; international comparative corporate governance standards; corporate
social responsibility; governance crises and reputational risk management; agency and compensation
issues and other current topics in corporate governance.
Course Description:
This course focuses primarily on for-profit, publicly traded corporations. Students are challenged to
understand the system and structure in which corporations function and to think critically about the
framework for effective corporate governance. This will include an understanding of the structural
relationships determining authority and responsibility for the corporation and their associated
complexities. Students will be assigned foundational readings and cases associated with each topic and
will be asked to examine issues from both legal and business perspectives.
Readings are available as follows:
Course Blackboard (BB) site under “Course Documents”
Course Pack which may be purchased at the NYU Bookstore (726 Broadway)
The weights for the student’s overall grade are:
Class participation
Four Short Papers
Team project/presentation
(No more than 35% of the students will receive a grade of A or A-)
Class participation:
Your obligation in this course is to prepare for class discussion by thorough reading and analysis of the
assigned material before each class. Readings and case discussions are an essential part of the course.
All students are responsible for being prepared to discuss all of the study questions before coming to
class. The instructor will ask students to present the assigned materials as a basis for discussion.
Short Papers:
Each student should prepare a written analysis of one study question from four different classes. The
course requirement is to complete four short papers during the semester. The papers must be
submitted on BB AND emailed to both instructors before the class addresses the topic in class. These
analyses should be 3-4 pages in length (typed and double-spaced). The papers will be evaluated based
upon the systematic and thorough application of the relevant concepts addressed in the readings. The
papers are due on or before Sessions 3, 6, 9, and 11.
Team Project/Presentation:
On the first day of class students will create teams to include students from both the law and business
schools. The teams will select a corporation that had a significant governance issue to study during the
course of the semester. This will be discussed in more detail the first day of class. Students should be
prepared to make a 20 minute presentation on their selected corporation by the end of the semester.
The presentation should integrate the themes addressed throughout the semester and include a
discussion of the relevant legal and business issues. The presentation should address not only the
situation as it existed but an analysis of alternative approaches that may have yielded a preferred result.
After the presentation, the team is expected to lead the class in a 10 minute discussion of the critical
issues involved in the case. The team is expected to submit a “hard copy” of the presentation to the
professors at the beginning of the discussion and each member of the team must submit a confidential
team evaluation at the conclusion of the presentation. Submitting this form is necessary to receiving a
grade on the presentation.
Session # 1-2
What is the evolution of U.S. corporate governance? ; In whose interest does the board of directors act?
Who is the shareholder?
Session # 1 Readings:
Overview of Significant Cases in U.S. Corporate Governance (These cases are to be presented by
law school student volunteers):
Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919).
o Note: Edited, but nearly complete opinion.
Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. Ct. 1968).
Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985).
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
Revlon, Inc. v. Macandrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).
Paramount Communications, Inc. v. Time, Inc., 571 A.2d 1140 (Del. 1989).
Caremark International Inc. Derivative Litigation, In re Caremark Int'l, 698 A.2d 959 (Del. Ch.
The Walt Disney Company Derivative Litigation, In re Walt Disney Co. Derivative Litig., 907 A.2d
693 (Del. Ch. 2005).
1. Why We Should Stop Teaching Dodge V. Ford, Lynn A. Stout, 3 Va. L. & Bus. Rev. 163 (2008)
2. Directors Who Do Not Direct, William O. Douglas, 47 Harvard Law Review 1305 (1934)
3. Report of the NYSE Commission on Corporate Governance, September 23, 2010
Questions Session # 1:
1. What are the significant findings of the cases and what are the implications for board conduct?
2. What were Douglas’ concerns regarding corporate governance and how to they
compare/contrast with the governance challenges raised by the recent NYSE report?
Session # 2 Readings:
1. Our Schizophrenic Conception of the Business Corporation, William T. Allen, 14 Cardozo L. Rev.
261 (1992)
2. Speedy New Traders Make Waves Far From Wall St., Julie Creswell, New York Times, May 17,
3. Clamping Down on Rapid Trades in Stock Market, Graham Bowley, New York Times, October 9,
4. Prepared Testimony by Harold Bradley and Robert E. Litan Before the United States Senate
Committee on Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and
Investments, ETF and the Present Danger to Capital Formation, October 19, 2011
5. Veridian: Putting A Value on Values, Rakesh Khurana, Joel Podolny and Jaan Elias,
HBS 9-406-028
Questions Session # 2:
1. How do Allen’s views on the concept of the business corporation impact the board of directors’
decision making in the Veridian case?
2. How should the current composition of shareholders affect our concept of director’s
3. How does values based management (Veridian) relate to shareholder interest?
Session # 3-4
What is the current structure, makeup, priorities and culture of corporate boards? ; Best Practices in
Constructing a Board of Directors; Definition of independence; Committee requirements
Session # 3 Readings:
1. NYSE Corporate Governance Rules
2. Regulation S-K Item 407
3. The Uneasy Case for the Inside Director, Lisa M. Fairfax, 96 Iowa Law Review 127 (2010), The
George Washington University Law School,
4. The Promise and Peril of Corporate Governance Indices, Sanjai Bhagat, Brian Bolton and Roberta
Romano, Columbia Law Review December 2008, Vol. 108 No. 8 (Focus on 1803-18, 1858-70)
Questions Session # 3:
1. How do the independence criteria impact the functioning of the board?
2. How should the independence criteria impact the regulatory regime?
3. What is the significance of the governance indices and how would you think a board should
address the role of proxy advisory firms?
Session # 4 Readings:
1. The Bottom Line on Board Diversity: A cost-Benefit Analysis of the Business Rationales for
Diversity on Corporate Boards, Lisa M. Fairfax, 2005 Wis. L. Rev. 795 (Focus on Part 3)
2. A Comparison of Gender Diversity in the Corporate Governance Codes of France, Germany,
Spain, the Netherlands and the United Kingdom, Dr. Mijntje Lu Ckerath-Rovers, Erasmus
University Rotterdam, the Netherlands, SSRN 1585280
3. Women in Business: Still Lonely at the Top, The Economist, July 21, 2011
4. Tyco International: Corporate Governance, Rakesh Khurana and James Weber,
HBS 9-408-059
Questions Session # 4:
1. Reflecting on the readings above, in creating a board of directors how important is the issue of
diversity and in what ways? Is the “business case” important to the issue?
2. Is mandating diversity on a Board of Directors desirable?
3. How would you assess Breen’s decision to completely replace his board of directors? What
principles guided his new board creation strategy? Do you agree/disagree and why?
Session #5-6
Shareholder and stakeholder engagement- Shareholder Activism
Session # 5 Readings:
1. Versata Enterprises, Inc. v. Selectica, Inc., 5 A.3d 586 (Del. 2010)
2. Identifying the Legal Contours of the Separation of Economic Rights and Voting Rights in Publicly
Held Corporations, Investor Responsibility Research Center Institute and Rock Center for
Corporate Governance at Stanford University, October 2010 (Skip sections on bankruptcy and
debt decoupling)
3. Executive Compensation Proxy Advisory White Paper- A Call for change in the Proxy Advisory
Industry Status Quo- The Case for Greater Accountability and Oversight, January 2011 (Focus on
pages 1-13)
4. Big Investors Appear Out of Thin Air, Andrew Ross Sorkin, New York Times, November 1, 2010
Questions Session # 5:
1. How should the phenomenon of empty voting be addressed by the corporate law system? Are
reforms necessary? If so, specify.
2. How has the role of proxy advisory firms evolved? What are the most significant challenges
posed by such firms today and what remedies may be appropriate?
Session # 6 Readings:
1. Sharks in the Water: Battling an Activist Investor for Corporate Control (A), Stanford Graduate
School of Business, , Case CG-20A-PDF-ENG
2. Shareholder Activism and Implications for Corporate Governance, Karen Brenner,
Questions Session # 6:
1. What makes hedge funds more likely than other institutional investors to take on an activist
role? Where/how have they been effective?
2. Based on the information provided in “Sharks in the Water” (Exhibit 4), what actions do you
expect Barracuda/Tarco to take next? Explain your reasoning. Based on the information
provided in Exhibits 5 and 6, what level of support does the company/ Barracuda currently have
from the shareholder base? If Barracuda were to initiate a proxy fight, what level of support
would it receive from other shareholders of Tarco (Exhibit 7)? What role would RiskMetrics/ISS
play in the proxy process? Consider the possible actions outlined in Exhibit 8 of “Sharks in the
Water.” Which of these would you recommend to the board? What other actions might Tarco
Session # 7
International Corporate Governance
Session # 7 Readings:
1. OECD Principles of Governance 2004
2. UK Corporate Governance Code, June 2010
3. UN Global Compact/ UN Principles for Responsible Investment
4. Recurring failures in corporate governance: A global disease?, Nandini Rajagopalan and Yan
Zhang, 52 Business Horizons 545 (2009)
5. Corporate Governance in China: Current Practice, Key Problems, F. Warren McFarlan, Joanne Xu
and Tracy Yuen Manty, , HBS 9-309-058
6. Board Independence & Corporate Governance in India: recent trends & challenges ahead, Jayati
Sarkar, April 1, 2009, Indian Journal of Industrial Relations
7. Corporate Governance Reforms in Continental Europe, Luca Enriques and Paolo Volpin, Journal
of Economic Perspectives- Vol. 21, No. 1- Winter 2007- Pages 117-140
8. The Audacity of Chinese Frauds, Floyd Norris, New York Times, May 27, 2011
Questions Session #7:
1. Describe/contrast the US system of governance with the Chinese and Indian systems. What are
the implications for governance failures? What solutions would you recommend?
2. Should the US vary its independence requirements for non-US companies trading on US capital
3. Do you favor a rule or principles based governance system? Explain.
Session # 8-9
Corporate Social Responsibility; the Role of Institutional Investors
Session #8 Readings:
1. The Social Responsibility of Business is to Increase Its Profits, Milton Friedman, New York Times
Magazine, September 13, 1970
2. The Case Against Corporate Social Responsibility, Aneel Karnani, Wall Street Journal, August 23,
3. Super capitalism, Robert B. Reich, Chapter 5, Politics Diverted, Pages 168-208
4. Annals of Spin: Selling Wal-Mart, Jeffrey Goldberg, The New Yorker, April 2, 2007
5. Wal-Mart Announces Goal to Eliminate 20 Million Metric Tons of Greenhouse Gas Emissions
from Global Supply Chain, Wal-Mart Corporate, February 25, 2010
6. Tata: Leadership with Trust, Oana Branzei, Richard Ivey School of Business, The University of
Western Ontario, 9B10M025
Questions Session #8:
1. Drawing from the readings, articulate your conception of the role of CSR. Is it about ensuring
compliance with the law or is it something beyond compliance? Discuss the implications for
corporate governance.
2. Is investing corporate dollars in CSR initiatives in furtherance of or in violation of managers’
fiduciary duties? Explain incorporating Friedman’s, Karnani’s, Reich’s, and Allen’s papers. How is
a manager who believes in embedding CSR principles into the mission of the firm to manage
potentially conflicting interests of shareholders and stakeholders from a corporate governance
3. The consultants were asked to present the Tata executives with a ten year strategic plan. Given
the evolving global environmental and social responsibilities addressed in the case, what
changes would you recommend for Tata and why?
4. Critique Wal-Mart’s CSR initiative. What are the strengths/weaknesses of the CSR initiative and
how would you advise them to improve?
5. Are corporations moral beings with social obligations to civil society?
Session # 9 Readings:
1. Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business
Management, The Aspen Institute, September 9, 2009
2. Capitalism for the Long Term, Dominic Barton, March 2011, HBR R1103F
3. UK Stewardship Code, July 2010
Questions Session # 9:
1. What are the concerns regarding short-termism? What role do investors have? What role does
the board of directors have?
2. Are there governance structures which can mitigate or overcome short-termism?
Session # 10
Governance Crisis; Reputational Risk Management
Session # 10 Readings:
1. Deterring and Detecting Financial Reporting Fraud, A Platform for Action, Center for Audit
Quality, October 2010
2. The Cost to Firms of Cooking the Books, Jonathan M. Karpoff, S. Scott Lee and Gerald S. Martin,
3. Measuring Reputational Risk: The Market Reaction to Operational Loss Announcements, Jason
Perry and Patrick de Fontnouvelle, Federal Reserve Bank of Boston, October 2005
4. The Benefits and Costs of Controlling Shareholders: the Rise and Fall of Parmalat, Bonnie
Buchanan and Tina Yang, Research in International Business and Finance 19 (2005) Pages 27-52,
SSRN 1931511
5. Gatekeeper Failures: Why Important, What to Do, Merritt B. Fox, 106 Mich. L. Rev. 1089 (2008)
6. Blindspots, Why We Fail to Do what’s Right and What to Do about It, Max H. Bazerman and Ann
E. Tenbrunsel, Chapter 6
Questions Session # 10:
1. What conditions create opportunities for fraud? What is the board’s role in mitigating fraud?
What are the financial implications to the firm of fraud?
2. Should a Board of Directors monitor reputational risk as part of its risk management function? If
so, how, and by what measures?
3. How do we maximize the effectiveness of compliance programs to have a meaningful impact on
corporate conduct?
Session # 11
Corporate Investigations; Whistle blowing
Session # 11 Readings:
1. Corporate Investigations- Challenges in Corporate Governance, Karen Brenner,
2. Hidden Impact of the Dodd-Frank Act, John C. Coffee, Jr. July 15, 2010
3. The S.E.C., Whistle-Blowers and Sarbanes-Oxley, Peter J. Henning, New York Times Dealbook,
November 9, 2010
4. SEC Adopts Rules to Establish Whistleblower Program, May 25, 2011
Questions Session # 11:
1. What are the board’s challenges in investigating fraud?
2. The Dodd-Frank Act of 2010 directs the SEC to reward whistleblowers. Because tips are an
effective means for identifying misconduct, should companies consider a reward system for tips
leading to discovery of fraud?
3. What is the adequacy/complexity of the US regulatory response to date?
Session # 12
Recent Events: Corporate Governance Developments- Corporate Political Contributions; Say-on-Pay;
New Corporate Forms
Session # 12 Readings:
1. Corporate Political Speech: Who Decides?, Lucian A. Bebchuk and Robert J. Jackson, Jr., 124
Harv. L. Rev. 83 (2010)
2. Corporate Governance After ‘Citizens United,’ John C. Coffee, Jr., New York Law Journal, March
18, 2010
3. Investor ‘Say on Pay’ Is a Bust, John Helyar, Bloomberg Businessweek, June 16, 2011
4. ‘Say on Pay’: Cautionary Notes on the UK Experience and the Case for Shareholder Opt-In,
Jeffrey N. Gordon, The Center for Law and Economic Studies Columbia University School of Law,
Working Paper No. 343, August 2009 (Focus on Parts I and III)
5. A Quest for Hybrid Companies That Profit, but Can Tap Charity, Stephanie Strom, New York
Times, October 12, 2011
Questions Session # 12:
1. What governance challenges are raised by corporate political activity (CPA)? What is the best
way to organize the CPA function to create firm value? How might CPA be measured and
evaluated by the board of directors? Consider how the composition of the board and disclosure
affects CPA.
2. What are the concerns regarding compensation? Are changes in “say-on-pay” likely to address
some of these issues? Is the UK experience helpful as a model or sufficiently different to be