August 23, 2021

Comparative Corporate Governance

[Cross-posted from the Columbia Law School Blue Sky Blog]

By Afra Afsharipour and Martin Gelter

With the increasing internationalization of law and legal scholarship, comparative corporate governance has seen a burgeoning volume of research from a practical, theoretical, and empirical perspective. Practically speaking, both internationally and within individual countries, most corporate governance research deals with the interaction between board members, officers, and shareholders, primarily in large, publicly traded corporations. Much of the literature is preoccupied with reducing conflicts of interest between shareholders and management and consequently minimizing agency cost, vindicating the narrow finance perspective. Given the predominance of controlling shareholders around the globe, the literature increasingly focuses on conflicts between controlling and minority shareholders. In a comparative or international context, research also often considers all groups whose interests are affected by corporate activities and who have some degree of influence on corporations, such as creditors and employees.

In an introductory chapter to Comparative Corporate Governance, we frame the book within a broad perspective on corporate governance and cover legal duties and their enforcement, as well as the balance of powers generated by the institutional setup. Nevertheless, the interests of other “stakeholders” are very much present.

Fundamental Issues in Comparative Corporate Governance

We begin with an overview of the intellectual history of comparative corporate law and governance. During the past three decades, the volume of comparative law scholarship has grown, and the methods have shifted from the traditional functionalism represented by venerable treatises toward greater methodological variation. Maribel Sáez and María Gutiérrez put the different currents in the literature into a historical perspective. They suggest that this field has been rebranded repeatedly, moving from “comparative corporate law” through “comparative corporate governance” to “law and finance” and finally to the “theory and empirics of comparative corporate law.” Corporate law scholarship started with the doctrinal “Continental European” approach to law, but subsequently developed into a truly international field, often adopting English as its lingua franca. Comparative corporate governance then infused economic thinking into the field. Lastly, “law and finance” added a causal and empirical perspective.

In corporate law, an economic perspective dominates, and the field was further invigorated by a law and finance perspective. Not surprisingly, comparative scholarship often takes an economic view and emphasizes the incentives set by law and the interest groups whose economic interests have shaped the law across jurisdictions. Accordingly, contributions in the book address the difficult question of methodology. Vikramaditya Khanna’s chapter surveys the law and finance literature and its implications for economic development. He tackles the question of causation – does strong investor protection facilitate economic growth and developed capital markets, or do interest groups with a stake in the market lobby for strong corporate law? He suggests that “there is good evidence for a growth to law causation story and some evidence for a law to growth causation story.”

Christopher Bruner’s chapter tackles the difficult question of comparative methodology. He contrasts functionalism with contextualism, which emphasizes jurisdictional differences. Contextualists often assume a high degree of difference that cannot be eliminated because of the difficulties involved in legal transplantation. However, contextualism often fails to provide a theory for differences. Choice of method is thus typically a function of the intended audience, placing a premium on methodological self-awareness and careful calibration of one’s claims.

Other chapters give specific examples for the core debates. An example is the widely discussed, but controversial topic of convergence in corporate governance. Martin Gelter’s chapter looks at the role of interest groups, specifically the accounting industry, and suggests that it has promoted or inhibited convergence depending on the national context and its respective local incentives. Li-Wen Lin’s chapter examines the convergence debate through the lens of the legal regime on executive compensation in six jurisdictions, including the United States, the United Kingdom, Germany, Japan, India, and China. The chapter shows that, not only have the legal rules restricting the board’s power over executive pay begun to diverge in Western countries, but also directors’ power over executive pay has varied widely when one assesses the legal regime in leading Asian jurisdictions.

Corporate Purpose and Sustainability

In recent years, the debate about the proper role of the corporation in law and society has often been described as the “corporate purpose” or as the “shareholder-stakeholder” debate, but its ancient roots go back over a century. Writing in 1917, German industrialist and politician Walther Rathenau expressed deep concern about the role of short-term shareholders who expected firms to produce returns at the expense of long-term development and the public interest. The Berle-Dodd debate of 1931 in the U.S. prefigured many of the arguments of subsequent decades, serving as a template for recurring corporate purpose debates to this day. The “corporate purpose” debate has again gained traction in recent years. Two chapters tackle the debate about corporate purpose from very different perspectives.

Barnali Choudhury and Martin Petrin  survey discussions on both corporate purpose and short-termism. While directors have the freedom to consider interests besides those of shareholders, as a matter of practice, most firms continue to focus on a narrow corporate purpose. They argue that this narrow vision is conducive to short-termist corporate activities and suggest several possible reforms to allow U.S. and UK firms to advance from a shareholder ideology to a broader perspective. Cynthia Williams’ chapter reviews developments relating to CSR and ESG. Williams argues that institutional investors are emphasizing ESG partly because of younger investors’ increasing interest in topics such as climate change and economic inequality, and also because the connection between companies’ better management of ESG issues and better financial performance is becoming well-established. Internationally, there is the possibility that countries with less developed social welfare systems may require a greater degree of voluntary CSR to maintain the legitimacy of the corporate governance system. Ownership structures and the predominant types of investors appear to have an impact on sustainability outcomes as well.

The Board of Directors and Its Duties

The book then turns to substantive topics in corporate governance, starting with the central players in internal corporate governance in most jurisdictions: the board of directors. National legislation provides important differences in the structure of the board, with the U.S. one-tier model and the German two-tier structure often seen as exemplars. Jean du Plessis’s chapter provides a broad survey of different types of board structures used around the world. The chapter then explores the nuances of board composition rules in various jurisdictions, including the UK, Germany, the Netherlands, China, and Japan. Despite practical differences, for publicly traded corporations in most jurisdictions, the ultimate management power is embedded in the board of directors, increasingly dominated by independent directors. Furthermore, the board of the modern public company typically is vested with a monitoring or oversight role. Klaus Hopt and Patrick Leyens argue that rather than settling on a particular board model, the law should allow corporations flexibility in the choice of a board model. They stress that focusing on the specific governance strategies available in a variety of situations, such as takeovers or related party transactions, demonstrates that boards can address the types of agency problems that arise in corporate governance in similar ways, regardless of the choice of board model. The board as an institution may also be used to hold the corporation accountable to non-shareholders, particularly employee stakeholders. It is only with employee-codetermination as a governance strategy that one needs a two-tier board model. Darren Rosenblum’s chapter tackles the issue of representation on the board, focusing on gender diversity. The chapter addresses the types of intervention models used in different jurisdictions, from the hard statutory mandates of Norway to the soft quotas and disclosure mandates in some common law jurisdictions, including the UK and Canada. Policy interventions face several challenges as diversity continues to play a prominent role in corporate governance debates.

Several chapters in the book address issues that go to the heart of board responsibilities. Marco Corradi and Geneviève Helleringer examine the duty of loyalty from a comparative perspective, including both self-dealing transactions under both common law (namely the U.S. and UK) and civil law regimes (focusing on continental Europe), as well as corporate opportunity rules. They note the tensions between the evolution of the law governing self-dealing transactions at the European level as well as the generally less advanced development of corporate opportunity rules in civil law jurisdictions.

Carsten Gerner-Beuerle examines the diffusion and convergence of the duty of care and the business judgment rule. After demonstrating how both are similarly formulated across common law and European civil law countries, the chapter compares the application of the Delaware business judgment rule with its German counterpart to show that even similarly formulated rules differ in actual operation because of underlying local norms and narratives. Virginia Harper Ho’s chapter analyzes risk oversight and risk management as core elements of the board’s monitoring role. Across jurisdictions, fiduciary duties are used to hold boards accountable for carrying out their monitoring role. Increasingly complex risk management and oversight responsibilities are now derived from and affected by multiple sources, including other regulatory regimes, market actors, and institutions, that have expanded risk regulation.

In addition, the book covers directors’ duties in times of change, specifically in the context of mergers and acquisitions (M&A). Afra Afsharipour argues that, with respect to friendly takeovers, the U.S. and UK approach corporate governance concerns and the balance of power between the board of directors and shareholders in increasingly divergent ways. The UK restrains director power in friendly M&A deals, including recent rules that constrain the power of directors to negotiate deal protection mechanisms. Delaware law provides wide latitude to directors to negotiate and design M&A deals and, due to recent changes to Delaware jurisprudence, provides little opportunity for shareholders to check management conflicts through litigation. According to Andrew Tuch’s chapter, management buyouts (MBOs) raise the quintessential type of conflicts in M&A transactions because they involve the board or officers of the target firm acting as owners of the buyer. While the UK’s no-conflict rule is often viewed as more severe than the U.S. fairness rule in regulating MBOs, in practice the rules operate in ways more similar than they seem at first glance. The chapter thus asserts that both the US and UK may not effectively prevent fiduciary misconduct early in the MBO deal process.

The Increasingly Complex Taxonomy of Shareholders

Much of corporate governance concerns itself with balancing conflicts and power between shareholders and managers, as well as among between controlling and non-controlling shareholders. Shareholders are not a monolithic group, ranging from the state, hedge funds, and institutional investors to family groups and individuals. Turning to the dramatic increase in institutional investors around the globe, Assaf Hamdani and Sharon Hannes analyze the governance implications of this rise against the background of the growing influence of activist hedge funds. In widely held companies, institutional investors can determine the outcome of shareholder votes, including director elections. Nevertheless, country-specific regulations, political sentiments and social norms affect the extent to which institutional investors will actually wield their power. By contrast, in jurisdictions with predominantly controlled companies, institutional investors’ ability to influence governance remains limited, but institutional investors are gaining power in countries, such as Israel, that are experiencing a shift from concentrated to dispersed ownership.

Minority shareholders are not homogeneous, both within and across jurisdictions, in their makeup, goals, and actions. Umakanth Varottil argues that the expanding schism among heterogenous types of minority shareholders creates agency problems, allowing one type of minority shareholder to affect the interests of others. The chapter analyzes the goals and actions of two types of institutional investors – activist hedge funds and passive funds – to show the potential conflicts among these shareholders. Legal tools, such as fiduciary duties and stewardship responsibilities, can address such conflicts.

The past two decades have experienced significant changes in capital market structures around the world, resulting in a reassessment of shareholder power and participation in corporate governance, and debates about the degree to which the law can and should provide shareholders with a voice and facilitate greater shareholder protection. Sofie Cools analyzes the transformation of shareholder power by comparing the use of shareholder proposals by shareholders of U.S. public companies with the relative lack of such proposals in Europe. Focusing on Delaware, France, Germany, Belgium, and the Netherlands, she argues that private ordering through shareholder proposals in U.S. companies is closing the gap in substantive shareholder power that has existed between the U.S. and Europe. The chapter also casts doubt on empirical comparisons of the frequency of shareholder proposals in the U.S. and Europe by highlighting how differences in ownership structures and the goals of shareholder proposals in the U.S. complicate such comparisons.

Gaia Balp and Marco Ventoruzzo focus on the rules governing the duties of controlling shareholders to minority shareholders in the U.S., Germany, and Italy. Despite differences in laws and enforcement mechanisms, the principles are functionally quite similar. Duties applying in situations such as related party transactions, sale of a control stakes, and access to privileged information are in the end similar because loyalty underpins the standards and rules for controllers’ conduct. Sang Yop Kang contrasts controlling shareholder power in corporate groups with single corporations operating various business lines. Differences arise in risk-sharing (cash-flow stabilization), control/voting leverage, and tunneling. Controllers may be more inclined to establish corporate groups than single corporations with different business lines (although controllers’ preference for the corporate-group form is not always absolute).

Enforcement of Corporate Law

Directors’ and shareholders’ duties would be irrelevant in practice if they were not enforceable. Not surprisingly, there are big international differences in this regard. The U.S. is often thought to be the country where corporate and securities laws are most vigorously enforced. This is in part due to an entrepreneurial plaintiffs’ bar, whose existence is owed largely to the American rule in civil procedure (where each party pays its own cost) and the possibility of contingency fees, which induce plaintiffs’ attorneys to bring class actions as well as derivative suits. Alan Koh and Samantha Tang’s chapter explores private litigation in corporate law. It provides a detailed taxonomy of the various types of lawsuits and their functions in the Anglo-Commonwealth jurisdictions (UK, Australia, Singapore, Hong Kong, New Zealand), the U.S., Germany, and Japan. The chapter considers key factors furthering and limiting such suits, including cost structure, length of the litigation, and possible outcomes. Besides derivative litigation, which involves remedies from which the company itself benefits, the chapter looks closely at direct suits, which have received less attention in the literature. The taxonomy encompasses monetary and non-monetary remedies and looks at oppression and withdrawal, appraisal rights, and injunctions, as well as litigation challenging the validity of shareholder decisions. Besides the U.S., there are jurisdictions where litigation has become common, such as in Japan in the area of derivative litigation, as well as in Canada, Australia ,and Israel in securities law. In all cases, cost rules have become favorable to lawsuits.

The other aspect of enforcement is the public side, i.e., enforcement by securities regulators, which relies largely on financial endowment and qualified staff. Pierre-Henri Conac’s chapter looks specifically at the enforcement of corporate governance rules, including corporate governance codes. His chapter encompasses both private shareholder litigation as well as enforcement by regulators and stock exchanges, focusing mainly on European jurisdictions, the United States, and Brazil. The chapter argues that private enforcement should be the main legal method of enforcement, but that public regulation should serve as a stopgap that remedies the deficiencies of the private model.

Conclusion

The literature shows that the comparative picture remains more complex than as portrayed by the original “law and finance” debate. This is particularly true given growing concerns around the globe with issues of sustainability and corporate purpose. However, we also can see increasing convergence in some areas, such as directors’ and shareholders’ duties as well as the enforcement of corporate law. Convergence is not universal, as the example of accounting shows. The continuing evolution of corporate governance debates means that a comparative approach to corporate governance will long prove to be insightful in understanding and analyzing corporate law generally.

This post comes from Afra Afsharipour, a professor and senior associate dean for academic affairs at UC Davis School of Law, and Martin Gelter, a professor at Fordham University School of Law and Research Member of the European Corporate Governance Institute. It is based on their introductory chapter to “Comparative Corporate Governance,” available here.

May 11, 2021

The Evolution of Risk Management Oversight by Indian Boards

[Cross-posted from IndiaCorpLaw]

 

By Afra Afsharipour & Manali Paranjpe

 

Across the globe, the focus on effective risk management has intensified over the past two decades as major corporations have experienced risk management failures due to excessive financial risk taking, environmental catastrophes, accounting and corruption scandals, and the like. The monitoring of risks is a significant priority for corporate managers and boards, as well as for regulators and investors. As the OECD states, “while risk-taking is a fundamental driving force in business and entrepreneurship, the cost of risk management failures is still often underestimated. . . . Corporate governance should therefore ensure that risks are understood, managed, and, when appropriate, communicated.”

 

The board of directors lies at the core of effective risk management. Directors are not responsible for the everyday management of risk. However, the board plays a critical role in overseeing and guiding the risk policy of a company, and in ensuring that appropriate systems of control are in place. Since the 2008 financial crisis, expectations around the board’s risk oversight responsibilities have become heightened as companies face increasingly complex business, regulatory and political environments. Thus, national legislation and corporate governance guidelines and codes by leading international organizations have evolved to stress the role of the board of directors in risk oversight.

 

In our article, forthcoming in the National Law School of India Review, we analyze India’s evolving framework for board oversight of risk management. With the transformation of corporate governance practices in India, the legal and regulatory regimes governing risk management have progressed to largely resemble international standards, with an emphasis on the risk oversight function of boards. The Companies Act, 2013 addresses the board’s risk oversight responsibilities. For listed companies, the Securities and Exchange Board of India (SEBI) has issued regulations that require the largest listed companies to form a risk management committee. The emphasis on the board’s oversight of risk management is in line with the corporate governance transformations that have taken place in India which increasingly stress a monitoring role for directors.

 

Despite the shift in the regulation of risk management, studies and surveys suggest that risk management has yet to become a priority at many Indian companies. Furthermore, recent high profile risk management crises highlight the importance, and challenges, of board oversight of corporate risk. While India’s legal framework for board oversight of risk has evolved, two recent crises — the collapse of IL&FS and management failures at ICICI Bank — demonstrate the barriers that directors of Indian companies continue to face in overseeing increasingly complex risks. Our article uses both crises as case studies to reflect on risk management lessons for boards of Indian firms more generally.

 

In addition to corporate crises, the COVID-19 pandemic has brought the issue of board oversight of risk management to the forefront. India as a nation was underprepared to prevent, detect and respond to a pandemic, and the crisis has been a significant one for nearly every board of directors in India. In such a crisis, companies with good governance and risk management systems may be better able to address stakeholder concerns than companies whose boards have not prepared for such calamities.

 

As companies face increasing risk complexity, boards must continually assess the structure of a company’s risk management policies and procedures. Not only are boards charged with overseeing an increasingly complex set of risks, but directors of Indian firms, particularly independent directors, face a variety of barriers in effectively overseeing risk management. Most Indian firms are controlled companies, with board members beholden to controllers and management for access to information. Limited access to independent external advisors such as lawyers, consultants, accountants, and the like, as well as significant dependence on management for obtaining information on business plans, strategies and risk preparedness of the company, can hamper the ability of boards to adequately monitor the company’s risk management policies and procedures. These issues intensify in boards with many outside independent directors.

 

Nevertheless, the barriers faced by directors of Indian firms are not insurmountable. The article’s case study of how the board of Infosys, one of India’s leading technology companies, addressed red flags raised by whistleblowers, illustrates how an empowered board can respond to risk management issues effectively. Actions by the Infosys board provides lessons on how transparent processes and clarity regarding the company’s investigation process allowed the board to assess, identify and manage risks raised by serious allegations. Furthermore, following the crisis, the Infosys board undertook additional steps to strengthen and revise its applicable policies. By responding and taking charge of the governance challenge facing the company, the Infosys board was able to prevent further harm to stakeholder interests as well as its own reputation.

 

Drawing lessons from these case studies, the article concludes with suggestions on how to further enhance the board’s risk oversight function. Stronger governance, more robust risk management strategies and capable board leadership and oversight will make priceless contributions to both Indian companies and to the Indian economy.


[Afra Afsharipour is Senior Associate Dean for Academic Affairs & Professor of Law at UC Davis School of Law and Manali Paranjpe a Research Associate at The Conference Board, India]


February 5, 2021

Lessons from India's struggle with corporate purpose

By Afra Afsharipour

[Cross-posted from the CLS Blue Sky Blog]

The escalating debate over corporate purpose is not confined to developed economies in the West. Rapidly developing economies in nations like India are similarly grappling with how to define and develop a legal framework around corporate purpose. Corporate social responsibility (CSR) and a re-examination of corporate purpose have been at the centerpiece of discussions about corporate governance reforms in India. In a new book chapter, I discuss the lessons that can be learned from India’s experience with corporate purpose.

For over a decade, India has taken a multi-pronged approach toward redefining corporate purpose. Voluntary guidelines issued by the Indian Ministry of Corporate Affairs (MCA) have approached stakeholderism, CSR, and sustainability as part of corporate strategic planning and a company’s business policies under the oversight of the board of directors. In 2013, India enacted the new Companies Act. The act altered the fiduciary responsibilities of boards of directors, with Section 166 providing that directors must “act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.” The act also imposed mandatory CSR responsibilities on corporate boards with a comply or explain approach toward CSR spending. More recently, there have even been efforts to make this approach mandatory. And in 2019, the MCA issued yet another set of National Guidelines for Responsible Business Conduct to encourage Indian businesses to reflect on their purposes and to contribute towards wider development goals while seeking to maximize their profits. In addition to the MCA, the Securities and Exchange Board of India (SEBI), the nation’s securities regulator, has also required substantial additional sustainability disclosures by the largest listed companies.

The success of India’s multi-pronged initiatives has been mixed. The CSR provisions of the Companies Act have led to a large increase in philanthropy. However, philanthropic spending is unevenly distributed. Moreover, the promise and future of the CSR requirement of the Companies Act is uncertain, particularly considering the economic impact of the COVID-19 pandemic. Similarly, the stakeholder provisions of the Companies Act suffer from lofty rhetoric unmatched by either practice or legal remedies for stakeholders. SEBI’s disclosure rules have significantly increased transparency for the largest Indian companies. With greater disclosures, stakeholders are positioned to engage with companies more effectively and meaningfully about their social responsibilities beyond profits. Nevertheless, mandatory CSR, a stakeholder-oriented approach to corporate law, and additional sustainability disclosures have made little dent in India’s massive inequality, poverty, corruption, or pollution.

It is not surprising that India has struggled so intensely with a stakeholder-oriented approach to corporate purpose. The ownership structure of Indian firms plays a significant role in challenging the stakeholder-driven corporate purpose efforts in India. Controlling shareholders (referred to as promoters in the Indian context) are the most powerful players in corporate India. For many promoter families, shareholder wealth maximization aligns directly with their own interests. In addition, the philanthropy approach of India’s CSR provisions provides promoters with a philanthropic glow that aligns with the promoter’s self-interest.

Concentrated ownership can also create opportunities for stakeholderism to transform into mutually beneficial relationships between the government and powerful promoters. In the Indian context, the government has used private firms to promote its policy objectives of development and growth. But private firms have also been used as an instrument of rent extraction for political purposes. For example, companies are increasingly contributing CSR funds into the Prime Minister’s Relief Fund, but there is little transparency in how such funds are spent. Furthermore, there are concerns that contributions to government-controlled funds undermine the work of non-governmental organizations.

Many experts argue that promoter power has expanded significantly post-economic liberalization with greater links between political and business elites. Powerful promoters are often the biggest funders of political campaigns. Business elites are deeply involved in political decisions and policy making, serving on a variety of parliamentary committees that recommend important policy decisions for the government. Furthermore, a number of prominent industrialists have entered politics, primarily through serving in the upper house of Parliament (Rajya Sabha). In controlled companies, companies’ CSR policies may inevitably reflect the interests of promoters, including their political interests and aspirations, as well as their views on social reality and values.

The Indian experience presents an important perspective to the corporate purpose debate from a country where firms are dominated by controlling stockholders. In a country where politics and business are deeply intertwined, and where powerful controlling stockholders have an outsized role, stakeholderism may make little headway. Instead, the Indian approach to stakeholderism provides an environment where corporations can use their CSR efforts and corporate purpose rhetoric to curry political favor with the state, while the state can use stakeholderism to politically signal that it values society, even in the face of rising inequality, pollution, and persistent poverty.

January 15, 2021

Lessons From India's Struggles With Corporate Purpose

[Cross-posted from Oxford Business Law Blog]

By Afra Afsharipour

The escalating debate over corporate purpose is not confined to Western developed economies. Rapidly developing economies like India are similarly grappling with how to define and develop a legal framework around corporate purpose. Corporate social responsibility (CSR) and a re-examination of corporate purpose have been at the center of discussions about corporate governance reforms in India. In this book chapter, forthcoming in the Research Handbook on Corporate Purpose and Personhood (2021), I discuss the lessons that can be learned from India’s experience with corporate purpose.


For over a decade, India has taken a multi-pronged approach toward redefining corporate purpose. Voluntary guidelines issued by the Indian Ministry of Corporate Affairs have approached stakeholderism, CSR and sustainability as part of corporate strategic planning and a company’s business policies under the oversight of the board of directors. In 2013, India enacted a new Companies Act. The Act altered the fiduciary responsibilities of the board of directors, with Section 166 of the Act providing that directors must ‘act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.’ The Act also imposed mandatory CSR responsibilities on corporate boards with a comply or explain approach toward CSR spending. More recently, there have even been efforts to transform this comply or explain approach to CSR spending into a mandatory one. And in 2019, the Ministry of Corporate Affairs issued yet another set of National Guidelines for Responsible Business Conduct to encourage Indian businesses to reflect on their purpose and to contribute towards wider development goals while seeking to maximize their profits. In addition to the Ministry of Corporate Affairs, the Securities and Exchange Board of India, the nation’s securities regulator, has also stepped in to require substantial additional sustainability disclosures by the largest listed companies.


The success of India’s multi-pronged initiatives has been mixed. The CSR provisions of the Companies Act have led to a large increase in philanthropy. However, while domestic philanthropic giving has increased significantly, it is unevenly distributed. Moreover, the promise and future of the CSR requirement of the Companies Act is uncertain, particularly with the economic impact of the COVID-19 pandemic. Similarly, the stakeholder provisions of the Companies Act suffer from lofty rhetoric unmatched by either practice or legal remedies for stakeholders. The Securities and Exchange Board of India’s disclosure rules have significantly increased transparency for the largest Indian companies. With greater disclosures, stakeholders are positioned to engage with companies more effectively and meaningfully about their social responsibilities beyond profits. Nevertheless, mandatory CSR, a stakeholder-oriented approach to corporate law, and additional sustainability disclosures have made little dent in India’s massive inequality, poverty, corruption and pollution.


It is not surprising that India has struggled so intensely with a stakeholder-oriented approach to corporate purpose. The ownership structure of Indian firms plays a significant role in challenging the stakeholder-driven corporate purpose efforts in India. Controlling shareholders (referred to as promoters in the Indian context) are the most powerful players in corporate India. For many promoter families, shareholder wealth maximization aligns directly with their own interests. In addition, the philanthropy approach of India’s CSR provisions provides promoters with a philanthropic glow that aligns with the promoter’s self-interest.


Concentrated ownership can also create opportunities for stakeholderism to transform into mutually beneficial relationships between the government and powerful promoters. In the Indian context, the government has used private firms to promote its policy objectives of development and growth. But private firms have also been used as an instrument of rent extraction for party and political purposes. For example, companies are increasingly contributing CSR funds into the Prime Minister’s Relief Fund, but there is little transparency in how such funds are spent. Furthermore, there are concerns that contributions to government-controlled funds undermine the work of non-governmental organizations.


Many experts argue that promoter power has expanded significantly post-economic liberalization with greater links between political and business elites. Powerful promoters are often the biggest funders of political campaigns. Business elites are deeply involved in political decisions and policy making, serving on a variety of parliamentary committees that recommend important policy decisions for the government. Furthermore, a number of prominent industrialists have entered politics, primarily through serving in the upper house of Parliament (Rajya Sabha). In controlled companies, companies’ CSR policies may inevitably reflect the interests of promoters, including their political interests and aspirations, as well as their views on social reality and values.


The Indian experience presents an important perspective for the corporate purpose debate from a country where firms are dominated by controlling stockholders. In a country where politics and business are deeply intertwined, and where powerful controlling stockholders have an outsized role, stakeholderism may make little headway. Instead, the Indian approach to stakeholderism provides an environment where corporations can use their CSR efforts and corporate purpose rhetoric to curry political favor with the state, while the state can use stakeholderism to politically signal that it values society, even in the face of rising inequality, pollution and persistent poverty.

September 17, 2020

Corporate governance in negotiated takeovers: The changing comparative landscape

[Cross-posted from the Oxford Business Law Blog]

By Afra Afsharipour

Takeover transactions raise significant corporate governance questions about the allocation of decision-making power among firm participants, whether and to what extent participants are constrained in their exercise of decision-making power, and whether and to what extent participants can be held accountable for their decisions. Public company M&A deals, especially, involve complex steps and contracts, and are transactions that unfold over time. This timeline involves a variety of decisions for the board of each company, and the ultimate decisions made by the board can be subject to shareholder voting or acceptance. The rules designed to address corporate governance in takeovers often reflect the ownership structure prevalent in a particular jurisdiction, but they also reflect the political power of interest groups that influence the law. The result is thus a mishmash of rules that attempt to balance both concerns about ownership structure and the desires of powerful interest groups.

In a forthcoming book chapter, I consider how corporate governance concerns are reflected in the law’s approach to regulating friendly takeovers, ie acquisitions by third party bidders that are negotiated and supported by the management of the target company. Two countries with similar capital markets and institutional frameworks, the US and UK, approach these corporate governance concerns and the balance of power between the board of directors and shareholders in increasingly divergent ways. I argue that while the UK approach to friendly takeovers constrains director power, the US approach continues to maintain and reinforce the centrality of director decision-making.

The UK is characterized by ex-ante rules that constrain managerial power and favor shareholder voice, whether deals are done via a takeover or some other structure such as a scheme of arrangement. For both structures, UK rules provide a significant voice, through voting rights or otherwise, for target shareholders. In a departure from the US model, in acquisitions of a significant size shareholders of UK bidder firms also have voting rights that constrain bidder boards. Furthermore, while the US takes a board-centric approach to director power in erecting takeover barriers, the Takeover Code limits the ability of directors to diminish or ‘frustrate’ shareholder power through takeover defenses. Significantly for friendly deals, in 2011 the UK revised its takeover rules to also dramatically constrain the power of directors to negotiate deal protection mechanisms. A key principle in the UK’s approach to friendly takeovers is constraint on director power and negotiating leverage. The shareholder-centric approach of the UK in many ways reflects the power of institutional investors who have been central to the drafting and design of the Takeover Code.

In balancing corporate governance concerns in friendly takeovers, the US has historically emphasized the interplay between ex ante protections (ie disclosure and shareholder voice) and ex post policing (ie litigation) in ways that reflect a director-centric approach. Shareholder voice is more constrained than in the UK. Not only is the voting threshold lower for shareholder voting in M&A deals, but bidder shareholders are often deprived of voting rights even in significant transactions. While shareholders may have a voice, the transaction is controlled by management. Management controls the timing and negotiation of the deal, as well as the information upon which shareholders rely in deciding whether to approve the matter or to tender in their shares. The shareholders’ vote on a deal hinges on the structure of the deal as designed by directors, including the deal protection provisions of the transaction. Unlike in the UK, directors of US firms have wide latitude to design deal protection measures. In fact, over the past decade, deal protection mechanisms have become stronger in the US with a proliferation and expansion of a variety of mechanisms that provide management with tools to protect its preferred deal.

Cognizant of management control and their conflicting incentives in negotiating takeovers, Delaware law has historically provided target shareholders two avenues to hold directors accountable through the courts—fiduciary duty litigation and appraisal rights. Over the past decade both avenues have been eroded by new doctrine. Shareholders seeking to pursue a claim for breach of fiduciary duties in a friendly takeover can file a suit for a preliminary injunction seeking to bring forth additional disclosure or to modify the merger agreement, particularly deal protection measures. Since the mid-2010s, however, the Delaware courts have tightened the standard for preliminary injunctions in merger cases, thus limiting shareholders’ ability to pursue fiduciary-based claims. Through the Corwin case and its progeny, the Delaware courts have also limited ex-post judicial review of board decisions in third-party takeovers. These decisions were a systematic move by the Delaware Courts to place limits on the wave of merger-related litigation sweeping its courts.

Under Delaware law, in certain takeovers, stockholders are entitled to an appraisal right; that is to refuse to accept the consideration offered and instead turn to the courts to determine the fair value of their shares. Appraisal was long seen as a limited remedy, but in the last decade appraisal actions gained steam with sophisticated investors acting as dissenting shareholders. The increase in appraisal actions led to a trio of important decisions by the Delaware Supreme Court.  These decisions place great emphasis on the agreed-to deal price as the ‘fair value’, substantially weakening appraisal as a remedy. The courts’ deference to deal price is driven by many of the same considerations that have driven limitations on fiduciary duty litigation in friendly takeovers.

Overall, Delaware jurisprudence now emphasizes the value of ex ante methods—such as deal process or deal-requirements like shareholder voting—to address corporate governance concerns. The shifts in Delaware have been depicted as elevating governance and procedure over costly and uncertain litigation. Some commentators have even argued that these moves recognize increased shareholder power in the US and bring Delaware closer to the UK model where the primary role of the target board is ensuring a stockholder vote.

I argue, however, that once we take into account the authority that boards have in designing a deal and putting into place a wide variety of deal protection mechanisms, the move toward expanding the value of ex ante shareholder voice and devaluing ex-post litigation in reality maintains and reinforces management power in Delaware. This is not surprising. The Delaware approach to takeovers, with courts as the arbiter of corporate governance disputes, has long been concerned with maintaining the centrality of board decision-making. And when that centrality came under attack with the rise in fiduciary duty and appraisal litigation, the courts responded to the significant management backlash to these rising trends by reverting to the pro-manager approach of Delaware jurisprudence. Thus, Delaware maintains the deference given to board decisions and continues to insulate director decisions on deal protection from second-guessing by shareholders or courts. Similarly, the turn in appraisal jurisprudence reflects judicial faith in deal process as designed by boards and management. While the US litigation regime now appears to elevate the value of a shareholder vote in friendly deals, this vote is in the context of deals that have been designed through a plethora of deal protection mechanisms to tie the hands of shareholders and leave them stuck with the deal as presented by management.

The primacy of directors under the US regime becomes even more pronounced when one compares that regime with the UK’s, which places significant constraints on the board’s ability to negotiate deal protection devices. The question remains open, however, as to which system is better for the corporation and its shareholders.

Afra Afsharipour is Senior Associate Dean for Academic Affairs & Professor of Law at the UC Davis School of Law.

November 2, 2017

The Original Meaning of the Alien Tort Statute

By William Dodge

[Cross-posted from Just Security]

At oral argument in Jesner v. Arab Bank, Supreme Court Justice Neil Gorsuch raised a theory about the about the original meaning of the Alien Tort Statute (ATS), a provision of the First Judiciary Act of 1789 that gave the district courts cognizance “of all causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States.” Relying on the work of Professors Anthony Bellia and Bradford Clark, Justice Gorsuch suggested that the ATS was originally intended to grant jurisdiction only when the defendant was a U.S. citizen. In a post on Lawfare, Bellia and Clark try to explain why Justice Gorsuch is right. Here, I try to explain why Bellia and Clark are wrong.

The Supreme Court has examined the history of the ATS before. In Sosa v. Alvarez-Machain, relying on the amicus brief of professors of federal jurisdiction and legal history that I wrote, the Court traced the origins of the ATS to a 1781 resolution of the Continental Congress recommending that the states punish offenses against the law of nations and authorize suits for damages by the injured parties. The Court noted that the issue was given fresh urgency by the 1784 Marbois incident, in which a French adventurer assaulted the Secretary of the French Legation in Philadelphia, François Barbé-Marbois. The Court concluded that Congress passed the ATS to cover the three offenses against the law of nations that Blackstone had listed in his Commentaries on the Laws of England—offences against ambassadors, violations of safe-conducts, and piracy. Finally, the Court held that ATS claims based on modern international law should be limited to norms as generally accepted and as specifically defined as those eighteenth century paradigms. 

Bellia and Clark’s theory of the ATS’s coverage is narrower than Sosa’s in some ways and broader in others. Their theory is narrower because it is limited to torts committed by U.S. citizens. As Bellia and Clark explain, the eighteenth-century law of nations “required the United States (like all nations) to redress acts of violence by its own citizens against citizens of foreign nations (with whom the United States was at peace) by imposing criminal punishment, extraditing the offender, or providing a civil remedy. Failure to redress such violence in one of these ways gave the offended nation just cause to retaliate against the United States, including through war.” Their theory is broader because it is not limited to the three paradigms that Blackstone identified but encompasses all “acts of violence by a citizen of one nation against the citizen of another.” Indeed, Bellia and Clark deny that the ATS was intended to reach offenses against ambassadors, violations of safe conducts, and piracy at all. Congress addressed these violations of the law of nations separately, and apparently exclusively, by making them criminal offenses in the Crimes Act of 1790. They write, “the ATS was not duplicative of other federal statutes.” Thus, if Justice Gorsuch really wants to follow Bellia and Clark, he would have to abandon the Sosa test for actionable norms, for it makes no sense to tie the ATS cause of action to eighteenth-century paradigms that the ATS was not supposed to cover. He would have to conclude instead that all acts of violence committed by U.S. defendants, natural persons and corporations alike, are torts in violation of the law of nations for which aliens may bring suit in federal court under the ATS.

There is no doubt that the founding generation was concerned about violations of the law of nations for which the United States might be held responsible by other nations. But the text and history of the ATS show that Congress’s concerns were not limited to violations committed by U.S. citizens. The text and history of the ATS also refute just about every other aspect of Bellia and Clark’s theory.

The 1781 Resolution

First, take the 1781 resolution of the Continental Congress that Sosa recognized as the forerunner of the ATS. (As Sarah Cleveland and I have noted, this resolution was also the forerunner of the Offenses Clause in the U.S. Constitution.) The resolution recommended that the states “provide expeditious, exemplary and adequate punishment” for “offences against the law of nations.” Contrary to Bellia and Clark’s theory, the resolution did not refer generally to all acts of violence by U.S. citizens against citizens of foreign nations but specifically listed violations of safe conducts, infractions of the immunities of ambassadors, and infractions of treaties to which the United States was party. This enumeration tracks Blackstone’s list of offenses against the law of nations, with the addition of treaties (which were commonly understood to be part of the law of nations) and the omission of piracy (which the Continental Congress already had authority to punish by itself under the Articles of Confederation).

Contrary to Bellia and Clark’s theory, the 1781 resolution also shows that the Continental Congress saw no inconsistency in providing a civil remedy on top of criminal punishments. The resolution further recommended that the states “authorise suits to be instituted for damages by the party injured.” It is this recommendation that the First Congress later implemented by passing the ATS.

The 1781 resolution does support Bellia and Clark’s theory in one respect. The report of the committee that prepared the resolution expressed concern about offenses against the law of nations “by a citizen of the United States.” But this limitation did not make it into the text of the ATS, and the Marbois incident explains why.

The Marbois Incident

Although the violence against Marbois in 1784 was not inflicted by a citizen of the United States, the French Ambassador considered it a “violation of the laws of Nations” and formally complained to the Continental Congress. Although the national government had no authority to redress this violation, the State of Pennsylvania did, and the assailant was tried and convicted for “an infraction of the law of Nations.”

Bellia and Clark argue that the First Congress addressed the Marbois incident in other ways, by giving the Supreme Court original jurisdiction over cases involving ambassadors and by making assaults on ambassadors a criminal offense. But the fact that a replay of the Marbois incident would have been covered by Section 13 of the Judiciary Act because it involved a foreign diplomat does not mean that such an incident would not also have been covered by Section 9 of the Judiciary Act because it involved a tort in violation of the law of nations. Jurisdictional grants often overlap. Nor does the fact that Congress provided criminal punishment for assaults on ambassadors and other public ministers show that Congress would not also have wanted to allow the injured minister to bring a civil suit in federal court (as Bellia and Clark appear to concede by invoking Section 13’s provision allowing civil suits).

In light of this history, it seems implausible that the First Congress would not have understood the ATS’s reference to “all causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States” to include a case like the Marbois incident. After all, Blackstone had listed infringement of the rights of ambassadors as an offense against the law of nations. The Continental Congress had done the same in 1781, urging the states to punish such violations and permit suits for damages. And when such an event had actually occurred in Philadelphia, both the French ambassador and the Pennsylvania court had condemned it as a violation of the law of nations, despite the fact that it had not been committed by a citizen of the United States.

The Text of the ATS

The text of the ATS also refutes Bellia and Clark’s theory—both their attempt to narrow the ATS to torts by U.S. citizens and their attempt to broaden it to all acts of violence. As originally enacted, the ATS gave the district courts cognizance “of all causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States.”

One will notice immediately that, while the ATS limits potential plaintiffs to aliens, it does not limit potential defendants to U.S. citizens. Bellia and Clark argue that “the ATS did not need to spell out that suits by an alien for ‘a tort only in violation of the law of nations’ meant a tort committed by a U.S. citizen.” This limitation would have been obvious, they assert, “[b]ecause the United States’ obligation under the law of nations was limited to redressing harms by U.S. citizens against aliens.” But if it was unnecessary to spell out that the defendant must be a U.S. citizen, it should have been equally unnecessary to spell out that the plaintiff must be an alien. Under their theory, both limitations would have been implicit in the concept of “a tort only in violation of the law of nations.” The fact that Congress imposed one limitation, and not the other, shows that the ATS is not limited to suits brought against U.S. citizens, and the Marbois incident explains why.

It is also telling that early courts did not read the ATS as limited to suits brought against U.S. citizens. Both Moxon v. The Fanny (1793) and Bolchos v. Darrel (1795) involved claims against foreign defendants. If the limitation to U.S. defendants was as obvious as Bellia and Clark suggest, it is odd that neither court mentioned it.

The text of the ATS also refutes Bellia and Clark’s argument that the ATS was intended to reach all acts of violence. Under their theory, the United States would violate the law of nations by failing to provide redress to an injured alien. But the text of the ATS describes the tort itself as being “in violation of the law of nations or a treaty of the United States.” In an earlier post, I relied on the word “committed,” which appears in the current codification of the ATS but not in the original statute. But the basic argument is the same. Under both the original text and the modern text, the ATS requires that the tort violate the law of nation, not that the failure to provide redress does. Blackstone had identified three offenses that would qualify: infringement of the rights of ambassadors, violations of safe-conducts, and piracy. The Continental Congress relied on this list in 1781 when it urged the states to punish offenses against the law of nations and permit suits for damages. There is no reason to think that the First Congress adopted a broader focus when it made good on the 1781 resolution by passing the ATS.

Article III

Bellia and Clark’s final argument is that suits between two aliens violate Article III because they exceed the limits of diversity jurisdiction. The modern answer to that concern is that ATS suits today arise under the federal-common-law cause of action recognized in Sosa. The original answer is that the law of nations was considered part of “the Laws of the United States” for purposes of Article III’s grant of “arising under” jurisdiction. For a full examination of the evidence on both sides, readers should consult Professor Curtis Bradley’s 2002 article and my response. Here, I will limit myself to just four points.

First, Article III’s reference to “Laws of the United States” is broader than Article VI’s reference to “Laws of the United States which shall be made in pursuance [of this Constitution].” The difference in text suggests that there is at least one category of laws that are “Law of the United States” but not made under the Constitution, and the law nations would seem to be the most likely candidate. Second, many of the plans and drafts at the Constitutional Convention on which the final Constitution was based provided for federal jurisdiction over cases arising under the law of nations. Third, during the ratification debates, a number of people read Article III as extending to cases arising under the law of nations. John Jay praised the breadth of Article III in Federalist No. 3, arguing that “[u]nder the national government, treaties and articles of treaties, as well as the law of nations, will always be expounded in one sense,” while William Grayson criticized it at the Virginia ratifying convention for covering “all cases depending on the law of nations.”

Finally, interpreting Article III’s “arising under” grant to include the law of nations will not open the floodgates to suits under international law. Article III is not self-executing. Congress must pass a statute to give lower federal courts jurisdiction. The general federal question statute is narrower than the Article III grant, and Sosa suggested in a footnote that the statutory grant should not be interpreted reach claims arising under the law of nations.

But interpreting Article III’s “arising under” grant to include the law of nations would allow ATS to cover cases between two aliens that involve torts in violation of the law of nations—cases like Marbois’s in the eighteenth century, and cases like Filartiga and Jesner today. That is plainly what Congress intended.

October 2, 2017

Corporate Liability for Human Rights Violations: A Preview of Jesner v. Arab Bank, PLC

By William Dodge

[Cross-posted from Just Security]

On October 11, the U.S. Supreme Court will hear oral argument in Jesner v. Arab Bank, PLC on the question whether corporations can be sued for human rights violations under the Alien Tort Statute (ATS). This will be the second time the question of corporate liability has come before the Court. In 2011, the Supreme Court granted cert to consider the same question in Kiobel v. Royal Dutch Petroleum Co., but after oral argument the Court asked for additional briefing on the geographic scope of the ATS cause of action. Ultimately, the Supreme Court affirmed dismissal of the claims in Kiobel on the ground that they did not "touch and concern" the United States with sufficient force to displace the presumption against extraterritoriality. The Court did not reach the question of corporate liability under the ATS, leaving the Second Circuit's categorical rule against such liability intact.

Victims of terror attacks in Israel, the West Bank, and Gaza-both U.S. citizens and non-U.S. citizens-alleged that Arab Bank knowingly funneled millions of dollars through its New York branch to finance these attacks and reward the families of suicide bombers. The U.S.-citizen plaintiffs sued under the Antiterrorism Act (ATA), while the non-U.S.-citizen plaintiffs sued under the ATS. In the ATA suit, the district court found that Arab Bank knowingly provided financial services to persons that it knew to be terrorists. In the ATS suit, the district court dismissed, and the Second Circuit affirmed the dismissal, on the sole ground that under circuit precedent ATS cannot be brought against corporations.

The arguments in Jesner fall into three groups:

1) whether customary international law permits corporate liability;

2) whether, as a matter of U.S. domestic law, the ATS cause of action should be interpreted to permit corporate liability;

3) whether the case against Arab Bank should be dismissed on some other ground.

Whether Customary International law Permits Corporate Liability

Whether customary international law permits corporate liability is in some sense the threshold question, because the ATS gives federal courts jurisdiction over actions "by an alien for a tort only, in violation of the law of nations or a treaty of the United States." In Kiobel, the Second Circuit held that corporations could never be held liable under the ATS because there is no "norm of corporate liability under customary international law." The Second Circuit relied heavily on the fact that international criminal tribunals from Nuremberg to the ICC had been given jurisdiction only over natural persons. 

The detailed analysis in the amicus brief of Nuremberg Scholars, however, shows it was understood at Nuremberg that juridical persons could violate international law and be held legal accountable for doing so. The amicus brief filed by Ambassador David Scheffer, who led the U.S. delegation in the negotiations that established the ICC, explains that corporations were excluded from the Rome Statute because of a lack of consensus on criminal, rather than civil liability, which posed problems under the ICC's principle of complementarity. The amicus brief filed on behalf of International Law Scholars argues more generally that limitations on the jurisdiction of particular courts are not limitations on customary international law norms themselves. It explains that customary international law prohibits violations of fundamental human rights but leaves it to nations to enforce such norms-collectively through mechanisms like international criminal tribunals and suppression conventions, and individually through their own domestic laws. (Full disclosure: I am counsel of record for the International Law Scholars.)

The amicus brief filed by the United States agrees that international law "establishes substantive standards of conduct but generally leaves each nation with substantial discretion as to the means of enforcement within its own jurisdiction." The United States adds that the norms actionable under the ATS, like torture, genocide, and war crimes, "neither require nor necessarily contemplate a distinction between natural and juridical actors." The amicus brief of the Yale Law School Center for Global Legal Challenges fleshes out the latter point, showing that eight customary international law prohibitions-genocide, crimes against humanity, financing terrorism, torture, extrajudicial killing, war crimes, slavery, and piracy-both meet the Sosa-standard for actionable norms under the ATS and extend to corporations. And the amicus brief of Canadian International and National Security Law Scholars elaborates on financing terrorism as a violation of international law.

Respondent Arab Bank and the amicus brief filed by the Chamber of Commerce do little to meet these arguments, largely limiting themselves to repeating what the Second Circuit said in Kiobel. The amicus brief filed on behalf of Professors of International Law, Foreign Relations Law, and Federal Jurisdiction makes an additional argument that the ATS should be limited to claims for violations of international law that, if left unaddressed, might give other countries just cause for war against the United States. This argument finds no support in the text of the ATS, however, which refers without limitation to torts "in violation of the law of nations or a treaty of the United States." This argument also fails to account for piracy, which the Supreme Court recognized in Sosa v. Alvarez-Machain as one of the three paradigm offenses the ATS was intended to address and which (unlike violations of safe-conducts and infringement of the rights of ambassadors) would not have given other countries cause for war if left unaddressed.

Whether the ATS Cause of Action Should Permit Corporate Liability

Whether the ATS cause of action recognized in Sosa v. Alvarez-Machain should apply to corporations as a matter of U.S. domestic law is a separate question from whether customary international law permits it to do so. Petitioners note that while the language of the ATS limits potential plaintiffs to aliens, it does not limit potential defendants in any way. Petitioners also argue that the ATS's use of the word "tort" supports corporate liability because tort actions could presumptively be brought against corporations both at the time the ATS was enacted and today. And petitioners note the history of holding entities like ships directly responsible for piracy, one of the paradigm violations of the law of nations that the ATS was intended to reach. Amicus briefs filed by Professors of Legal History and by Procedural and Corporate Law Professors discuss the liability of juridical entities at the time the ATS was enacted and today.

In Sosa v. Alvarez-Machain, the Supreme Court suggested that it would look for "legislative guidance" in shaping the federal-common-law cause of action under the ATS. Petitioners note that most federal statutes authorize corporate liability. But they point in particular to the ATA-the statute that U.S.-citizen plaintiffs successfully used to sue Arab Bank-which creates a cause of action for victims of terrorism and, like the ATS, does not distinguish between corporations and natural persons as defendants. Respondent Arab Bank, on the other hand, argues that the Supreme Court should look for guidance to the Torture Victim Protection Act (TVPA), which Congress passed in 1992 to create an express cause of action for torture and extrajudicial killing. In Mohamad v. Palestinian Authority, the Supreme Court held that Congress limited liability to natural persons by using the word "individual," a word not found in the ATS.

The amicus brief filed by the United States agrees with petitioners that the ATS cause of action should reach corporate defendants. The United States notes that the TVPA is expressly limited to natural persons by virtue of the word "individual," while the ATS does not distinguish among classes of defendants. The United States also points to the long history of corporate tort liability in England and the United States. Finally, the United States notes the early understanding that corporations could be plaintiffs under the ATS and that excluding corporations as defendants would be in "considerable tension" with that understanding.

The last point suggests a more general reason why the Supreme Court may be reluctant categorically to exempt corporations from ATS claims. The Court has been criticized in recent years for extending the rights of natural persons to corporations in cases like Citizens United v. FEC. Whether or not such criticism is justified, it would certainly seem odd to many Americans to say that corporations can have the rights of natural persons but cannot be held liable like natural persons when they violate human rights.

Other Grounds

Respondent Arab Bank argues that if the Supreme Court overturns the Second Circuit's categorical prohibition of ATS suits against corporations, it should affirm dismissal of the claims in this case on other grounds because of the harm this case is causing to Jordan and by extension to U.S. foreign policy in the Middle East. This is an argument seconded in various ways in amicus briefs filed by the Kingdom of Jordan, the Central Bank of Jordan, the Union of Arab Banks, the Institute of International Bankers, and Former State Department Officials. On the other hand, Senators Sheldon Whitehouse and Lindsey Graham, Former Counterterrorism and National Security Officials, and Financial Regulation Scholars argue that civil liability for terrorist financing is essential to combatting terrorism.

As for specific alternative grounds, Arab Bank argues that routing wire transfers through New York is not sufficient to satisfy Kiobel's "touch and concern" test, that deciding the case "would force federal courts to wade into profoundly sensitive foreign-policy issues," and that financing terrorism is not an actionable violation of customary international law under the Sosa standard. The United States also suggests that routing wire transfers through New York may not be sufficient to meet the "touch and concern" test in ATS cases, though its brief cautions that "the government could potentially rely on such activity as the basis for a criminal indictment or civil enforcement action." To prevent prolonging the suit, the United States suggests that the "touch and concern" issue should be resolved directly by the Second Circuit on remand. Petitioners simply argue that the other grounds raised by Arab Bank should be handled by the lower courts on remand under the ordinary procedures of appellate review.

Arab Bank's heavy emphasis on other grounds might make one doubt its confidence in its arguments with respect to corporate liability. But if the Supreme Court were to reverse the Second Circuit's categorical ban on corporate liability in ATS suits, Arab Bank would still have a number of ways to argue that this particular suit should be dismissed. More generally, as I have explained elsewhere, ATS suits against corporations will continue to face a number of significant challenges, from establishing personal jurisdiction, to meeting the mens rea standard for aiding and abetting liability, to satisfying Kiobel's "touch and concern" test. Sosa also raised the possibility of "case-specific deference to the political branches" if the State Department files a statement of interest addressing foreign policy concerns, something it has not done in Jesner.

Four years ago, in Kiobel, the Supreme Court did what Arab Bank now suggests. It avoided the corporate liability question and resolved the case on other grounds. The circuit split that the Court preserved is now six years old. Every other circuit to have addressed the question has concluded that the Second Circuit is wrong.  Rather than duck the question again and have to grant cert for a third time, the Supreme Court should take this opportunity to decide whether the ATS categorically forecloses corporate liability.

January 20, 2017

Serving as Visiting Scholar at National Chiao-Tung University in Taiwan

I had the honor of serving as a visiting scholar at National Chiao-Tung University, Taiwan during the week of January 8th. My visit was coordinated by Professor Chien-Chung Lin, who has twice visited UC Davis School of Law to present papers at the American Society of Comparative Law (ASCL), Younger Comparativists Committee (YCC) Workshop on Comparative Business and Financial Law. Taiwanese corporate law scholars such as Professor Lin have been doing excellent work especially in the area of comparative corporate law, so I was very much looking forward to interacting with some of them.

I began my visit with a fabulous lunch organized by Professor Lin and our own UC Davis JD student, Oscar Yang (himself a 2016 graduate of our LLM program). Oscar and Professor Lin had graciously invited leading Taiwanese lawyers for the lunch, including Prosecutor Jawyang Huang, Taipei District Prosecutors Office. Mr. Huang has been a visiting scholar at Yale University School of Law and was Oscar's supervisor in the Office of Trade Negotiations, in charge of WTO dispute settlement cases. We were joined by two of Oscar's former colleagues who were both fabulous company, Ms. Jenny Van, Senior Legal Adviser in Office of Trade Negotiations and Mr. Jason Lai, Secretary to the Director-General of Bureau of Foreign Trade.  It was a terrific lunch at one of Taipei's most popular restaurants, Din Tai Fung. After the lunch Mr. Huang gave me a fascinating tour of the Taipei Judicial Building, where I was able to observe a few trials that were being conducted. The efficiency and order at the judicial building was quite impressive.

After the first day in Taipei, Professor Lin took me to Hsinchu, one of the educational centers of Taiwan. The city has several prestigious universities, including National Chiao Tung University and National Tsing Hua University. Hsinchu is also an economic and technology hub in Taiwan with an impressive science and technology industrial park. The science and technology park is home to hundreds of high technology companies including world-renowned firms in the semiconductor space such as TSMC and UMC. Professor Lin gave me a tour of the technology park and given my prior corporate practice experience in the semiconductor space I was quite excited to see the place!

In Hsnichu, I gave three lectures at the two law schools there.

  1. Redefining Corporate Purpose: An International Perspective, at the Institute of Law for Science & Technology, College of Technology Management, National Tsing Hua University in Hsinchu, Taiwan.
  2. Deal Structure and Minority Shareholders, at the School of Law at National Chiao-Tung University, Taiwan
  3. Legal Transplants in the Law of the Deal: M&A Agreements in India at the School of Law at National Chiao-Tung University, Taiwan


Lecturing at NTHU

My visit to National Tsing Hua University was coordinated by Professor Robert Tsai, who is trained as an attorney in both Taiwan and the U.S. The lectures were well-attended, and the audience of professors and law students asked excellent questions.

I also had the opportunity to visit the Taiwan Stock Exchange to learn more about the significant corporate governance initiatives undertaken in Taiwan. I had an informative meeting at the Taiwan Stock Exchange with Mr. Joe Tsun Cheng (Senior Vice President, Corporate Governance Department) and Ms. Tracy Chen (Associate, Corporate Governance), as well as meeting Mr. Lih Chung Chien, Senior Executive Vice President of the Taiwan Stock Exchange. At the meeting we exchanged views on corporate governance initiatives undertaken in Asia, and I detailed some of my scholarly work on the trajectory and possible outcomes of the corporate governance reforms undertaken in India over the last decade. I really enjoyed the intellectual engagement with the professors, lawyers and law students I had the privilege to meet.

Professor Lin had also kindly arranged many opportunities for me to experience the beauty and culture of Taiwan, including visits traditional tea houses, temples and the CKS Memorial Hall and Liberty Square, an afternoon at beautiful hot springs outside of Taipei, a culinary adventure with law students at one of Taipei's fabulous night markets, a tour of the National Palace Museum, several informative walks around the different districts in Taipei, and more delicious meals than I can count.  I could easily have spent weeks enjoying all that Taiwan has to offer from its vibrant coffee culture to its elegant tea houses and lush country side, all topped off by the generous hospitality and friendliness of its people.

If it is not already clear, the trip to Taiwan was truly inspiring, and I look forward to future visits!

May 6, 2016

Faculty Scholarship: Legal Studies Research Paper Series, Vol. 18, No. 2

Faculty members at UC Davis School of Law publish truly unique scholarship that advances the legal profession. You can view their scholarly works via the Social Science Research Network (SSRN) Legal Scholarship Network. An archive can be found on this web page.

What follows here is the most recent collection of papers:

"Corporate Governance and the Indian Private Equity Model" 
National Law School of India Review, Volume 27, Issue 1
UC Davis Legal Studies Research Paper No. 484

AFRA AFSHARIPOUR, University of California, Davis - School of Law
Email: aafsharipour@ucdavis.edu

Private Equity (PE) firms have long invested in Western firms using a leveraged buyout (LBO) model, whereby they acquire a company that they can grow with the ultimate goal of either selling it to a strategic buyer or taking it public. Unable to undertake the traditional LBO model in India, PE investors in Indian firms have developed a new model. Under this Indian PE Model, PE firms typically acquire minority interests in controlled companies using a structure that is both hybridized from other Western investment models and customized for India's complex legal environment. As minority shareholders in controlled firms, PE investors in India have developed several strategies to address their governance concerns. In particular, PE investors in India have focused on solutions to address local problems through the use of agreements that govern (i) the structuring of minority investments, (ii) investor control rights, and (iii) exit strategies. Nevertheless, recent governance and regulatory difficulties highlight the continuing uncertainty surrounding the Indian PE model.

"National Data Governance in a Global Economy" 
Columbia School of International and Public Affairs Issues Brief, April 2016
UC Davis Legal Studies Research Paper No. 495

ANUPAM CHANDER, University of California, Davis - School of Law
Email: achander@ucdavis.edu

Global data flows are the lifeblood of the global economy today and of the technologies of the future. Yet, the regulation of how data is to be handled remains largely the province of national laws. How we resolve the dilemmas of global flows within a nation-state structure will impact the digital economy, free expression, privacy, security, consumer protection, and taxation. Just as we once built an architecture for cross-border flow of goods, we need to build an architecture for cross-border flow of information.

"The Charming Betsy and the Paquete Habana" 
UC Davis Legal Studies Research Paper No. 485

WILLIAM S. DODGE, University of California, Davis - School of Law
Email: wsdodge@ucdavis.edu

This chapter for the book "Landmark Cases in Public International Law" discusses two famous U.S. Supreme Court decisions - The Charming Betsy (1804) and The Paquete Habana (1900). Although written nearly one hundred years apart, each decision appears to stand for similar propositions - that international law has an important place in the law of the United States, but that U.S. domestic law should prevail in the event of conflict. What often goes unnoticed is that the Supreme Court decided these cases against the backdrop of very different understandings about international law and its relationship to U.S. domestic law.

In addition to discussing the background and significance of each case, this chapter describes three shifts in U.S. thinking about customary international law during the nineteenth century. First, the theoretical foundations of customary international law shifted away from natural law towards positivism. Second, the consent requirement for making customary international law shifted from the individual consent of each state to the consent of states generally. And third, the U.S. understanding of the relationship between international law and domestic law shifted away from monism towards dualism - away from an understanding that international law was part of U.S. law unless displaced, towards an understanding that international law was not part of U.S. law unless adopted. The Charming Betsy and The Paquete Habana are landmark cases not because they changed the course of international law in the United States but because they reveal changes in the landscape.

"Probate Lending" 
Yale Law Journal, Vol. 126, 2016
UC Davis Legal Studies Research Paper No. 492

DAVID HORTON, University of California, Davis - School of Law
Email: dohorton@ucdavis.edu
ANDREA CANN CHANDRASEKHER, University of California, Davis - School of Law
Email: achandrasekher@ucdavis.edu

One of the most controversial trends in American civil justice is litigation lending: corporations paying plaintiffs a lump sum in return for a stake in a pending lawsuit. Although causes of action were once inalienable, many jurisdictions have abandoned this bright-line prohibition, opening the door for businesses to invest in other parties' claims. Although some courts, lawmakers, and scholars applaud litigation lenders for helping wronged individuals obtain relief, others accuse them of exploiting low-income plaintiffs and increasing court congestion.

This Article reveals that a similar phenomenon has quietly emerged in the probate system. Recently, companies have started to make "probate loans": advancing funds to heirs or beneficiaries to be repaid from their interest in a court-supervised estate. The Article sheds light on this shadowy practice by empirically analyzing 594 probate administrations from a major California county. It finds that probate lending is a lucrative business. Nevertheless, it also concludes that some of the strongest rationales for banning the sale of causes of action - concerns about abusive transactions and the corrosive effect of outsiders on judicial processes - apply to transfers of inheritance rights. The Article thus suggests several ways to regulate this nascent industry.

"The Social Transmission of Racism" 
Tulsa Law Review, Vol. 51, 2016
UC Davis Legal Studies Research Paper No. 489

LISA CHIYEMI IKEMOTO, University of California, Davis - School of Law
Email: lcikemoto@law.ucdavis.edu

This essay reviews two books, Robert Wald Sussman, The Myth of Race: The Troubling Persistence of an Unscientific Idea (Harvard University Press 2014) and Osagie K. Obasogie, Blinded by Sight: Seeing Race Through the Eyes of the Blind (Stanford University Press 2014). Sussman is an anthropologist who brings his expertise to bear in tracing scientific racism through history. Obasogie is a legal scholar and sociologist who uses both qualitative data gathered through interviews with blind and sighted people and Critical Race Theory to explore racialization's dependence on the idea that race is visually obvious. Each book examines an idea that has sustained racism despite social, political and geographic change. The essay assesses each account and links the authors' analyses to judicial and legislative framings of reproductive rights and to postmodernist scholarship on race, gender and the human body.

"Computer Source Code: A Source of the Growing Controversy Over the Reliability of Automated Forensic Techniques" 
DePaul Law Review, Forthcoming
UC Davis Legal Studies Research Paper No. 487

EDWARD J. IMWINKELRIED, University of California, Davis - School of Law
Email: EJIMWINKELRIED@ucdavis.edu

The article deals with two legal issues posed by the growing trend in the United States to automate forensic analyses.

Since World War II, we have had alarming insights into the unreliability of both eyewitness testimony and confession evidence. Those insights have prompted the criminal justice system to place greater reliance on forensic evidence. In one Rand study, the researchers found that expert testimony was presented at 86% of the trials examined. This shift to greater use of expert testimony has placed growing demands on crime laboratories. For example, the backlog of unanalyzed DNA samples has become such an acute problem that Congress was impelled to enact the DNA Backlog Elimination Act to provide funding to reduce the backlog of untested rape kits.

In both the public and private sectors, the typical response to the development of a backlog is technological automation. That has certainly held true for forensic analysis. There is now widespread automation in such areas as fingerprint examination, breath testing, and DNA analysis. The argument runs that automation holds the promise of both enhancing efficiency and improving the accuracy of the analyses proffered in court.

That promise turns on the accuracy of the source code controlling the software governing the automated techniques. The source code embeds the instructions determining which tasks the program performs, how the program performs them, and the order in which it performs the tasks. The validity of a program's source code is the most fundamental guarantee of a software program's reliability. Defense counsel have sometimes challenged the software for automated forensic techniques. Early in this century, the defense counsel attacked the software controlling automated infrared breath testing devices. Today they are challenging the software for the TrueAllele program analyzing mixed DNA samples. Those waves of cases have posed two issues: (1) whether the prosecution can lay a sufficient foundation for evidence based on an automated technique without presenting testimony about the computer source code; and (2) whether the defense has any discovery right to access to the code. Almost all the courts have answered the first question in the affirmative and the second question in the negative. In responding to the second question, the courts have reasoned that the existence of validation studies for the technique eliminates any need to scrutinize the source code and that in any event, manufacturers have an evidentiary privilege protecting the code as a trade secret. The purpose of this short article is to critically evaluate the judicial response to both questions.

On the one hand, the article argues that the courts have correctly answered the first question. More specifically, the prosecution may lay an adequate foundation by presenting testimony describing validation studies for the automated technique even if the testimony does not touch on the source code. On the other hand, the article contends that in some cases, the courts ought to accord the defense a pretrial discovery limit. The article explains the limited utility of validation studies and notes that the evidentiary privilege for trade secrets is a qualified one that can be surmounted when the party seeking discovery has a significant need for the information. The article proposes a procedure that judges can employ to resolve the tension between the defendant's need for access to the source code and the manufacturer's legitimate interest in safeguarding its valuable proprietary information.

"Beyond Surveillance: Data Control and Body Cameras" 
__ Surveillance & Society __ (2016) Forthcoming
UC Davis Legal Studies Research Paper No. 494

ELIZABETH E. JOH, University of California, Davis - School of Law
Email: eejoh@ucdavis.edu

Body cameras collect video data - lots of it - and thus many have raised questions about increased government surveillance. But if understood primarily as data collection, surveillance represents only one concern. In our big data age, "seeing, monitoring, and recording the digital footprints is quite different from sharing, releasing, revealing or publicizing the data." Body camera policies must address not only concerns about surveillance, but also data control.

"Some Thoughts on the Future of Legal Education: Why Diversity and Student Wellness Should Matter in a Time of 'Crisis'" 
Buffalo Law Review, Forthcoming
UC Davis Legal Studies Research Paper No. 488

KEVIN R. JOHNSON, University of California, Davis - School of Law
Email: krjohnson@ucdavis.edu

Some vocal critics have loudly proclaimed that the challenges of law school economic have reached "crisis" proportions. They point to the well-known facts about recent developments in the market for law schools. Law schools have experienced a precipitous drop in applications. The global recession decimated the legal job market. To make matters worse, rising tuition has resulted in increasing debt loads for law graduates.

In light of the changes in the legal marketplace, stabilization of the budgetary picture is currently the first priority of virtually every American law school. Faculty members have been let go. Staffs reduced. Enrollment of students - and the collection of tuition revenues - have critical budgetary consequences.

Linked to the economic "crisis" facing law schools and students was deep concern with each school's relative placement in the much-watched U.S. News and World Report law school rankings. These rankings, among other things, affect admissions and enrollment, and thus budgetary bottom lines for law schools.

Much less publicized concerns with legal education involve non-financial issues. The lack of racial and other diversity of students attending law school, and ultimately entering the legal profession, and faculty, has long been a problem. In addition, today's students demand a more humane legal education and are asking for additional academic support, career and mental health counseling, experiential learning opportunities, and more. The costs of the additional services and programs have further added to budgetary pressures on law schools.

This Essay contends that law schools should strive to address the noneconomic as well as the economic problems with modern legal education. In a time of considerable change, this is a most opportune time to consider and implement deep and enduring improvements that benefit students as well as the entire legal profession.

"Welfare Queens and White Trash" 
25 Southern California Interdisciplinary Law Journal 289 (2016)
UC Davis Legal Studies Research Paper No. 486

LISA R. PRUITT, University of California, Davis - School of Law
Email: lrpruitt@ucdavis.edu

The "welfare queen" is widely recognized as a racialized construct deployed by politicians to undermine support for public benefits and the wider social safety net. Less often recognized or discussed is the flip side of the welfare queen's conflation of blackness with dependency and poverty: the conflation of whiteness with self-sufficiency, autonomy, and affluence. The welfare queen trope, along with media and scholarly depictions of socioeconomic disadvantage as a nonwhite phenomenon, deflects attention from white poverty. Yet data indicate that a majority of poor people in the United States self-identify as white.

This essay, written for the "Reframing the Welfare Queen" symposium, (re)surfaces the existence of white poverty and ponders its (in)visibility, meaning, and significance in relation to the welfare queen construct. Among other things, Pruitt suggests that the welfare queen stigmatype is not just bad for blacks, it is bad for poor whites. First, it obscures white poverty, rendering poor whites and their plight invisible. Second, to the extent we are aware of white poverty, the widespread conflation of whiteness with affluence suggests that poor whites have only themselves to blame, given the benefits widely associated with white-skin privilege.

Given the welfare queen's potency as a racialized construct, we might assume that greater awareness of white poverty would enhance public support for safety net programs because middle and upper income whites would (so the story goes) want to ameliorate white poverty, even if racial animus discourages their support for poor blacks. But Pruitt questions the soundness of this line of reasoning, which discounts the existence and potency of intraracial discrimination in assuming that society feels greater empathy with or concern for the fate of poor whites than for poor nonwhites. In fact, we have several reasons - including empirical studies - to believe that such a well of empathy is missing. A further reason for skepticism is found in a second racialized construct explored in this article: white trash.

"Tax Cannibalization and Fiscal Federalism in the United States" 
Northwestern University Law Review, Forthcoming
UC Davis Legal Studies Research Paper No. 491
UC Berkeley Public Law Research Paper No. 2750933

DAVID GAMAGE, University of California, Berkeley - Boalt Hall School of Law
Email: david.gamage@gmail.com
DARIEN SHANSKE, University of California, Davis - School of Law
Email: dshanske@ucdavis.edu

The current structure of U.S. federal tax law incentivizes state governments to adopt tax policies that inflict costs on the federal government, at the expense of national welfare. We label this the "tax cannibalization problem."

This article introduces the tax cannibalization problem to the law and policy literatures for the first time. This article also explains how U.S. federal tax law might be restructured so as to alleviate the tax cannibalization problem - to counteract the perverse incentives currently leading U.S. state governments to design their tax systems so as to, in effect, wastefully devour federal tax revenues.

"Stitches for Snitches: Lawyers as Whistleblowers" 
UC Davis Law Review, Forthcoming (2017)
UC Davis Legal Studies Research Paper No. 493

DENNIS J. VENTRY, University of California, Davis - School of Law
Email: djventry@ucdavis.edu

This Article challenges the prevailing wisdom that ethics rules forbid lawyers from blowing the whistle on a client's illegal conduct. While a lawyer is not free to disclose confidential information in every jurisdiction for every legal violation, the ethics rules in all jurisdictions permit disclosure of confidential information pertaining to a client's illegal activities under certain conditions. Proving the lie of the prevailing wisdom, this Article examines a high profile case in the state of New York that ruled a lawyer whistleblower violated the state's ethics rules by revealing confidential information to stop his employer-client from engaging in a tax fraud of epic proportions. The Article argues that the court undertook a deficient analysis of New York ethics rules pertaining to permissive disclosure of confidential client information. Even if the whistleblower had violated his ethical obligations, the New York False Claims Act (the statute under which he brought his action) expressly protects disclosure of confidential employer information made in furtherance of the statute. In addition to New York's statutory shield, federal courts across the country have developed a public policy exception safeguarding whistleblowers for disclosing confidential information that detects and exposes an employer's illegal conduct.

While challenging the previously unchallenged criticism of lawyer whistleblowers, this Article acknowledges the intrinsic appeal of that position. The idea of a lawyer revealing a client's transgressions - particularly for monetary awards paid under various federal and state whistleblower programs - seems unsavory and a threat to the attorney-client relationship. Nonetheless, lawyers have always had the discretion to disclose confidential information to prevent a client from committing a crime or fraud. And although the addition of financial incentives complicates the analysis, modern ethics rules extend to lawyers considerable discretion in revealing confidential client information, even if disclosure makes a lawyer eligible for financial awards.

February 23, 2016

Faculty Scholarship: Legal Studies Research Paper Series, Vol. 18, No. 1

Faculty members at UC Davis School of Law publish truly unique scholarship that advances the legal profession. You can view their scholarly works via the Social Science Research Network (SSRN) Legal Scholarship Network. An archive can be found on this web page.

What follows here is the most recent collection of papers:

"The One Woman Director Mandate: History and Trajectory" 
CORPORATE GOVERNANCE IN INDIA: CHANGE AND CONTINUITY (ed. Indian Institute of Corporate Affairs) (Oxford University Press, Forthcoming)
UC Davis Legal Studies Research Paper No. 472

AFRA AFSHARIPOUR, University of California, Davis - School of Law
Email: aafsharipour@ucdavis.edu

In 2013, India passed historic legislation mandating that boards of publicly listed and certain other large companies must include one woman director. The mandate, which came into effect on April 1, 2015, has the potential to vastly change the profile of Indian boards and board members. This chapter examines the history and trajectory of India's board diversity requirement. It seeks to understand the genesis and goals of this requirement, and explores some of the challenges that India has already faced and may continue to face with respect to the possible effectiveness of this requirement. The chapter then considers for the Indian context the implications of business and social science literature on gender diversity on corporate boards.

"In Defense of Content Regulation" 
UC Davis Legal Studies Research Paper No. 483

ASHUTOSH AVINASH BHAGWAT, University of California, Davis - School of Law
Email: aabhagwat@ucdavis.edu

Since at least 1972, the central tenet of free speech doctrine has been that if a law regulates speech based on its content, and the speech is not unprotected or "low value," then the law is subject to strict scrutiny and presumptively unconstitutional. Few commentators have seriously questioned this rule, on the assumption that any deviation from it threatens to unleash censorship, and is in any event unnecessary. This article questions that consensus, and identifies specific circumstances in which, it argues, the government should be permitted to discriminate based on content.

The article begins by identifying a variety of situations in which courts have regularly evaded the general presumption against content regulation, even though the speech at issue was in principle fully protected. The core insight of this article is that these evasions make sense. The corollary of the rule against content discrimination is a presumption that all (fully protected) speech should be treated as equally valuable. But this presumption itself conflicts with the Supreme Court's repeated assertions that the First Amendment values certain speech - speech relevant to democratic self-governance - above all other forms of speech. So, all speech is not equal. Moreover, there are specific circumstances in which it is profoundly irrational to treat all speech as equally valuable. The core example is physical scarcity of speech opportunities. Here, some speech must be allowed, at the expense of other speech. Why not, then, favor more over less valuable speech? Yet current doctrine forbids this choice. The article goes on to identify other specific, objectively definable situations where the presumption against content regulation should be reconsidered. It concludes by exploring, and rejecting counterarguments.

"Information Goes Global: Protecting Privacy, Security, and the New Economy in a World of Cross-Border Data Flows" 
E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2015.
UC Davis Legal Studies Research Paper No. 480

USMAN AHMED, eBay Inc.
Email: uahmed2@gmail.com
ANUPAM CHANDER, University of California, Davis - School of Law
Email: achander@ucdavis.edu

This paper addresses the question of whether it is possible to balance the need for a free flow of information across borders with legitimate government concerns related to public order, consumer privacy, and security. The paper begins by highlighting the risks associated with limitations on free information flows and the policy concerns that lead to these limitations. The paper then provides an analysis of the current international regime on cross-border information flows. The authors argue that specific binding trade language promoting cross-border flows - combined with continued international cooperation - will enhance, rather than undermine, public order, national security, and privacy.

"Should Rape Shield Laws Bar Proof that the Alleged Victim Has Made Similar, Untruthful Rape Accusations in the Past?: Fair Symmetry with the Rape Sword Laws" 
Pacific Law Journal, Forthcoming
UC Davis Legal Studies Research Paper No. 478

EDWARD J. IMWINKELRIED, University of California, Davis - School of Law
Email: EJIMWINKELRIED@ucdavis.edu

Traditionally, the common law enforced a general ban on character evidence. More specifically, the common law prohibited a proponent from introducing evidence of a person's other conduct as proof of the person's character trait and then using the trait as proof that on a particular relevant occasion, the person acted consistently with the trait. The prohibition applied to both sides in criminal as well as civil cases. Federal Rules 404-05 extend the prohibition to evidence on the historical merits, and to an extent Rules 608-09 apply the ban to evidence offered on a credibility theory. Rule 608(b) deviates from the ban by permitting cross-examination about a witness's other untruthful acts but bars extrinsic evidence of the acts.

In 1995 Congress enacted the "rape sword" statutes, Rules 413-14. The statutes carve out an exception to the traditional prohibition and allow the prosecution to introduce evidence of an accused's other sexual assaults or child molestations on a character theory to prove the accused's commission of the charged offense. The available psychological research does not warrant drawing a character inference when there is only one or a few other instances of similar conduct. However, the proponents of the statutes contend that the statutes are defensible because these prosecutions often devolve into swearing contests and the prosecution has a legitimate need for evidence to break the credibility tie by corroborating the victim's testimony that the offense occurred.

Especially since 1995, in these prosecutions the defense has attempted to introduce evidence, including extrinsic testimony, of similar, untruthful accusations by the complainant. However, the prosecution has objected that such evidence runs afoul of the prohibitions in Rules 404-05, 608, and 412, the rape shield statute. A few jurisdictions have construed these statutes as banning the defense evidence. However, many jurisdictions allow defense cross-examination about similar, untruthful accusations. Even in these jurisdictions, though, the courts ordinarily exclude extrinsic proof.

The first thesis of this article is that the courts should permit cross-examination when the defense has sufficient proof that the prior accusation was untruthful. Like prosecution evidence proffered under Rules 413-14, this evidence is logically relevant on a character reasoning theory.

Moreover, if the proponents of the rape sword statutes are correct, like the government the defense has an acute need for evidence to prevail in the swearing contest. Just as evidence of other offenses by the accused corroborates the complainant's testimony that the accused attacked him or her, evidence of the complainant's prior, untruthful accusations corroborates the accused's testimony that the complainant has fabricated the charge against the accused.

The second thesis of this article is that as a matter of policy, extrinsic evidence of the prior similar accusations should be admissible. Admittedly, Rule 608(b) purports to enunciate an absolute ban on extrinsic evidence of prior untruthful acts. However, Rule 608(b) is the only impeachment technique subject to a rigid, absolute prohibition of extrinsic evidence; and the wisdom of singling out 608(b) impeachment is questionable. Furthermore, the accused has an extraordinary need for extrinsic evidence in 413-14 cases. Women and children who are the alleged victims of these offenses are exceptionally sympathetic figures on the witness stand; and if the defense cannot disprove the alleged victim's denial on cross-examination, the cross-examination is likely to be counterproductive - the jurors may conclude that the cross-examination was a second, cruel victimization of the complainant. At least in this context, if the law is going to permit inquiry about prior, untruthful accusations, the defense ought to have the right to resort to extrinsic evidence.

The rape sword statutes impact the balance of the criminal justice system in Rule 413-14 prosecutions. To maintain the essential balance of the adversary system in these cases, Evidence law should permit the defense to introduce extrinsic evidence of the complainant's prior, similar, untruthful accusations.

"Back to the Future? Returning Discretion to Crime-Based Removal Decisions" 
New York University Law Review Online, Vol. 90, 2016, Forthcoming
UC Davis Legal Studies Research Paper No. 479

KEVIN R. JOHNSON, University of California, Davis - School of Law
Email: krjohnson@ucdavis.edu

Jason A. Cade has powerfully advocated for returning greater discretion to the courts and agencies in making and reviewing Executive Branch decisions to remove noncitizens from the United States. His latest article, Return of the JRAD, 90 NYU L. REV. ONLINE 36 (2015), calls for a revival of a now-discarded procedural device of allowing courts sentencing noncitizen criminal defendants to make a "Judicial Recommendation Against Deportation" (JRAD) that would bar the Executive Branch from removing a noncitizen from the United States.

Congress eliminated the JRAD from the immigration laws in 1990. In calling for its comeback, Cade points to a ruling by respected federal district court judge Jack Weinstein. In United States v. Aguilar, the judge issued a sentencing order that, despite the fact that Congress abolished the JRAD a quarter century ago, resembled the old recommendations against deportation. The court thus went beyond the law on the books to advocate against the removal from the United States of a one-time, non-violent criminal offender with U.S. citizen children.

One might dismiss Judge Weinstein's recommendation as mere dicta. However, Jason Cade views the order as a much-needed sign of judicial resistance to the harsh criminal removal provisions of the immigration laws. He seeks to return discretionary authority to the courts to ensure greater proportionality and reasonableness to contemporary removal decisions.

Part I expresses full agreement with Jason Cade's conclusion in Return of the JRAD that the modern criminal removal system fails to protect against unfair removals of immigrants.

Part II adds a powerful justification to the call for the reform of the modern criminal removal system - namely, the serious concerns with the overwhelming modern racial disparities in removals, which directly flow directly from racial disparities in the operation of the modern criminal justice system in the United States. The contemporary criminal removal regime has disparate impacts on Latina/o immigrants, who today comprise the overwhelming majority of the persons deported from the United States. In fact, the modern removal system might accurately be characterized as a Latina/o removal system. The racial impacts of contemporary criminal removals alone warrant a wholesale reconsideration of criminal removals under current American immigration law.

Part III considers separation of powers concerns in the administration of the immigration laws. Jason Cade indirectly raises a critically important question concerning the branch of the federal government that is best equipped - constitutionally and politically - to curb the excesses of the modern criminal removal system. Fundamental separation of powers principles suggest that Congress should be the focus of reforms.

The challenging political question posed to reformers is how to convince Congress to dismantle the mandatory criminal removal regime that it built. As politicians frequently employ anti-immigrant themes for political gain, noncitizens with criminal convictions continue to be among the most reviled of all immigrants in American politics. Only through a political change of heart can Congress begin to restore discretion to removal decisions and better ensure that respect is afforded to the weighty human interests of immigrants, their families, and communities.

"The Law of Look and Feel" 
UC Davis Legal Studies Research Paper No. 482

PETER LEE, University of California, Davis - School of Law
Email: ptrlee@ucdavis.edu
MADHAVI SUNDER, University of California, Davis - School of Law
Email: msunder@ucdavis.edu

Design is the currency of corporations, and increasingly, under the Demsetzian logic, the subject of property claims by them. The world's biggest company owes its value largely to design. Where once Apple's claim to own its popular graphical user interface was rebuffed readily by courts, today, design-related claims lead to billion dollar judgments in Apple's favor. Today design - which includes everything from shape, color, and packaging to user interface, consumer experience, and organizational structure - plays a central role in the modern economy and is increasingly the subject of intellectual property law's attention.

But the law of design is confused and confusing. It is splintered among various doctrines in copyright, trademark and trade dress, and patent law. Indeed, while nearly every area of modern IP law has been marshalled in the service of design protection, the law has taken a siloed approach, with separate disciplines developing ad hoc rules and exceptions to design protection. To make matters worse, different disciplines within IP use similar terms and concepts - functionality, consumer confusion - but apply them in wholly different, even contradictory ways.

This Article provides the first comprehensive assessment of the regulation of consumers' aesthetic experiences in copyright, trade dress, and patent law - what we call "the law of look and feel." We canvas the diverse ways that parties have utilized (and stretched) intellectual property law to protect design in a broad range of products and services, from Pac-Man to Louboutin shoes to the iPhone, from the "feel of the '70s" captured in Marvin Gaye's music, the scantily clad employees of Abercrombie & Fitch, and the décor of Mexican restaurants, to Apple's technologies of "pinch to zoom," "bounce-back" and "rubberbanding." In so doing, we identify an emergent "law of look and feel" that finds unity among the diversity of IP laws protecting aesthetic experience. Going further, we argue that the new enclosure movement of design, if not comprehensively reformed and grounded in theory, can in fact erode innovation, competition, and cultural cohesion itself.

"Justice in the Hinterlands: Arkansas as a Case Study of the Rural Lawyer Shortage and Evidence-Based Solutions to Alleviate It" 
University of Arkansas at Little Rock Law Review, Vol. 37, 2015
UC Davis Legal Studies Research Paper No. 481

LISA R. PRUITT, University of California, Davis - School of Law
Email: lrpruitt@ucdavis.edu
J. CLIFF MCKINNEY, Quattlebaum, Grooms & Tull PLLC
Email: cmckinney@QGTlaw.com
BART CALHOUN, McDaniel, Richardson & Calhoun
Email: Calhoun.bart@gmail.com

In recent years, state high courts, legislatures, bar associations, and other justice system stakeholders have become aware that a shortage of lawyers afflicts many rural communities across the nation and that this dearth of lawyers has implications for access to justice. A lack of systematically collected data about precisely where lawyers are - and are not - in any given state is an obstacle to solving the problem. Another impediment is a lack of information about why lawyers are choosing not to practice in rural locales and about the sorts of incentives that might entice them to do so.

A principal aim of this article and the empirical work that informs it is to begin to develop evidence that will inform solutions to the rural lawyer shortage. In that regard, the article, written for the UALR Bowen "Access to Justice" symposium, makes two significant contributions. The first is to literally map where Arkansas lawyers are and then to look for trends and patterns regarding the least-served communities. The second is to survey law students and attorneys to determine their attitudes toward rural practice and rural living more generally, while also assessing openness to specific opportunities and incentives aimed at attracting lawyers to underserved communities.

We focused our analysis on Arkansas's 25 least populous counties, which we refer to as the "Rural Counties." All except one of these counties has a population of less than 15,000. Collectively, the Rural Counties are home to some 255,000 residents but fewer than 200 total lawyers, less than half of whom accept clients for representation, as signified by having an IOLTA Account. Representing a third of the state's 75 counties, the Rural Counties lie in clusters in each of the state's four quadrants, and most are relatively distant from state and regional population centers. Among these counties, we found no clear correlation between high poverty and low ratios of attorneys to population. As a general rule, the Rural Counties that are farthest from a metropolitan area have the most acute attorney shortages, although several counties in the Mississippi Delta stood out as exceptions. Not surprisingly, the attorney population in Arkansas's Rural Counties is an aging one. We also found that many other nonmetropolitan counties - those with populations somewhat larger than the Rural Counties - have poor attorney-to-population ratios, suggesting that attorney shortages are on the horizon there, too.

Meanwhile, Arkansas's attorneys tend to be highly concentrated in the state's population centers, with particular overrepresentation in Pulaski County (the state's most populous county and home to state capital Little Rock) and two contiguous central Arkansas counties: 48% of the state's attorneys are a mismatch for just 21% of the state's population in those three counties. The state's second and third most populous counties, Benton and Washington, in the state's booming northwest corridor, have attorney populations more commensurate with their populations.

Our survey of students at the state's two law schools revealed few student respondents who grew up in or had spent much time in Arkansas's Rural Counties or in similarly low-population counties in other states. Further, only a handful of students indicate that they plan to practice in the state's nonmetropolitan areas, let alone the Rural Counties specifically. Nevertheless, many students - particularly among those who grew up in the Rural Counties - expressed openness to working in these counties if given specific opportunities and incentives to do so. When asked about what deterred them from pursuing rural practice, the most dominant theme was concern about economic viability; a lack of cultural and other amenities associated with urban living was a close second. Some students also expressed concern about the greater challenge of finding a life partner in rural places. A number of students expressed very negative attitudes toward rural people, places and practice. Recurring themes included an expectation of rural bias toward racial and sexual minorities and women; concerns about lack of anonymity in the community and lack of professionalism in the justice system; and a shortage of clients able to afford an attorney's services. Still, a critical mass - certainly enough to meet the need in Arkansas's rural communities - indicated willingness to practice in a rural locale if provided fiscal and professional supports, e.g., student loan repayment assistance, mentoring, training in law practice management. When the few students who indicated their intent to practice in a rural area were asked about what they found appealing about such a prospect, the most common theme was autonomy - the ability to have one's own practice and to develop and maintain local clientele.

Respondents to the lawyer survey were generally less negative about rural practice than their law student counterparts. On the whole, most attorneys expressed contentment with their practice location, whether rural or urban. One surprise among the lawyer survey results was that employment opportunities for spouses were less important than we anticipated, perhaps because urban lawyers - the vast majority of survey respondents - take these for granted.

We close with suggested reforms for Arkansas's institutional stakeholders. Among other actions, we suggest that Arkansas follow the lead of South Dakota and offer loan repayment assistance to attorneys who are willing to make a multi-year commitment to practice in an underserved rural area. This incentive has proved popular in South Dakota, which has doubled the size of its program in just two years in response to a high degree of attorney interest. Our survey results give us every reason to believe that such a program, as well as other interventions to bolster the rural lawyer population in Arkansas, could be just as successful. In any event, we anticipate that our efforts to document in detail the rural attorney shortage in Arkansas will provide an incentive - and, we hope, a model - for other states wishing to better understand and alleviate their rural access-to-justice deficits.

"How Litigants Evaluate the Characteristics of Legal Procedures: A Multi-Court Empirical Study" 
UC Davis Law Review, Vol. 49, 2016
UC Davis Legal Studies Research Paper No. 477

DONNA SHESTOWSKY, University of California, Davis - School of Law
Email: dshest@ucdavis.edu

This Article presents findings from the first multi-court field study examining how civil litigants evaluate the characteristics of legal procedures shortly after their cases are filed in state court. Analyses revealed that litigants evaluated the characteristics in terms of control - i.e., whether the characteristics granted relative control to the litigants themselves or to third parties (e.g., mediators, judges). Although the litigants indicated a desire to be present for the resolution process, they preferred third-party control to litigant control. They also wanted third parties to control the process more than the outcome. Gender, age group, and case-type significantly predicted attraction to third-party control, whereas attraction to litigant control was predicted by whether litigants had a pre-existing relationship with each other, how much they valued a future relationship with the opposing party, party type, the type of opposing party, and court location. Implications for legal policy and lawyering are discussed.