Major index fund operators have been criticized as ineffective stewards of the firms in which they are now the largest shareholders. While scholars debate whether this passivity is a serious problem, index funds’ generally docile approach to ownership is broadly acknowledged. However, this Article argues that the notion that index funds are passive owners overlooks an important dimension in which index funds have demonstrated outspoken, confrontational, and effective stewardship. Specifically, we document that index funds have taken a leading role in challenging management and voting against directors in order to advance board diversity and corporate sustainability. We show that index funds have engaged in a pattern of competitive escalation in their policies on environmental, social, and governance (“ESG”) issues. Index funds’ confrontational and competitive activism on ESG issues is hard to square with their passive approach to more conventional corporate governance questions. To explain this dichotomy in approaches, we argue that index funds are locked in a fierce contest to win the soon-to-accumulate assets of the millennial generation, who place a significant premium on social issues in their economic lives. With fee competition exhausted and returns irrelevant for index investors, signaling a commitment to social issues is one of the few dimensions on which index funds can differentiate themselves and avoid commoditization. For index funds, the threat of millennial migration to another fund is more significant than the threat of management retaliation. Furthermore, managers themselves, we argue, face intense pressure from their millennial employees and customers to respond to their social preferences. This three-dimensional millennial effect—as investors, customers, and employees—we argue, is an important development with the potential to provide a counterweight to the wealth-maximization paradigm of corporate governance. We marshal evidence for this new dynamic, situate it within the existing literature, and consider the implications for the debate over index funds as shareholders and corporate law generally.
The American common law of contracts appears to direct courts to decide contract disputes by considering two opposing points of view: the ex ante perspective of the parties’ intent at the time of formation, and the ex post perspective of justice and fairness to the parties at the time of adjudication. Despite the black letter authority for both perspectives, the ex post perspective cannot withstand scrutiny. Contract doctrines taking the ex post perspective—such as the penalty, just compensation, and forfeiture doctrines—were created by equity in the early common law to police against abuses of the then prevalent penal bond. However, when the industrial revolution pushed courts to accommodate fully executory agreements, and parties abandoned the use of penal bonds, the exclusively ex ante focus of the new contract law that emerged rendered the ex post doctrines obsolete. While initially intended to do justice between the parties, if used today these doctrines perversely and unjustly deny parties contractual rights that were bargained for in a free and fair agreement. Yet judges continue to recognize the ex post doctrines, even as they struggle to reconcile them with respect for the parties’ intent. Although infrequently applied, the ex post doctrines are far from dead letter. The penumbra of uncertainty they cast over contract adjudication continues to undermine contracting parties’ personal sovereignty. The only case for continuing to recognize these equitable interventions, therefore, must turn on whether they serve a new valid purpose. We consider and reject the possible purposes of paternalism and anti-opportunism suggested by contemporary pluralist scholars. In our view, the criteria governing theories of legal interpretation support the interpretation of contract law as exclusively serving personal sovereignty rather than any pluralist interpretation. Under its best interpretation, contract law has no place for the ex post perspective.
This Article will demonstrate that the originalist argument in Carroll is based on an incorrect historical interpretation of the history of the Fourth Amendment. As discussed in greater detail below, the Carroll argument hinges on the allowance of warrantless ship searches by the First Congress (the same Congress that proposed the Fourth Amendment), coupled with a further analytic step of analogizing ship searches to land vehicle searches. This Article will show that warrantless ship searches were considered permissible under the Fourth Amendment because they were confined to federal admiralty jurisdiction at the time of the Founding. In contrast, land searches were treated differently by the First Congress. Thus, as this Article will demonstrate, the originalist argument in Carroll fails.
Finally, this Article will refute the pragmatic policy arguments offered by the Supreme Court to justify the vehicle exception. While policy arguments are not necessarily meritless, they are the weakest justifications in this instance, because the vehicle exception goes against both the text and the original intent of the Fourth Amendment. There are two main arguments in favor of a warrantless search exception: (1) the mobility of vehicles and (2) the substantial government regulation of vehicles. This Article will demonstrate that both rest on faulty premises that do not justify the abrogation of the Fourth Amendment warrant requirement.
Even upon its creation in 1925, the vehicle exception to the Fourth Amendment has always rested on a shaky ground. The time has come for the Supreme Court to overturn this exception and instead apply the text and history of the Fourth Amendment to require warrants for the search of vehicles.
This Article shows that a variety of fundamental rules of corporate law are based on myth. The Article explains that the myths on which corporate law is based play an important role in attracting public acceptance and support for what otherwise would likely be unpopular and controversial regulations. Thus, one can view the role played by myth in corporate law in a particular context as having either positive or negative characteristics depending on one’s opinion of the social value of the underlying legal rule that is being buttressed and affirmed by the myth.
Four political and sociological myths that continue to play important roles in law are examined. These are: (1) the myth that corporations are owned by their shareholders and represent ownership interests in businesses rather than mere financial claims on the cash flows of those businesses, coupled with certain political (voting) rights that protect those claims; (2) the “shareholder value myth,” that corporate officers and directors are legally required to maximize firm value; (3) that subsidiary companies are entirely independent from and not subject to the control of their parent companies and must remain so in order for the parent company to avoid liability for the contract and tort debts of the subsidiary under various alter ego and piercing the corporate veil theories of corporate law; and (4) the legal regulation of insider trading is justified because of the necessity of creating a “level playing field” among participants in financial markets. Reasonable people can disagree about whether the role played by these myths is normatively positive or negative in each of these contexts.
As AI increasingly features in everyday life, it is not surprising to hear calls to step up regulation of the technology. In particular, a turn to administrative law to grapple with the consequences of AI is understandable because the technology’s regulatory challenges appear facially similar to those in other technocratic domains, such as the pharmaceutical industry or environmental law. But AI is unique, even if it is not different in kind. AI’s distinctiveness comes from technical attributes—namely, speed, complexity, and unpredictability—that strain administrative law tactics, in conjunction with the institutional settings and incentives, or strategic context, that affect its development path. And this distinctiveness means both that traditional, sectoral approaches hit their limits, and that turns to a new agency like an “FDA for algorithms” or a “federal robotics commission” are of limited utility in constructing enduring governance solutions
This Article assesses algorithmic governance strategies in light of the attributes and institutional factors that make AI unique. In addition to technical attributes and the contemporary imbalance of public and private resources and expertise, AI governance must contend with a fundamental conceptual challenge: algorithmic applications permit seemingly technical decisions to de facto regulate human behavior, with a greater potential for physical and social impact than ever before. This Article warns that the current trajectory of AI development, which is dominated by large private firms, augurs an era of private governance. To maintain the public voice, it suggests an approach rooted in governance of data—a fundamental AI input—rather than only contending with the consequences of algorithmic outputs. Without rethinking regulatory strategies to ensure that public values inform AI research, development, and deployment, we risk losing the democratic accountability that is at the heart of public law.
When did ideology become the major fault line of the California Supreme Court? To answer this question, we use a two-parameter item response theory (IRT) model to identify voting patterns in non-unanimous decisions by California Supreme Court justices from 1910 to 2011. The model shows that voting on the court became polarized on recognizably partisan lines beginning in the mid-1900s. Justices usually did not vote in a pattern that matched their political reputations and party affiliation during the first half of the century. This began to change in the 1950s. After 1959 the dominant voting pattern is partisan and closely aligns with each justice’s political reputation. Our findings after 1959 largely confirm the conventional wisdom that voting on the modern court is on political lines. But our findings call into question the usual characterization of the Lucas court (1987–1996) as a moderately conservative court. Our model shows that the conservatives dominated the Lucas court to the same degree the liberals dominated the Traynor court (1964–1970).
More broadly, this Article confirms that an important development occurred in American law at the turn of the half-century. A previous study used the same model to identify voting patterns on the New York Court of Appeals from 1900 to 1941 and to investigate whether those voting patterns were best explained by the justices’ political reputations. That study found consistently patterned voting for most of the 40 years. But the dominant dimension of disagreement on the court for much of the period was not political in the usual sense of that term. Our finding that the dominant voting pattern on the California Supreme Court was non-political in the first half of the 1900s parallels the New York study’s findings for the period before 1941. Carrying the voting pattern analysis forward in time, this Article finds that in the mid-1900s the dominant voting pattern became aligned with the justices’ political reputations due to a change in the voting pattern in criminal law and tort cases that dominated the court’s docket. Together, these two studies provide empirical evidence that judicial decision-making changed in the United States in the mid-1900s as judges divided into ideological camps on a broad swath of issues.
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