Dual-Class Contracting
Dual-class companies are often touted as an example of contractual customization of corporate governance, based on the view that they deviate from the default rule of “one share, one vote” to fit the specific characteristics of individual companies. But voting inequality is a spectrum, not a binary choice, and we know little about how different dual-class companies choose their level of voting inequality along this spectrum. In this Article, I seek to shed light on this phenomenon by presenting and discussing quantitative and qualitative data on dual-class IPOs, including a comprehensive sample of dual-class charters and a survey of capital markets lawyers with expertise in dual-class IPOs. The corporate charters analyzed span 27 years, from 1996 to 2022, and the survey respondents include more than three dozen partners of law firms that have represented over two-thirds of the U.S. dual-class companies that have gone public in the past decade. This Article has three main goals. The first is to map the dual-class landscape and to document standardization and customization of voting inequality across almost 300 companies and three decades. The second is to reconstruct the “contracting process” that shapes dual-class charters and the role of key market players in this process. The third is to situate this real-world picture within the standard framework of the “classic contractarian theory,” the richer and more nuanced insights of “modern contractarian theories,” and the work of sociologists and economists on the emergence and evolution of social norms. The resulting picture shows that, despite a broad spectrum of possible tailor-made options, most dual-class companies choose similar or identical levels of voting inequality, innovation in market practice happens quite rapidly after long periods of equilibrium, and lawyers perceive themselves as playing a much more important role than investment bankers in shaping the “dual-class contract.” I suggest that both the traditional account of contractual optimization and the more nuanced theories of learning externalities and agency problems are insufficient to explain some peculiarities of dual-class contracting. I propose an alternative conjecture in which “market norms” play an important role alongside atomistic contracting, lawyers serve a crucial sociological function as transmitters of these norms, and “norm innovation” happens less through rational design than through random mutation and the deliberate action of “norm entrepreneurs.”
Who Are the Best Law Firms? Rankings from IPO Performance
Recent scandals have brought rankings to the forefront of the legal profession. Several of the most prestigious academic institutions have withdrawn from being ranked, citing the problematic nature of the rankings. However, rankings persist for both legal academics and practice, and there is substantial sentiment to improve the methodologies, with little detail as to how to improve. In this paper, we rank law firms on their clients’ IPO performance. We focus on the most relevant outcomes: litigation, first-day returns, disclosure, and legal fees. The focus on these measures provides benefits relative to other methodologies, which typically focus on inputs or size-related characteristics. Namely, this ranking is less manipulable and more accurately captures performance metrics that matter most to clients’ shareholders. Our rankings control for observable and unobservable deal characteristics, which helps ensure we capture law firm quality, not client traits. With the rankings based on legal fees, potential clients can compare the benefits of a particular law firm (e.g., lower litigation or higher selling prices) against the additional cost of hiring a higher-quality law firm. Hence, our rankings allow for a value-for-the-money comparison of law firms for clients selling shares in an IPO.
The Administrative Origins of Mandatory Disclosure
The birth of mandatory corporate disclosure is one of the defining narratives of the modern regulatory state. The brightest legal minds of their generation were called down from the ivory tower to help FDR rein in the excesses of Wall Street. Inspired by their intellectual mentor Louis Brandeis, they overcame fierce resistance from the securities industry (who opposed any regulation) as well as from the corporatist wing of New Deal reformers (who favored a broader economic planning role for the government) to craft a legislative solution that was so well-conceived that it has remained in place essentially unchanged for nearly a century–the Securities Act of 1933. Except this foundational narrative turns out to be more of an origin myth. Drawing on archival sources, oral histories, and other primary documents, this Article presents a revisionist history of the origins of mandatory disclosure that looks past the abstractions of statutory text to the realities of administration. I show that the real mandatory disclosure regime implemented in the 1930s was not the Brandeisian statutory system crafted by legal luminaries, but was an entirely different, more corporatist regime invented by an obscure mid-level official in defiance of those legislative directives. This Article excavates the lost history of mandatory disclosure. It is a story of how creative and resourceful administration by an ordinary mid-level official transformed – and likely redeemed – one of the foundational regulatory programs of the modern administrative state. But it is also a story of legislative failure by iconic lawyer intellectuals and their favored model of economic regulation.