An Organizational Theory of Corporate Law
Corporate law is in a moment of vibrant and contentious discussions about potential reforms. As firms exit Delaware, passive investment predominates, private equity expands, and public markets decline, corporate law faces a growing set of challenges that threaten its stability and efficacy. At the same time, the world faces pressing crises, including climate change, social and economic inequalities, and threats to democracy, though corporate law scholars typically consider these crises to be outside corporate law’s remit.
In this Article, we argue that to understand and address the multidimensional crises that face both corporate law and society, we must address shortcomings in corporate law doctrine. We show how modern corporate law, shaped by neoclassical economic theories, provides an incomplete picture of the firm, and we propose an expanded theoretical perspective that draws from organization theory, a field long dedicated to understanding the complexities of the firm. This updated perspective demonstrates how firms actually consist of multiple constituents, including workers, the environment, and shareholders, who invest different forms of capital in the firm: labor capital, natural capital, and financial capital. It further shows that modern corporate law entrenches problematic power imbalances, privileging boards and insider shareholders over workers, the environment, and minority shareholders. Moreover, building on organization theory, we explain how corporate law fundamentally shapes and constrains firm behavior, leading these entrenched power imbalances to generate far-reaching negative consequences.
To address these shortcomings, we propose redesigning board representation, fiduciary duties, and executive compensation to empower workers, the environment, and minority shareholders in relation to boards and insider shareholders. Integrating the organizational and economic perspectives can help address problematic power imbalances and ultimately provide a more effective corporate law framework to govern firms and serve society.
Franchise Noncompetes: Their Legal Effect, Practical Impact, and Superior Alternatives
Post-term noncompete covenants are pervasive for employment and franchise agreements in the United States. While franchisors have legitimate business interests to be protected by restraints on the post-term competition of former franchisees, these covenants are unduly burdensome on those bound by them and thus are sometimes declared void, left unenforced, or reduced in scope. In some cases, even noncompetes that courts would not enforce nevertheless burden franchisees because of their in terrorem effect.
This Article outlines the arguments for and against including post-term noncompete covenants in franchise agreements. It addresses different state-law approaches to regulating the enforcement of noncompete covenants, as well as how noncompetes could be impacted by a nationwide per se ban of these covenants in the employment context. Finally, the Article evaluates potential solutions to the noncompete problem that would result in greater equity for franchisees. It looks to the treatment of franchise noncompetes in other countries, and it considers alternatives such as nondisclosure agreements, intellectual property rights, training repayment agreements, rights to repurchase assets, and other incentivization techniques. Given the numerous, focused, effective, and lawful alternatives to post-term noncompete covenants and the great burden that these covenants impose on franchisees, the post-term franchise noncompete should be considered against the public interest and thus declared unenforceable.
Skinny Charters: Rebuilding the Banking Regulatory Perimeter
One of the most controversial contemporary issues in financial regulation involves who should get access to a federal banking charter. Chartering was how regulators maintained a congressionally mandated separation between banking and commerce. Today, however, the regulatory perimeter barely exists—but it is not because of overweening banks using their balance sheets to manipulate their way into commerce, but the entry to nonbanks into banking.
Large commercial firms offer their customers deposit accounts, debit and credit cards, direct deposit for paychecks, and payments processing. Financial technology firms, or fintechs, increasingly offer a suite of some or all of the trinity of banking services—taking deposits, making loans, and processing payments. Other nonbanks now handle much or most of what used to be the core of banking, including mortgage origination and commercial lending. For their part, the big bank evasions of the regulatory perimeter are not new—they offer investment banking, compete with mutual funds, and can market other financial products, but have done so for a while. To be sure, the regulatory perimeter has always been porous—the very traditional trust charter has allowed banks to offer services outside the banking trinity, and nonbanks a way to participate in some services traditionally offered by banks. But those tools had never been interpreted to permit the mixing of commerce and banking allowed today.
This Article offers a host of takeaways. It shows how the always porous regulatory perimeter is now being breached by a varied mix of commercial firms taking on banking responsibilities. It proposes that a new, intentionally, rather than haphazardly, permeable regulatory perimeter be rebuilt through the offering of a variety of ‘skinny charters,’ including fintech charters, payments charters, and perhaps also deposit and lending charters. It takes a deep dive into the history and present of the trust charter, one of the oldest ways that banks and nonbanks traversed the regulatory perimeter, and a likely future sources of charters for fintechs. Moreover, thinking these policies through provides an opportunity to assess the undertheorized role of licensing in administrative law, which, this article argues, is prone to becoming the sort of common law regime licensing was designed to replace. It makes that case by through a quantitative analysis of federal bank licensing decisions that establishes, through the application of plagiarism software, that licensing
decisions look like one another—that parts of them follow precedent. A looser regulatory perimeter would better reflect the way financial services are offered now, and increase competition in banking services, while maintaining the traditional license for the most dangerous kinds of banks.