Validating Valuation: How Statistical Learning Can Cabin Expert Discretion in Valuation Disputes
This article challenges conventional methods used in financial valuation across transactional and litigation domains. We show that conventional valuation methods allow for considerable discretion, making it possible for each side’s experts to submit dramatically varying valuations simply by choosing among facially reasonable values of parameters that must be selected to carry out conventional valuations. We use large-scale empirical simulations powered by real-world data to demonstrate the scope of such discretion. We next consider several alternatives based on data-driven machine learning approaches, and show that they offer both approximately unbiased estimates of valuation and substantially reduced variability in valuation results. Consequently, they reduce the scope of expert or party discretion in valuation. We end by applying this approach to a well-known Delaware valuation dispute.
This paper thus both diagnoses and offers a remedy for the discretion and variability in valuation disputes. Although we focus our principal analysis on the comparable companies approach, many of the insights we develop here lend themselves to other valuation methodologies (such as comparable transactions and discounted cash flow analysis). If adopted, our methods would lead to better performing and more empirically grounded outcomes in legal disputes involving valuation, thus enhancing the fairness and efficiency of the judicial processes in valuation litigation.
Accountability for Flawed Corporate Culture
Flawed corporate culture has been at the root of the largest corporate debacles in recent years, such as Wells Fargo’s fraudulent accounts, Volkswagen’s emissions cheating, and Boeing’s 737 Max crashes. In this type of case, the corporation in question boasts a well-funded compliance program, a well-constituted board of directors, and a wellcrafted code of ethics. Still, without an ethical corporate culture that emphasizes high integrity as much as it does high performance, all the observable markers of corporate governance matter little. There is a consensus among practitioners and academics that corporate culture matters greatly, both in creating financial value and in mitigating compliance risks. Yet there exists relatively little research on the types of legal mechanisms that can influence corporate culture. The extant legal literature focuses on addressing flawed cultures through criminal law and regulatory mandates. But public enforcers find it hard to assess a given corporate culture. As a result, such regulatory mandates too often result in corporations adopting a check-the-box “cosmetic” compliance program instead of meaningfully focusing on improving their behavior.
This Article spotlights the underexplored role of corporate law in addressing flawed corporate culture. In recent years, corporate law’s oversight duty doctrine has been recalibrated. That recalibration has made the doctrine adept at holding officers and directors accountable for how they shape the information flows, economic incentives, and in-group norms. To be sure, corporate law alone cannot fix corporate culture, but with the right design it can complement other legal mechanisms and incentivize officers and directors to set the right tone at the top. The Article conducts a comparative institutional analysis of different legal fields (criminal versus civil) and different legal systems (the US private litigation model versus Australia’s public enforcement model and the UK market discipline model), to assess the relative strengths and weaknesses of various legal instruments to address flawed corporate culture. In the process, the Article makes the following three contributions.
First, the Article highlights just how pivotal a role corporate culture plays in shaping corporate behavior. Second, the Article delineates the pros and cons of different legal tools to foster accountability for flawed corporate culture. Finally, the Article generates concrete recommendations for practitioners and policymakers. For directors, key lessons include the need to rethink board structures. For judges, key lessons include reassessing prefiling discovery doctrines, and coming up with tools to infer scienter in large organizations.
Courts, Legislation and Delaware Corporate Law
Delaware is widely regarded as the global capital of corporate law and the leader in attracting incorporations. Its dominance is often attributed by legal scholars to its expert judiciary and reliance on judicial decision-making to develop corporate norms. Indeed, for decades, the prevailing view has been that legislation plays a minimal role in shaping corporate law. However, after two recent high-profile legislative responses to court decisions, questions regarding the appropriate scope of legislative intervention took center stage in corporate legal debates. This Article situates these recent debates within a broader perspective by examining the interplay between the courts and legislation in Delaware over nearly six decades. We analyze amendments to the Delaware General Corporation Law (DGCL) from 1967 to 2025 and uncover a consistent pattern of legislative responses to judicial decisions. These responses, we argue, address critical challenges inherent in Delaware’s reliance on judge-made law, including the tension between norm-setting and insulating corporate insiders from out-of-pocket liability, the limitations of fiduciary-based adjudication, and other institutional constraints of the judiciary. The interplay between courts and legislation also allows Delaware to adapt to stakeholder pressures and mitigate the risk of federal intervention or other threats to Delaware’s dominance. However, too frequent or openly contentious legislative overrides could undermine Delaware’s dominance by threatening judicial independence and raising concerns about the effect of interest groups on Delaware’s corporate law. Uncovering the pattern of legislative responses raises important questions about the forces shaping Delaware’s corporate law and the underlying interaction between its judiciary and legislative branches. This Article explores some of these questions and considers implications for future research.