Emory Corporate Governance and Accountability Review

Volume 1Issue 1

The Origin of ECGAR

Reuben Guttman | 1 Emory Corp. Governance & Accountability Rev. i (2014)

ECGAR’s story begins with the financial crisis of 2008 where we were once again reminded that corporate misconduct—or at least the misconduct of those who guide corporations—has an impact reaching beyond shareholders. In the intervening years, other examples of corporate misconduct have surfaced. Federal and State False Claims Act settlements with some of the world’s largest pharmaceutical manufacturers exposed facts demonstrating that through practices of misbranding and kickbacks, patients were given drugs for unapproved purposes or given drugs because of monetary inducement and not medical necessity. More recently, facts have surfaced indicating that one of the world’s largest automobile manufacturers concealed material flaws in its ignition system rendering numerous cars unsafe. In light of these events, the glaring need for a publication to explore the implications of corporate misconduct became apparent.

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Looking at Corporate Governance from the Investor’s Perspective

Luis A. Aguilar | 1 Emory Corp. Governance & Accountability Rev. 1 (2014)

In an address to the Emory Corporate Governance and Accountability Review, United States Securities and Exchange Commissioner Luis A. Aguilar discusses corporate governance systems in a post-Great Recession world. By focusing on the perspective of an investor, Commissioner Aguilar analyzes topics including executive compensation, executive misconduct, say on pay, pay ratios, transparency, disclosure, shareholder voting, engagement of stockholders, and shareholder proposals. Utilizing real world examples, research, and his unique experience with the SEC, Commissioner Aguilar proposes changes to make companies more accountable to their stockholders and investors, creating a fairer corporate governance system and improving the system for all participants.

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A Skeptic’s View of Benefit Corporations

Kent Greenfield | 1 Emory Corp. Governance & Accountability Rev. 17 (2014)

Over the last few years there has been a shift in the core ideas of business with respect to corporate responsibility. A new type of business classification called benefit corporations is gaining popularity in the United States. Benefit corporations are required to have a positive impact on society and the planet, and to meet a higher level of accountability and transparency. However, will benefit corporations truly change the industry and world positively? This article provides for skepticism about the positive affects benefit corporations are purported to have on business. One reason is that benefit corporations are completely voluntary; thus, the corporations in most need of change and oversight are not likely to opt-in. The motivation behind benefit corporations is a step in the right direction; however, in order to effect real change in corporate responsibility, the law needs to be bolder.

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“Regulatory Capture”: Sources and Solutions

Scott Hempling | 1 Emory Corp. Governance & Accountability Rev. 23 (2014)

Regulatory capture is a pervasive problem in the public arena. The problem oftentimes leaves a policymaker with the paradoxical fear that if he exerts his power, he will eventually lose his power. While attempts at regulatory capture are inevitable, but that does not mean that actual capture must be as well. By crafting a more formalized definition; regulatory capture will be more easily anticipated, detected, and resisted. Identifying the sources and warning signs of regulatory capture can help in both defining the problem and finding solution. Ultimately, regulatory agencies should seek to combat regulatory capture with professional excellence.

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Why the U.S. Supreme Court Should Reaffirm the “Fraud-on-the-Market” Presumption in Securities Fraud Cases

Jonathan Massey | 1 Emory Corp. Governance & Accountability Rev. 37 (2014)

On March 5, 2014, the Supreme Court heard argument in one of the most important securities law cases in decades: Halliburton Co. v. Erica P. John Fund, No. 13-317. Halliburton urged the court to overturn the landmark case Basic Inc. v. Levinson and in turn, the “fraud-on-the-market” presumption. This piece argues in favor of denying Halliburton¿s request and maintaining the presumption. First, Jonathan Massey argues that the congress should address this issue instead of the Court. If the Court does decide to take this issue, stare decisis should prevail. Furthermore, since Basic was decided in 1988, institutional investors have utilized passive investment strategies that rely on “fraud-on-the-market” presumption. Finally, private and class action lawsuits act as a useful enforcement tools to prevent fraud where the SEC does not have resources to prosecute.

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Weighing Fiduciary Duties with 21st Century Realities—Evaluating the Viability of Remote Participation for Boards of Directors

Aaron M. Esman | 1 Emory Corp. Governance & Accountability Rev. 43 (2014)

Changes to technology have greatly improved the way companies communicate. However, many states have yet to update their laws to allow for companies to take advantage of improving technology for formal corporate activities, including Board of Director actions. This is in contrast to stockholder meetings, where many states already allow for remote participation. If states uniformly update their laws to allow remote participation for Board of Director meetings, companies can run more efficiently and save money. Although there is a justifiable fear that a remotely participating director may not be as active a participant in the meeting, there is a system of checks and balances that stockholders can put in place to ensure directors uphold their duties to the company. If states do not enact laws expressly allowing for remote participation, they risk losing business to more technologically progressive states.

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Securities Regulation—An SEC-mandated Asset Verification System for Unaccredited Investors Must Be Added to the Proposed Regulatory Regime Under Title III of the JOBS Act

Harrison Jones | 1 Emory Corp. Governance & Accountability Rev. 47 (2014)

Once fully implemented, Title III of the JOBS Act will allow general solicitation of equity investments from the general public. Anyone with access to a computer will now also have access to registered funding portals where they can request and receive capital contributions. The most optimistic proponents of Title III estimate that it will unleash a new wave of capital into the U.S. investing market to the tune of $300 billion. As currently written, the income-cap regulations for unaccredited investors lack teeth. By failing to create an asset verification process for unaccredited investors, the Securities and Exchange Commission has created a perfect storm of factors, which will allow everyday consumers to overextend their finances on junk-investments.

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Money, Money, Money!: How the Supreme Court’s Decision in McCutcheon v. FEC Could Impact Shareholders and Corporations

Patrick Hartobey | 1 Emory Corp. Governance & Accountability Rev. 53 (2014)

In October of 2013, the Supreme Court heard oral arguments in McCutcheon v. FEC, a challenge to the aggregate contribution limits. On April 1, 2014, the Court struck down these aggregate limits as failing to advance the accepted government interest in preventing quid pro quo corruption or the appearance thereof, and therefore impermissibly burdening First amendment rights. What the Court¿s decision will mean for future election cycles is not yet clear. However, as this paper discusses, the removal of aggregate contribution limits will likely have a significant impact on the role of the shareholder in relation to corporate PACs and their election related activities.

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Extraterritoriality for Securities Fraud Post-Morrison

John Koury | 1 Emory Corp. Governance & Accountability Rev. 63 (2014)

In 2010, the Supreme Court decided Morrison v. National Australia Bank Ltd. addressing the extraterritorial application of the Exchange Act of 1934. In the late 1960s, the Second Circuit developed a set of tests, known as the “effects” and “conduct” test, which allowed for extraterritorial enforcement of §10b. In Morrison, the Supreme Court overturned the Second Circuit precedents establishing a new test. This essay looks at the history, current trends, and possible future developments extraterritoriality of securities enforcement. Specifically, John Koury examines whether §78aa(b) of the Dodd–Frank Act could establish jurisdiction similar to the old “effects” and “conduct” test. Finally, this piece considers whether subsequent decisions have resurrected a ghost of Leasco’s “conduct” test.

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Gun Reform by “Any Means Necessary”

Tiffany Taylor | 1 Emory Corp. Governance & Accountability Rev. 71 (2014)

In 2005, Congress passed the Protection of Lawful Commerce in Arms Act (the “PLCAA”). This Act shields gun manufacturers from liability when its guns are used in the commission of a crime. Specifically, the gun manufacturer cannot be held financially liable when a third-party has misused the gun by injuring another. Historically, victims of gun violence have been permitted to bring civil cases against gun manufacturers when injured by a third-party. This Act has eliminated that option. Thus, victims and gun reform proponents must search for new options. In this article, Tiffany Taylor argues that by limiting the financial liability of gun manufacturers, the PLCAA interferes with natural product reform by substantially reducing a manufacturer’s incentive to participate in gun reform. Through careful analysis, this article explains how victims of gun violence must now fight for gun reform by manufacturers in the face of the PLCAA.

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Judge Rakoff, the Justice Department, and Corporate Crime: Lack of Will or Lack of Cause?

Michael Wiseman | 1 Emory Corp. Governance & Accountability Rev. 81 (2014)

In the wake of the Great Recession, has the Justice Department neglected its duty to prosecute officers of financial institutions, or are prosecutorial options insufficient under current law? This piece examines the question posed by Judge Jed S. Rakoff. Rule 10b-5 could allow for prosecution involving misbranded AAA-rated collateralized debt obligations (CDOs), or improperly influenced the credit rating agencies both of which contributed to the collapse of 2008. Exploring this issue, Michael Wiseman’s piece examines the effect of deferred or non-prosecution agreements by the U.S. Department of Justice. This piece also explores efforts by congress to impose quasi-strict liability, embodied in the Sabranes-Oxley Act and the Volker Rule, on high-level corporate office in bank fraud cases.

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Disclosure of Corporate Political Spending: Problematic or Pragmatic?

Steven Zuckerman | 1 Emory Corp. Governance & Accountability Rev. 89 (2014)

In the landmark decision, Citizens United v. Federal Election Commission, the Supreme Court held that any government limitation on corporate funding of independent political broadcasts in candidate elections violated the First Amendment. Consequently, reformers have sought the implementation of laws to require public companies to obtain approval from shareholders, or, at the very least, disclose to shareholders all corporate political contributions. The most well known embodiment of the push for total shareholder disclosure of corporate political spending is the proposed federal act, the Shareholder Protection Act (SPA). The SPA aims to amend the Securities Exchange Act of 1934, requiring public companies to annually disclose their corporate expenditures on political activities to their shareholders. In this article, Steven Zuckerman sets aside the constitutional issues with corporate political spending, focusing the discussion on the corporate governance concerns that support or oppose the implementation of the SPA.

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Office of the Whistleblower: A Slow Beginning

Christopher Huslak | 1 Emory Corp. Governance & Accountability Rev. 95 (2014)

While the long-term efficacy of the bounty program offered by the SEC’s Office of the Whistleblower is still unclear, as the Office enters its fourth year it is safe to say that its progress thus far has been slow. The Office was created after the SEC’s repeated dismissal of valuable information that could have exposed Bernie Madoff’s Ponzi scheme years before it was finally put to a stop. This very public debacle made it evident that the SEC was not equipped to handle the volume of whistleblower tips it was receiving, and a new vehicle would be needed to process tips and separate the proverbial wheat from the chaff. A product of the 2010 Dodd-Frank legislation, the Office of the Whistleblower is designed to serve this function and help the SEC “act swiftly to protect investors from harm and bring violators to justice.”

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