Emory Corporate Governance and Accountability Review

Volume 4Issue 2
Law & Innovation Issue
Introduction

Introduction

Nicole Morris | 4 Emory Corp. Governance & Accountability Rev. 339 (2017)

I am pleased to present the ECGAR Law & Innovation issue. This issue is devoted to innovative regulatory approaches to corporate governance. The majority of the articles in this issue deal with some of the complex governance issues for companies in the financial technology (“fintech”) industry.

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Articles

Electronic Equity Management Platform for Privately-Held Companies: Benefits, Risks, and Costs

George Akers | 4 Emory Corp. Governance & Accountability Rev. 341 (2017)

Software-as-a-service equity management platforms (“EMPs”) have emerged in recent years to simplify and streamline the issuance and management of securities for private companies and their lawyers by taking documents and processes previously reliant on paper and making them electronic. By allowing users to electronically issue, sign, and manage stock certificates, options, and other convertible securities, EMPs can save time for lawyers/paralegals and reduce legal costs for clients. EMPs provide various other benefits as well, including automated compliance checks, pro forma financing and exit scenario modeling, and inexpensive 409A valuations. However, despite the cost-savings and other benefits to using electronic equity management platforms, there are also new risks in using these platforms, such as data loss, data breach, and lack of data access. Overall, if the risks are properly managed and the cost structure makes sense, EMPs can be a smart choice for companies and lawyers looking for greater efficiency, convenience, and lower costs in the issuance and management of securities.

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Cybersecurity Is Not a Product, It’s a Process: Financial Service Regulators Hold Insurance Company Boards Responsible for Cybersecurity

Alice T. Kane & Phillip A. Goldstein | 4 Emory Corp. Governance & Accountability Rev. 353 (2017)

Cybersecurity remains top of mind in the financial service industry. Hacking and breaches are ever present and it is clear that Corporate Boards of Directors have oversight responsibility for cybersecurity vigilance. Recently, in the financial service industry, insurance and banking regulators are issuing regulations and proposed regulations which set forth specifics for Boards as they exercise this oversight responsibility. The latest draft of the NAIC Insurance Data Security Model Law outlines the oversight role for the Board of Directors to ensure that there are adequate cybersecurity policies, technical staff, and annual reports provided to the Board. The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation have, late last year, released a Joint Advance Notice of Proposed Rulemaking for enhanced cyber risk management standards that reinforces the concept of Board Governance for Cybersecurity programs, oversight and reporting. We intend to present these Board governance requirements, their breath and the different approaches taken by each regulator, which all reinforce the common theme: the oversight responsibility of Corporate Boards of Directors for Cybersecurity.

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R&D Tax Incentives: Creating an Unlevel Playing Field?

Stefanie Kavanagh | 4 Emory Corp. Governance & Accountability Rev. 363 (2017)

In many countries, including the United States, governments have implemented regulations that aim to encourage expenditure on research and development (“R&D”). Often, the regulations used to encourage R&D can have the effect of stifling innovation. This is because the tax incentives available for R&D disproportionately benefit large multinational enterprises (“MNEs”) and do little to benefit startups and small businesses. As a result of the disparate benefits received from R&D-related regulations, startups and small businesses, which often have very innovative and cutting-edge ideas, are unable to compete with large MNEs. Because of this inability to compete, innovative ideas are left unrealized. In the United States specifically, MNEs benefit much more from the R&D tax credit than startups and small businesses do, and this disparity results in an unlevel playing field. The U.S. Government has taken a step in the right direction through the changes made in the PATH Act in 2015, but there is still room for improvement. The implementation of a well thought-out IP box regime could significantly improve the ability of startups and small businesses to compete with MNEs.

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The Evolving Landscape of Data Privacy and Cyber Security in the Financial Services Industry

Craig Nazarro, Matt White, & Eric Setterlund | 4 Emory Corp. Governance & Accountability Rev. 369 (2017)

The regulation of data privacy and cyber security in the financial services sector is in its infancy. This is partly due to the fact that the regulation of Financial Services is fragmented with multiple regulators covering different risks across different entities including the Federal Reserve, FDIC, OCC, SEC, FINRA, CFPB, FinCEN, as well as all the applicable State Agencies covering traditional commercial banking, consumer lending, investment banking, and broker dealer activity. We will review what standards are currently being utilized by both the prudential regulators, the CFPB, as well as the New York Department of Financial Services, and the best practices that those in the commercial banking and consumer lending spaces should implement including review of the FFIEC’s Cyber Security tool. After our discussion of compliance on the front end, we will close with best practices to implement in the event of a breach and how the best practices put place prior to the breach will help in limiting your regulatory, reputational and litigation liability post breach.

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Essays

Crowd-Fundamentals: Balancing Rapidly Advancing Crowdfunding Innovation with Protections for Consumers

Zachary Fialkow | 4 Emory Corp. Governance & Accountability Rev. 391 (2017)

Inspired by the proliferation of online crowdfunding sites and projects, Zachary Fialkow decided to look deeper into how law intersects with this particular type of innovation. What Filakow found was a revolutionary set of ideas hampered by legislative and judicial hangups. For example, equity crowdfunding, whereby small-time investors can buy equity in burgeoning companies, can bring power to people in a way previously unheard of. However, the same laws permitting equity crowdfunding in the U.S. are also preventing it from being truly useful, involving unfavorable funding limits and complex regulations. In addition, rewards-based crowdfuning, of Kickstarter and Indiegogo fame, are simpler to use and less regulated, but also leave open great vulnerabilities to fraud. In fact, unlike equity crowdfuning, rewards-based crowdfunding could use more governmental regulation. Fialkow argues that balancing this need for consumer protection with the need for businesses to operate freely is key to ensuring online crowdfunding’s viability in the future.

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Broadband in the Age of Pai: The Past, Present, and Future of the Internet

Christian Haman | 4 Emory Corp. Governance & Accountability Rev. 407 (2017)

The internet has undergone significant changes since its inception. One of President Trump’s first actions after being sworn in was to make Ajit Pai Chairman of the FCC. In doing so, President Trump ensured that the nature of the internet will continue to change. This Paper initially explores the history of the FCC’s internet regulations, including the legislation and court rulings which changed the scope of the FCC’s authority. Net neutrality, which is the principle that all lawful internet content should be treated equally by internet service providers, is contextualized and justified using several modern examples of net neutrality violations. Next, the history of net neutrality is recounted, so that the differing views that FCC regulators have had on the scope and content of internet regulations can be better understood. After that, Chairman Pai’s disagreements with other FCC commissioners are analyzed, because disagreements among commissioners might foreshadow changes in policy.

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Removing Corporate Money from Politics

Kyle Landrigan | 4 Emory Corp. Governance & Accountability Rev. 427 (2017)

Around one hundred years ago President Theodore Roosevelt took the first step to ban corporations from making contributions in relation to federal elections. Over the next century, Congress would pass many laws in furtherance of this goal. As the Congress would pass these laws, the Court would be pressed to review the constitutionality of these bans. What developed was a constant back-and-forth between these two branches, one passing laws and the other striking down. If the fear of corporate involvement leading to corruption in the government is well-grounded, because the Court struck down the ban on corporate expenditures the ball is back in the court of the Congress to make the next move. In Citizens United v. FEC, the Court held unconstitutional laws that banned corporations from making independent expenditures. This Essay explores a possible next move the Congress could take in removing corporate money from federal elections.

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Devils in the Details: An Essay Examining the Significance of Jurisdictional Default Rules in the Mergers and Acquisitions Context

Adrian Szycowski | 4 Emory Corp. Governance & Accountability Rev. 441 (2017)

Merger and acquisition deals are complex multi-party transactions that may require years, millions of dollars, and large teams of accountants, bankers, and lawyers to close. Unfortunately, many of these transactions never reach that stage. In an effort to understand these multifaceted deals, Adrian Szycowski analyzes one of the many factors in a M&A deal. Using state statutes, case opinions, law journal articles, law firm client alerts, and other sources, Szycowski examines the interplay of jurisdictional default rules with common contract provisions found in every M&A deal. After setting a brief foundation of mergers and acquisitions, Szycowski reviews how Delaware, New York, and California approach and treat sandbagging, waiver of jury trial, and non-compete provisions. He also puts forward several alternative theories to help explain the discrepancy in the approaches of the aforementioned jurisdictions. Ultimately, Szycowski finds that Delaware and New York are generally pro-buyer jurisdictions while California is pro-seller/pro-worker.

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Afterword

Afterword

Nicholas Torres & Forrest Lind III | 4 Emory Corp. Governance & Accountability Rev. 457 (2017)

This year, Emory University School of Law celebrates its Centennial Year. As Emory Law celebrates a century of advancing the rule of law it also celebrates one hundred years of advancing society. Indeed, the two primary engines of societal progress are the laws that protect humanity and the innovations that enhance it as a whole. Yet, innovation and law are often at odds due to the nature of these concepts. This Issue of ECGAR provided specific examples of how regulations stifle innovation. Although finding the perfect balance between the blistering speed of innovation and the slow advance of law may be difficult, an administrative state that answers innovation with only more regulation can provide no answer at all.

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