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Javier Reyes

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Javier Reyes

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Javier Reyes

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Reframing Corporate Governance

Company Law Beyond Law and Economics

Javier Reyes

This stimulating book offers an astute analysis of corporate governance from both a historical and a philosophical point of view. Exploring how the modern corporation developed, from Ancient Rome and the Middle Ages up to the present day, Javier Reyes identifies the strengths and weaknesses of the mainstream theory of the firm as put forward by the law and economics school of thought.
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Edited by Jennifer Arlen

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Vikramaditya Khanna

This chapter reviews the empirical literature on the factors related to the likelihood and detection of corporate wrongdoing, which increasingly focuses on internal governance, and examines calls to split the traditional tasks of the General Counsel (GC) between the GC and a Chief Compliance Officer (CCO) who reports directly to the Board. The reason for this is to have more independence and expertise in compliance matters than the GC’s office traditionally provides. This chapter argues that although independence is often valuable in reducing wrongdoing, in this context it is likely to come with additional costs that may make gathering information on wrongdoing more difficult. In particular, some employees may be more reluctant to provide information to a CCO than to the GC, and this might sometimes result in increased wrongdoing and weaker operating performance. These deleterious effects, however, might be somewhat ameliorated by institutional and governance design adjustments. This chapter examines what factors may drive likely outcomes and finds that further empirical inquiry would be valuable and suggests some ways in which future research might engage in this inquiry.

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Donald C. Langevoort

Research in psychology and organizational behavior under the heading of “behavioral ethics” is growing rapidly, offering new insights into how people (individually and in groups) choose whether to comply with legal and ethical norms. In legal scholarship, a robust literature is emerging on the subject organizational compliance, as public enforcers become more insistent that corporations build and maintain state-of-the-art systems. This chapter joins these two bodies of research, demonstrating the potential payoffs—and challenges—in using a behavioral frame of reference to assess compliance risks, design appropriate interventions, and communicate more effectively about both law and ethics with corporate managers and other employees. Just as compliance requires good economics skills, it requires psychological savvy as well, to help predict how incentives and compliance messages will be processed, construed and acted upon in the field.

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Matthew C. Stephenson

Advocates of stronger enforcement of the Foreign Corrupt Practices Act (FCPA) have proposed a number of reforms—such as the creation of a private civil remedy, more aggressive targeting of individual defendants, and expanded use of corporate debarment—that would, according to proponents, deter FCPA violations more effectively. That may well be, but this chapter points out that such reforms might also lead to a substantive narrowing of the FCPA, because such reforms would lead to more litigation, much of it against more sympathetic defendants, and this in turn could lead to both judicial narrowing of ambiguous statutory terms and Congressional revisions to the statute. The possible unintended consequence should be considered when conducting a more comprehensive evaluation of the costs and benefits of proposed FCPA reforms.

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David Freeman Engstrom

Whistleblower bounty schemes that pay individuals a cash “bounty” for surfacing information about illegal conduct have rapidly become a central policy tool in efforts to combat corporate crime and financial misdealing. This chapter offers a theoretical and empirical overview of these “bounty regimes” in three steps. First, it catalogues existing bounty regimes by comparing the structure and workings of two of its most prominent exemplars: the False Claims Act and the more recent Dodd-Frank whistleblower scheme. Next, it surveys the existing scholarly literature, with particular attention to a trio of recurrent design problems. Among these are how to incentivize an optimal level of reporting, how to harmonize bounty regimes with internal corporate compliance systems, and how to weigh efficiency and democratic-control concerns when deputizing whistleblowers to do regulatory work. The final part turns to an aspect of the regulatory design puzzle that has yet to attract substantial attention: how the organizational structure of wrongdoing (e.g., organizational complexity, the degree to which the misconduct is centralized or compartmentalized, and the like) presents opportunities and challenges in the design of bounty regimes. It is here that scholars are most likely to find fruitful avenues for further research.

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Michael Klausner and Jason Hegland

Some commentators have accused the SEC of going easy on executives responsible for securities fraud and instead penalizing shareholders by imposing fines on corporations. This chapter investigates that claim empirically and concludes that it is unsupported. The SEC frequently penalizes executives and imposes fines on corporations far less often. The chapter goes on to provide more detail on SEC practice with respect to penalizing corporations and executives in cases alleging disclosure violations by public companies.