Walmart and Guns: A Case Study in Modern Corporate Governance

In August 2019, the Business Roundtable issued a new Statement on the Purpose of a Corporation. The statement, signed by 181 CEOs, including Doug McMillon of Walmart, declared that corporations should seek to serve the interests of all stakeholders—a marked departure from the Roundtable’s prior embrace of shareholder primacy. This shift in position reinvigorated debate among business and legal scholars about the proper purpose of a corporation. Using Walmart as a case study, this Note argues that corporations are indeed adopting a more flexible and responsive conception of corporate purpose. This Note begins with a discussion of corporate governance theories, detailing four distinct visions of corporate purpose and control. It then examines Walmart’s decisionmaking process regarding ammunition and firearm sales in the wake of a tragic mass shooting at one of its stores. Finally, it concludes by reconciling Walmart’s conduct with the prevailing theories of corporate governance, ultimately finding team production theory— which calls for the balancing stakeholder interests—to be most applicable.

Copyright and Joint Authorship as a Disruption of the Video Game Streaming Industry

Video game streaming on sites like YouTube and Twitch is now a billion-dollar industry. Top streaming personalities make tens of millions of dollars annually, as viewership of video game play continues to expand. While video game companies’ control over intellectual property embodied in video games is largely accepted, streamers’ rights in their recorded gameplay have yet to be settled. Game companies likely maintain the right to stop unauthorized streaming of gameplay, but most do not exercise that right, as streaming represents free advertising. This raises the related question of what rights streamers have against unauthorized use of their gameplay. It also raises the question, unexplored in the literature, of what rights gameplayers maintain when competitors in their online games stream their matches. We find that copyright can provide protection to streamers over the audiovisual recordings of their play, subject to contractual limitations imposed by game companies. Our analysis likewise establishes that gamers whose play is streamed by another party may qualify as joint authors of the streamed recording. This co-authorship could result in multi- millionaire streamers owing an accounting to other players appearing in their streams. The Article then explores the potential business implications associated with these findings and discusses potential strategies to protect the interests of game companies and streamers.

Long-Term Bias and Director Primacy

In an important recent contribution to the short-termism debate, Professors Michal Barzuza and Eric Talley challenge what they call an “emerging consensus in certain legal, business, and scholarly communities . . . that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects.” See Michal Barzuza & Eric Talley, Long-Term Bias, 2020 COLUM. BUS. L. REV. 104. Instead, Barzuza and Talley contend that “corporate managers often fall prey to long-term bias—excessive optimism about their own long-term projects.” This article is an invited comment on Barzuza and Talley’s article. Subject to various quibbles raised herein, I broadly concur with Barzuza and Talley’s argument that corporate directors and officers can be biased towards long-term projects and, accordingly, may reject short-term projects offering higher returns. But what law reforms follow logically from their conclusion, if any? With respect to judicial review, I want to differ with Barzuza and Talley on three points. First, I believe Barzuza and Talley overstate the risk of judicial intervention. Second, they fail adequately to distinguish between directors and managers, even though that distinction is central to the application of Delaware law. Third, I believe their analysis implies that judges should retain the deference to director decisionmaking inherent in doctrines such as the business judgment rule and intermediate review. With respect to encouraging shareholder activism, I argue that the responsibility for policing managerial hyperopia (or myopia, for that matter) should be assigned to the board of directors, not the shareholders. Heterogenous shareholders lack the proper incentives and knowledge to properly police management.

Codetermination: A Poor Fit for U.S. Corporations

The idea that a corporation’s employees should elect some of the corporation’s board members, a system known as codetermination, has moved to the forefront of U.S. corporate law policy. Elizabeth Warren’s Accountable Capitalism Act calls for employees of large firms to elect forty percent of all board members. Bernie Sanders’s Corporate Accountability and Democracy Plan goes even further and states that workers should elect forty-five percent of board members. Both Warren’s and Sanders’s plans are broadly similar to the German law on codetermination, which for many decades has allowed employees of large German corporations to elect up to half of all board members. It is therefore unsurprising that Senator Sanders points to Germany’s successful economic development as evidence that economic progress and mandatory codetermination can go hand in hand. However, this Article argues that codetermination promises to be a poor fit for U.S. corporations. While Germany arguably reaps significant benefits from codetermination, legal, social, and institutional differences between Germany and the United States make it highly unlikely that the United States would be able to replicate those benefits. Furthermore, the costs of codetermination probably would be much higher in the United States than they are in Germany.

People Analytics and Individual Autonomy: Employing Predictive Algorithms as Omniscient Gatekeepers in the Digital Age Workplace

People Analytics is a powerful tool with immense promise for enhancing organizational insights. However, this Note argues that employers’ unfettered use of opaque predictive algorithms, which are trained on behavioral data to profile workers and guide employment outcomes, represents a significant threat to individual autonomy. Part II explores the emergence of People Analytics as a continuation and merger of historical approaches to scientific management in the American workplace. Part III contrasts the organizational benefits of predictive analytics against the uniquely intrusive, non-transparent, and sometimes arbitrary manner in which they are currently deployed against workers. Part IV discusses how People Analytics may hasten the erosion of employees’ normative rights in the workplace. It then discusses the insufficiency of existing regulatory and common law mechanisms to protect workers from arbitrary or discriminatory decisionmaking based on algorithmic profiling. Finally, Part V reviews some proposed solutions, emphasizing the importance of employee voice and the need for proactive regulations to enforce algorithmic transparency and protect individuals’ rights to privacy and autonomy.

An Empirical Analysis of the Impact of Legal Sports Betting On Consumer Credit Health

The Supreme Court’s May 2018 decision in Murphy v. NCAA removed the federal prohibition against sports betting and invited states to regulate the practice for themselves. This has launched a national debate. Advocates in favor of legal sports betting champion increased tax revenues, business for struggling casinos and racetracks, and regulation of a practice that has flourished in the shadows. Detractors warn of the social ills commonly associated with gambling, including crime, addiction, and financial waste. This Note provides the first empirical analysis of the impact of legal sports betting on consumer credit health. Making use of the staggered sequencing of state legalization, I find that legal sports betting accounts for a small but statistically significant increase in mortgage delinquency rates. I submit that this finding justifies caution as policymakers explore legal sports betting opportunities.

Long-Term Bias, Incentives, and Agency Costs

The problem of managerial short-termism has long preoccupied policymakers, researchers, and practitioners. These groups have given much less attention, however, to the converse problem of managerial long-termism. Michal Barzuza and Eric Talley fill this gap in their pioneering article, Long-Term Bias. Relying on the behavioral finance and psychology literatures, the authors provide a novel and thought-provoking analysis of managerial long-term bias, which may be just as detrimental as the more widely condemned short-term bias. This invited Comment to Barzuza and Talley’s article advances three claims. First, it argues that proper incentives— created by executive compensation, heightened risk of early termination, market responses and shareholder pressures— are likely to turn most managers more realistic and thus to mitigate their long-term biases. Second, it explains how, in reality, it could be almost impossible to distinguish between long-term bias and traditional agency theories of empire building and pet projects. Ultimately, both long-termist and self-interested managers systematically harm shareholders; both choose to ignore shareholder interests and waste free cash flow on inferior business investments. This also explains why the cure to both long-term bias and agency costs is similar: reducing the relative insulation of the board from shareholders’ disciplinary power. Finally, this Comment expresses strong support for most of Barzuza and Talley’s normative conclusions, with one important exception: their acceptance of the use of dual-class stock. With a perpetual lock on control and a limited equity stake, corporate leaders will be immune to any “institutional brake” on all forms of long-termist overinvestment. If anything, the analysis of Barzuza and Talley provides an additional strong justification to oppose the use of perpetual dual-class stock.

Presidential Pendulums in Finance

While administrative law formally requires that financial regulation derive from notice-and-comment rulemaking, Presidents of the past two administrations have made novel use of an array of executive branch tools to effectively regulate and deregulate the financial services industry. This Article claims that such a shift away from formal administrative law rule-making processes toward presidentially driven deregulation has implications for the overall stability of the financial system. Specifically, this Article suggests that a President’s ability to unilaterally and informally deregulate (and, by extension, regulate) the financial sector can make regulatory cycles more frequent. In turn, the financial cycle may become shorter, steeper, and more severe. If Presidents push and pull on the financial sector, the pendulum of economic activity can swing sharper and faster than it has before—with accompanying repercussions for businesses and households in the real economy.

Who Determines Customer Property

Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act gives the government the Orderly Liquidation Authority (“OLA”) to seek the liquidation of failing financial companies with the appointment of the Federal Deposit Insurance Corporation (“the FDIC”) as receiver. When applied to securities broker-dealers, the OLA calls into question the incorporation of the Securities Investor Protection Act of 1970 (“SIPA”) that provides for the orderly liquidation of an insolvent broker-dealer under the oversight of the Securities Investor Protection Corporation (“the SIPC”). The result is a conflict of control between the FDIC and the SIPC in the event of an OLA broker-dealer liquidation and investor uncertainty regarding the incorporation of SIPA protections for customer property. Problematically, the OLA and its implementing rules leave the FDIC with discretion to modify SIPA protections for customer property.

Capital, Contagion, And Financial Crises

After the 2008-09 financial crisis, policymakers around the world focused on enacting improvements that would make the emergence of a financial crisis less likely (ex ante) and recovery from one more rapid (ex post). This Article identifies a gap in both the academic literature and the current financial regulatory framework in exploring how to limit the damage—to other firms, and to the financial system—when a crisis is ongoing. Policymakers cannot predict the origins of every future crisis, just as firefighters cannot predict the origins of every future fire. Once one begins, how can they keep the damage from spreading? The academic theory on financial crisis “firefighting” divides into two main camps. The “capital view” claims that runs on financial institutions are fundamentally rational, and that investors care mainly about solvency. Under this view, the best way to fight runs is to raise capital requirements ahead of time, to multiples of current levels. The “contagion view” claims instead that the lack of liquid assets both defines and causes bank runs; an institution’s access to cash (and instruments like it) determines whether and when investors will withdraw funding. Under this view, the best way to fight runs is for governments to lend banks money—freely, at high rates, and against good collateral—and to promise to do so well before a crisis starts. In this Article—the first to directly address this question empirically—we show that neither view fits the most catastrophic financial shock of the last ninety years: the 2008 Lehman Brothers bankruptcy. In some cases, banks with more capital and liquidity were actually more exposed, not less, to the market panic following Lehman’s collapse. By contrast, we show that simple market correlation was a powerful predictor of exposure to the Lehman run. We also show that market valuations of large banks are more highly correlated today than they were in September 2008, creating a potential unaddressed conduit for an unexpected shock to metastasize into a contagious run.