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    Yale Law Journal: Volume 125, Number 3 - January 2016
    Yale Law Journal: Volume 125, Number 3 - January 2016
    Yale Law Journal: Volume 125, Number 3 - January 2016
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    Yale Law Journal: Volume 125, Number 3 - January 2016

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    This issue of the Yale Law Journal (the third issue of academic year 2015-2016) features articles and essays by notable scholars. Contents include:

    Article, "Corporate Control and Idiosyncratic Vision," by Zohar Goshen & Assaf Hamdani

    Essay, "The Domestic Analogy Revisited: Hobbes on International Order," by David Singh Grewal

    Note, "Repairing the Irreparable: Revisiting the Federalism Decisions of the Burger Court," by David Scott Louk

    Note, "Reconciling the Crime of Aggression and Complementarity: Unaddressed Tensions and a Way Forward," by Julie Veroff

    Comment, "Unpacking Wolf Packs," by Carmen X.W. Lu

    Comment, "Jurisdictional Rules and Final Agency Action," by Sundeep Iyer

    LanguageEnglish
    PublisherQuid Pro, LLC
    Release dateJan 22, 2016
    ISBN9781610278195
    Yale Law Journal: Volume 125, Number 3 - January 2016
    Author

    Yale Law Journal

    The editors of The Yale Law Journal are a group of Yale Law School students, who also contribute Notes and Comments to the Journal’s content. The principal articles are written by leading legal scholars.

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      Book preview

      Yale Law Journal - Yale Law Journal

      YALE LAW JOURNAL

      JANUARY 2016

      VOLUME 125, NUMBER 3

      Yale Law School

      New Haven, Connecticut

      Yale Law Journal

      Smashwords edition. Copyright © 2016 by The Yale Law Journal Company, Inc. All rights reserved. This work or parts of it may not be reproduced, copied or transmitted (except as permitted by sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), by any means including voice recordings and the copying of its digital form, without the written permission of the print publisher. Further information on copyright, permissions, and reprints is found at the "About the Yale Law Journal" page.

      Published by the Yale Law Journal. Digitally published in ebook editions, for the Yale Law Journal, by Quid Pro Books, at Smashwords. Available in all major digital formats and at leading retailers and booksellers.

      Quid Pro Books

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      Cataloging (Number 3):

      ISBN 978-1-61027-819-5 (ePUB)

      CONTENTS

      ARTICLE

      Corporate Control and Idiosyncratic Vision

      Zohar Goshen & Assaf Hamdani     [125 YALE L.J. 560]

      ESSAY

      The Domestic Analogy Revisited: Hobbes on International Order

      David Singh Grewal     [125 YALE L.J. 618]

      NOTES

      Repairing the Irreparable: Revisiting the Federalism Decisions of the Burger Court

      David Scott Louk     [125 YALE L.J. 682]

      Reconciling the Crime of Aggression and Complementarity: Unaddressed Tensions and a Way Forward

      Julie Veroff     [125 YALE L.J. 730]

      COMMENTS

      Unpacking Wolf Packs

      Carmen X.W. Lu     [125 YALE L.J. 773]

      Jurisdictional Rules and Final Agency Action

      Sundeep Iyer     [125 YALE L.J. 785]

      About the Yale Law Journal

      RESPONSES. The Yale Law Journal invites short papers responding to scholarship appearing in the Journal within the last year. Responses should be submitted to the Yale Law Journal Forum at http://www.yalelawjournal.org/submissions. We cannot guarantee that submitted responses will be published. Responses selected for publication will be edited with the cooperation of the author.

      The Yale Law Journal is published eight times a year (monthly from October through June, with the exception of December) by The Yale Law Journal Company, Inc. Editorial and general offices are located in the Sterling Law Building at Yale University. POSTMASTER: Send address changes to Yale Law Journal, P.O. Box 208215, New Haven, Connecticut 06520-8215.

      SUBSCRIPTIONS. A year subscription for Volume 125 is $55.00 payable in advance (please see our website for overseas shipping charges). Remittance must be made by U.S. dollar drafts payable at a U.S. bank. Unfortunately, we are not able to accept payments in cash or by credit card. Subscription requests received after the first issue of a volume has been printed will run for eight consecutive issues unless otherwise indicated by the subscriber. Subscription backstarting is not permitted to include prior volume years. Overseas delivery is not guaranteed.

      CLAIMS. Domestic claims for non-receipt of issues should be made within 90 days of the month of publication, and overseas claims within 180 days. Thereafter, the regular back issue rate will be charged for replacement. All subscriptions will be renewed automatically unless the subscriber provides timely notice of cancellation prior to the start of a new volume year. Address changes must be made at least two months before publication date. Please provide an old mailing label or the entire old address; the new address must include the ZIP code. Address changes or other requests for subscription information should be directed to the Business Administrator.

      SINGLE AND BACK ISSUES. Each issue of of the Journal can be purchased prepaid from The Yale Law Journal Company, Inc., for $25 (check must accompany order). For Connecticut deliveries, add 6% state sales tax. Remittance must be made by U.S. dollar drafts payable to a U.S. bank. Unfortunately, we are not able to accept payments in cash or credit card. To purchase back issues from Volumes 1-124, please contact William S. Hein & Company, Inc., 1285 Main Street, Buffalo, New York 14209, (800) 828-7571. Back issues can also be found in electronic format on HeinOnline (http://heinonline.org) and through Volume 110 on the Yale Law Journal’s website (http://www.yalelawjournal.org).

      MANUSCRIPTS. The Journal invites the submission of unsolicited Articles, Essays, Book Reviews, and Forum pieces. Manuscripts must be submitted online at http://www.yalelawjournal.org/submissions.

      COPYRIGHT. Copyright © 2016 by The Yale Law Journal Company, Inc. Requests for copyright permissions should be directed to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, http://www.copyright.com.

      PRODUCTION. Citations in the Journal conform to The Bluebook: A Uniform System of Citation (20th ed. 2015), copyright by The Columbia Law Review Association, The Harvard Law Review Association, the University of Pennsylvania Law Review, and The Yale Law Journal Company, Inc. The Journal is printed by Joe Christensen, Inc., in Lincoln, Nebraska. Periodicals postage paid at New Haven, Connecticut, and additional mailing offices. Publication number ISSN 0044-0094.

      INTERNET ADDRESS. The Yale Law Journal’s homepage is http://www.yalelawjournal.org.

      YALE LAW SCHOOL

      OFFICERS OF ADMINISTRATION

      Peter Salovey, A.B., M.A., Ph.D., President of the University

      Benjamin Polak, B.A., M.A., Ph.D., Provost of the University

      Robert C. Post, J.D., Ph.D., Dean

      Alvin Keith Klevorick, M.A., Ph.D., Deputy Dean

      Michael J. Wishnie, B.A., J.D., Deputy Dean for Experiential Education

      S. Blair Kauffman, J.D., LL.M., M.L.L., Law Librarian

      Ellen Cosgrove, B.A., J.D., Associate Dean

      Joseph M. Crosby, B.A., M.B.A., Associate Dean

      Toni Hahn Davis, J.D., LL.M., Associate Dean

      Mary Briese Matheron, B.S., Associate Dean

      Asha Rangappa, A.B., J.D., Associate Dean

      Mike K. Thompson, M.B.A., J.D., Associate Dean

      FACULTY EMERITI

      Guido Calabresi, LL.B., Dr.Jur., LL.D., D.Phil., H.Litt.D., D.Poli.Sci., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Dennis E. Curtis, B.S., LL.B., Clinical Professor Emeritus of Law and Professorial Lecturer in Law

      Harlon Leigh Dalton, B.A., J.D., Professor Emeritus of Law

      Mirjan Radovan Damaška, LL.B., Dr.Jur., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Drew S. Days, III, B.A., LL.B., Alfred M. Rankin Professor Emeritus of Law and Professorial Lecturer in Law

      Jan Ginter Deutsch, LL.B., Ph.D., Walton Hale Hamilton Professor Emeritus of Law and Professorial Lecturer in Law

      Robert C. Ellickson, A.B., LL.B., Walter E. Meyer Professor Emeritus of Property and Urban Law and Professorial Lecturer in Law

      Owen M. Fiss, M.A., LL.B., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Robert W. Gordon, A.B., J.D., Chancellor Kent Professor Emeritus of Law and Legal History

      Michael J. Graetz, B.B.A., LL.B., Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law

      Geoffrey Cornell Hazard, Jr., M.A., LL.B., Sterling Professor Emeritus of Law

      John H. Langbein, LL.B., Ph.D., Sterling Professor Emeritus of Law and Legal History and Professorial Lecturer in Law

      Carroll L. Lucht, M.S.W., J.D., Clinical Professor Emeritus of Law, Supervising Attorney, and Professorial Lecturer in Law

      Jerry L. Mashaw, LL.B., Ph.D., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Carol M. Rose, J.D., Ph.D., Gordon Bradford Tweedy Professor Emeritus of Law and Organization and Professorial Lecturer in Law

      Peter H. Schuck, M.A., J.D., LL.M., Simeon E. Baldwin Professor Emeritus of Law

      John G. Simon, LL.B., LL.D., Augustus E. Lines Professor Emeritus of Law and Professorial Lecturer in Law

      Robert A. Solomon, B.A., J.D., Clinical Professor Emeritus of Law

      Stephen Wizner, A.B., J.D., William O. Douglas Clinical Professor Emeritus of Law and Professorial Lecturer in Law

      FACULTY

      Bruce Ackerman, B.A., LL.B., Sterling Professor of Law and Political Science

      †    Muneer I. Ahmad, A.B., J.D., Clinical Professor of Law

      Richard Albert, B.C.L., LL.M., Visiting Professor of Law and Canadian Bicentennial Visiting Associate Professor of Political Science (fall term)

      †    Anne L. Alstott, A.B., J.D., Jacquin D. Bierman Professor in Taxation

      Akhil Reed Amar, B.A., J.D., Sterling Professor of Law

      Michelle Anderson, J.D., LL.M., Visiting Professor of Law and Peter and Patricia Gruber Fellow in Women’s Rights (spring term)

      Rick Antie, B.S., Ph.D., Professor (Adjunct) of Law (fall term)

      †    Ian Ayres, J.D., Ph.D., William K. Townsend Professor of Law

      Jack M. Balkin, J.D., Ph.D., Knight Professor of Constitutional Law and the First Amendment

      Aharon Barak, LL.M., Dr.Jur., Visiting Professor of Law and Gruber Global Constitutionalism Fellow (fall term)

      Seyla Benhabib, B.A., Ph.D., Professor (Adjunct) of Law (fall term)

      Paul Bloom, B.A., Ph.D., Professor (Adjunct) of Law (spring term)

      Philip C. Bobbitt, J.D., Ph.D., Florence Rogatz Visiting Professor of Law (fall term)

      Lea Brilmayer, J.D., LL.M., Howard M. Holtzmann Professor of International Law

      Richard R.W. Brooks, Ph.D., J.D., Professor (Adjunct) of Law (fall term)

      Guido Calabresi, LL.B., Dr.Jur., LL.D., D.Phil., H.Litt.D., D.Poli.Sci., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Steven G. Calabresi, B.A., J.D., Visiting Professor of Law (fall term)

      Stephen Lisle Carter, B.A., J.D., William Nelson Cromwell Professor of Law

      George Chauncey, M.A., Ph.D., Professor (Adjunct) of Law (fall term)

      Marian R. Chertow, M.P.P.M., Ph.D., Professor (Adjunct) of Law (fall term)

      Amy Chua, A.B., J.D., John M. Duff, Jr. Professor of Law

      Ellen Cosgrove, B.A., J.D., Associate Dean

      Joseph M. Crosby, B.A., M.B.A., Associate Dean

      Dennis E. Curtis, B.S., LL.B., Clinical Professor Emeritus of Law and Professorial Lecturer in Law

      Mirjan Radovan Damaška, LL.B., Dr.Jur., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Toni Hahn Davis, J.D., LL.M., Associate Dean

      Drew S. Days, III, B.A., LL.B., Alfred M. Rankin Professor Emeritus of Law and Professorial Lecturer in Law

      Jan Ginter Deutsch, LL.B., Ph.D., Walton Hale Hamilton Professor Emeritus of Law and Professorial Lecturer in Law

      Fiona M. Doherty, B.A., J.D., Clinical Associate Professor of Law

      Steven Barry Duke, J.D., LL.M., Professor of Law

      Robert C. Ellickson, A.B., LL.B., Walter E. Meyer Professor Emeritus of Property and Urban Law and Professorial Lecturer in Law

      Edwin Donald Elliott, B.A., J.D., Professor (Adjunct) of Law

      †    William N. Eskridge, Jr., M.A., J.D., John A. Garver Professor of Jurisprudence

      Daniel C. Esty, M.A., J.D., Hillhouse Professor of Environmental Law and Policy, School of Forestry & Environmental Studies; and Clinical Professor of Environmental Law and Policy, Law School

      Owen M. Fiss, M.A., LL.B., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      †    James Forman, Jr., A.B., J.D., Clinical Professor of Law

      Emmanuel Gaillard, Ph.D., Visiting Professor of Law (spring term)

      Lech Garlicki, Doctorate in Legal Sciences, Habil. in Legal Sciences, Visiting Professor of Law and Gruber Global Constitutionalism Fellow (fall term)

      Stanley J. Garstka, M.S.I.A., Ph.D., Professor (Adjunct) of Law (fall term)

      ‡    Heather K. Gerken, B.A., J.D., J. Skelly Wright Professor of Law

      Paul Gewirtz, B.A., J.D., Potter Stewart Professor of Constitutional Law

      Abbe R. Gluck, B.A., J.D., Professor of Law

      Julie Goldscheid, M.S.W., J.D., Visiting Professor of Law and Peter and Patricia Gruber Fellow in Women’s Rights (spring term)

      Robert W. Gordon, A.B., J.D., Chancellor Kent Professor Emeritus of Law and Legal History

      Michael J. Graetz, B.B.A., LL.B., LL.D., Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law (fall term)

      David Singh Grewal, J.D., Ph.D., Associate Professor of Law

      Dieter Grimm, LL.M., Dr.Jur., Visiting Professor of Law and Gruber Global Constitutionalism Fellow (fall term)

      Mark Hall, B.A., J.D., Florence Rogatz Visiting Professor of Law (fall term)

      ‡    Henry B. Hansmann, J.D., Ph.D., Oscar M. Ruebhausen Professor of Law

      Robert D. Harrison, J.D., Ph.D., Lecturer in Legal Method

      Oona Hathaway, B.A., J.D., Gerard C. and Bernice Latrobe Smith Professor of International Law

      Marcia Johnson, B.A., Ph.D., Professor (Adjunct) of Law (fall term)

      †    Christine Jolls, J.D., Ph.D., Gordon Bradford Tweedy Professor of Law and Organization

      ‡    Dan M. Kahan, B.A., J.D., Elizabeth K. Dollard Professor of Law and Professor of Psychology

      Paul W. Kahn, J.D., Ph.D., Robert W. Winner Professor of Law and the Humanities

      Johanna Kalb, M.A., J.D., Visiting Associate Professor of Law

      Amy Kapczynski, M.A., J.D., Professor of Law

      S. Blair Kauffman, J.D., LL.M., M.L.L., Law Librarian and Professor of Law

      Alvin Keith Klevorick, M.A., Ph.D., Deputy Dean, John Thomas Smith Professor of Law, and Professor of Economics

      Harold Hongju Koh, M.A., J.D., Sterling Professor of International Law

      Issa Kohler-Hausmann, J.D., Ph.D., Associate Professor of Law and Associate Professor of Sociology

      Anthony Townsend Kronman, J.D., Ph.D., Sterling Professor of Law

      Douglas Kysar, B.A., J.D., Joseph M. Field ’55 Professor of Law

      John H. Langbein, LL.B., Ph.D., Sterling Professor Emeritus of Law and Legal History and Professorial Lecturer in Law

      ‡    Anika Singh Lemar, B.A., J.D., Clinical Associate Professor of Law

      ‡    Yair Listokin, Ph.D., J.D., Shibley Family Fund Professor of Law

      Carroll L. Lucht, M.S.W., J.D., Clinical Professor Emeritus of Law and Professorial Lecturer in Law

      Jonathan R. Macey, A.B., J.D., Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law

      Daniel Markovits, D.Phil., J.D., Guido Calabresi Professor of Law

      Jerry Louis Mashaw, LL.B., Ph.D., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      Mary Briese Matheron, B.S., Associate Dean

      †    Tracey L. Meares, B.S., J.D., Walton Hale Hamilton Professor of Law

      Noah Messing, B.A., J.D., Lecturer in the Practice of Law and Legal Writing

      Alice Miller, B.A., J.D., Associate Professor (Adjunct) of Law (spring term)

      John D. Morley, B.S., J.D., Associate Professor of Law

      Christina M. Mulligan, B.A., J.D., Visiting Associate Professor of Law (spring term)

      Andrew V. Papachristos, M.A., Ph.D., Professor (Adjunct) of Law (spring term)

      Jason Parkin, B.A., J.D., Florence Rogatz Visiting Clinical Associate Professor of Law

      Nicholas R. Parrillo, J.D., Ph.D., Professor of Law

      Jean Koh Peters, A.B., J.D., Sol Goldman Clinical Professor of Law

      Robert C. Post, J.D., Ph.D., Dean and Sol & Lillian Goldman Professor of Law

      J.L. Pottenger, Jr., A.B., J.D., Nathan Baker Clinical Professor of Law

      Claire Priest, J.D., Ph.D., Simeon E. Baldwin Professor of Law

      George L. Priest, B.A., J.D., Edward J. Phelps Professor of Law and Economics and Kauffman Distinguished Research Scholar in Law, Economics, and Entrepreneurship

      Asha Rangappa, A.B., J.D., Associate Dean

      William Michael Reisman, LL.M., J.S.D., Myres S. McDougal Professor of International Law

      ‡    Judith Resnik, B.A., J.D., Arthur Liman Professor of Law

      †    Cristina Rodríguez, M.Litt., J.D., Leighton Homer Surbeck Professor of Law

      John E. Roemer, A.B., Ph.D., Professor (Adjunct) of Law (fall term)

      †    Roberta Romano, M.A., J.D., Sterling Professor of Law

      Carol M. Rose, J.D., Ph.D., Gordon Bradford Tweedy Professor Emeritus of Law and Organization and Professorial Lecturer in Law (fall term)

      Susan Rose-Ackerman, B.A., Ph.D., Henry R. Luce Professor of Jurisprudence (Law School and Department of Political Science)

      Jed Rubenfeld, A.B., J.D., Robert R. Slaughter Professor of Law

      David E. Schizer, M.A., J.D., Florence Rogatz Visiting Professor of Law (spring term)

      David N. Schleicher, M.Sc., J.D., Associate Professor of Law

      Peter H. Schuck, M.A., J.D., LL.M., Simeon E. Baldwin Professor Emeritus of Law

      Vicki Schultz, B.A., J.D., Ford Foundation Professor of Law and Social Sciences

      †    Alan Schwartz, B.S., LL.B., Sterling Professor of Law

      Ian Shapiro, J.D., Ph.D., Professor (Adjunct) of Law (fall term)

      †    Scott J. Shapiro, J.D., Ph.D., Charles F. Southmayd Professor of Law and Professor of Philosophy

      Robert J. Shiller, B.A., Ph.D., Professor (Adjunct) of Law (fall term)

      Reva Siegel, M.Phil., J.D., Nicholas deB. Katzenbach Professor of Law

      James J. Silk, M.A., J.D., Clinical Professor of Law

      John G. Simon, LL.B., LL.D., Augustus E. Lines Professor Emeritus of Law and Professorial Lecturer in Law

      Lawrence M. Solan, Ph.D., J.D., Sidley Austin—Robert D. McLean Visiting Professor of Law (spring term)

      Edward Stein, Ph.D., J.D., Maurice R. Greenberg Visiting Professor of Law (spring term)

      ‡    Kate Stith, M.P.P., J.D., Lafayette S. Foster Professor of Law

      Alec Stone Sweet, M.A., Ph.D., Leitner Professor of International Law, Politics, and International Studies (fall term)

      Mike K. Thompson, M.B.A., J.D., Associate Dean

      Tom R. Tyler, M.A., Ph.D., Macklin Fleming Professor of Law and Professor of Psychology

      Patrick Weil, M.B.A., Ph.D., Visiting Professor of Law and Oscar M. Ruebhausen Distinguished Senior Fellow (fall term)

      James Q. Whitman, J.D., Ph.D., Ford Foundation Professor of Comparative and Foreign Law

      ‡    Michael J. Wishnie, B.A., J.D., Deputy Dean for Experiential Education, William O. Douglas Clinical Professor of Law, and Director, Jerome N. Frank Legal Services Organization

      ‡    John Fabian Witt, J.D., Ph.D., Allen H. Duffy Class of 1960 Professor of Law

      Stephen Wizner, A.B., J.D., William O. Douglas Clinical Professor Emeritus of Law and Professorial Lecturer in Law

      *    Gideon Yaffe, A.B., Ph.D., Professor of Law and Professor of Philosophy

      Taisu Zhang, J.D., Ph.D., Irving S. Ribicoff Visiting Associate Professor of Law (fall term)

      Howard V. Zonana, B.A., M.D., Professor of Psychiatry and Clinical Professor (Adjunct) of Law (spring term)

      *    On leave of absence, 2015–2016.

      †    On leave of absence, fall term, 2015.

      ‡    On leave of absence, spring term, 2016.

      LECTURERS IN LAW

      Sarah Baumgartel, A.B., J.D.

      Emily Bazelon, B.A., J.D.

      Brian Logan Beirne, B.S., J.D.

      Tessa Bialek, B.A., J.D.

      Jeremy L. Daum, B.S., J.D.

      Gregg Gonsalves, B.S.

      Linda Greenhouse, B.A., M.S.L., Joseph Goldstein Lecturer in Law

      Su Lin Han, M.A., J.D.

      Stephen Latham, J.D., Ph.D.

      James Ponet, M.A., D.D.

      Megan Quattlebaum, B.A., J.D.

      Michael Ulrich, J.D., M.P.H.

      Graham Webster, B.S., A.M.

      Robert D. Williams, B.A., J.D.

      VISITING LECTURERS IN LAW

      Guillermo Aguilar-Alvarez, Lic. en Derecho (J.D.)

      Catherine Ashton, B.Sc.

      Yas Banifatemi, Ph.D., LL.M.

      Mark Barnes, J.D., LL.M.

      Stephen B. Bright, B.A., J.D., Harvey Karp Visiting Lecturer in Law

      Lincoln Caplan, B.A., J.D., Truman Capote Visiting Lecturer in Law

      Timothy Collins, B.A., M.B.A.

      Victoria A. Cundiff, B.A., J.D.

      Brian T. Daly, M.A., J.D.

      Eugene R. Fidell, B.A., LL.B., Florence Rogatz Visiting Lecturer in Law

      Gregory Fleming, B.A., J.D.

      Lawrence J. Fox, B.A., J.D., George W. and Sadella D. Crawford Visiting Lecturer in Law

      Lee Gelernt, M.Sc., J.D.

      Peter T. Grossi, Jr., M.A., J.D.

      Menaka Guruswamy, LL.M., D.Phil., Peter and Patricia Gruber Fellow in Global Justice

      David L. Harfst, B.A., J.D.

      Frank Iacobucci, LL.B., LL.M., Gruber Global Constitutionalism Fellow

      Jeffrey A. Meyer, B.A., J.D.

      Andrew J. Pincus, B.A., J.D.

      Stephen Preston, B.A., J.D., Oscar M. Ruebhausen Distinguished Senior Fellow

      Richard Ravitch, B.A., LL.B.

      Eric S. Robinson, M.B.A., J.D.

      Charles A. Rothfeld, A.B., J.D.

      John M. Samuels, J.D., LL.M., George W. and Sadella D. Crawford Visiting Lecturer in Law

      Paul Schwaber, M.A., Ph.D.

      Michael S. Solender, B.A., J.D.

      Jacob J. Sullivan, M.Phil., J.D., Oscar M. Ruebhausen Distinguished Senior Fellow in National Security

      Robert Sussman, B.A., LL.D.

      Stefan R. Underhill, B.A., J.D.

      John M. Walker, Jr., B.A., J.D., George W. and Sadella D. Crawford Visiting Lecturer in Law

      Megan A. Wulff, M.P.H., J.D.

      David M. Zornow, B.A., J.D.

      Corporate Control and Idiosyncratic Vision

      ZOHAR GOSHEN & ASSAF HAMDANI

      [125 YALE L.J. 560 (2016)]

      ABSTRACT. This Article offers a novel theory of corporate control. It does so by shedding new light on corporate-ownership structures and challenging the prevailing model of controlling shareholders as essentially opportunistic actors who seek to reap private benefits at the expense of minority shareholders. Our core claim is that entrepreneurs value corporate control because it allows them to pursue their vision (i.e., any business strategy that the entrepreneur genuinely believes will produce an above-market rate of return) in the manner they see fit. We call the subjective value an entrepreneur attaches to her vision the entrepreneur’s idiosyncratic vision. Our framework identifies a fundamental tradeoff, stemming from asymmetric information and differences of opinion, between the entrepreneur’s pursuit of her idiosyncratic vision and investors’ need for protection against agency costs. Entrepreneurs and investors address this inevitable conflict through different ownership structures, each with different allocations of control and cash-flow rights.

      Concentrated ownership, therefore, should not be viewed as an unalloyed evil. To the contrary, it creates value for controlling and minority shareholders alike. Our analysis shows that controlling shareholders hold a control block to increase the pie’s size (pursue idiosyncratic vision) rather than to dictate the pie’s distribution (consume private benefits). Importantly, when the entrepreneur’s idiosyncratic vision is ultimately realized, the benefits will be distributed pro rata to all investors. Our framework provides important insights for investor protection and corporate law doctrine and policy. We argue that corporate law for publicly traded firms with controlling shareholders should balance the controller’s need to secure her idiosyncratic vision against the minority’s need for protection. While the existing corporate-law scholarship has focused solely on the protection of minority shareholders, we show that it is equally important to pay heed to the rights of the controlling shareholders.

      AUTHORS. Zohar Goshen is the Alfred W. Bressler Professor of Law, Columbia Law School and Professor of Law at Ono Academic College. Assaf Hamdani is the Wachtell, Lipton, Rosen & Katz Professor of Corporate Law, Hebrew University of Jerusalem. For helpful comments we are grateful to John Coffee, Luca Enriques, Deng Feng, Merritt Fox, Jesse Fried, Ronald Gilson, Andrew Gold, Victor Goldberg, Jeff Gordon, Henry Hansmann, Robert Jackson, Curtis Milhaupt, Gideon Parchomovsky, Ariel Porat, Alex Raskolnikov, Ruth Ronen, Alan Schwartz, Robert Scott, Yishay Yafeh, and the participants in the following events: the Columbia Law School Faculty Talk; the NYU/Penn Conference on Law & Finance; the 23rd Annual Meeting of the American Law and Economics Association; the Workshop on Responsibility and Accountability of Corporate Ownership 2013, Copenhagen Business School; the Law and Economics Workshops at ETH Zurich, Switzerland and Harvard Law School; and the Law and Finance Seminar, University of Oxford. We are grateful to Daniel Belke, Yosef Kalmanovich, Ray Koh, Jason Schnier, Brooke Sgambati, Anna Shifflet, and Alex Zbrozek for their superb research assistance and thoughtful editing work. We also thank the Milton Handler Faculty Research Gift, the Grace P. Tomei Endowment Fund, and the Hebrew University’s Center for Empirical Legal Studies of Decision Making and the Law for their financial support.

      ARTICLE CONTENTS

      INTRODUCTION

      Several prominent technology firms that went public in recent years, including Google¹ and Facebook,² adopted the controversial dual-class share structure in which the founders retain shares with superior voting rights. Alibaba, the Chinese company that set the record for the largest ever IPO, decided to list its shares in New York instead of Hong Kong so that it could use this dual-class share structure.³ Essentially, the goal of this structure is to allow the entrepreneur-controlling shareholder to preserve her indefinite, uncontestable control over the corporation.⁴ Commentators have criticized the dual-class structure for creating governance risks.⁵ But why do entrepreneurs insist on holding control in the first place?

      The answer has important implications for corporate law. Most public corporations around the world have controlling shareholders,⁶ and concentrated ownership has a significant presence in the United States as well.⁷ For example, Facebook, Google, and Viacom all have controlling shareholders.⁸ In the concentrated-ownership structure, a person or an entity—the controlling shareholder—holds an effective majority of the firm’s voting and equity rights.⁹ The governance concerns raised by firms with controlling shareholders differ from the governance concerns associated with firms with dispersed ownership. Yet, legal scholars have largely overlooked the issues arising from firms with concentrated ownership.¹⁰ Moreover, as we explain below, Delaware’s doctrine concerning controlling shareholders has often been puzzling and inconsistent.¹¹

      Unlike diversified minority shareholders, a controlling shareholder bears the extra costs of being largely undiversified and illiquid.¹² Why, then, does she insist on holding a control block despite having to bear these costs?¹³

      The prevailing answer focuses on private benefits of control.¹⁴ According to conventional wisdom, entrepreneurs seek a controlling interest in order to exploit their dominant position and divert value from the company or its investor, thereby capturing private benefits of control. An alternative, and less pessimistic, theory proposes that allowing an entrepreneur to consume some level of private benefits is a necessary cost of incentivizing efficient monitoring and good performance.¹⁵ The controller in this explanation still diverts value to herself at the expense of investors, but on balance, her actions benefit the investors and the corporation as a whole.

      Both theories explain corporate control as a function of private benefits. However, the depiction of controlling shareholders as being either motivated or rewarded by private benefits of control is unconvincing from both positive and normative standpoints. On the one hand, there may be good reason to doubt that most controlling shareholders around the world are opportunists whose motivation for control is the prospect of exploiting loopholes in minority-investor protection. On the other hand, it is by no means clear that investors, courts, and lawmakers should actually tolerate some level of value diversion by controlling shareholders in order to incentivize them to monitor management.

      This Article offers an alternative explanation for the value of control by entrepreneurs. Under our framework, control allows entrepreneurs to pursue business strategies that they believe will produce above-market returns by securing the ability to implement their vision in the manner they see fit. The entrepreneur values control because it protects her against the possibility of subsequent midstream investor doubt and objections regarding either the entrepreneur’s vision or her abilities.

      Control matters because business ideas take time to implement. This ongoing process requires numerous decisions, ranging from day-to-day management issues to major strategic choices. Perhaps the most important decision is whether to continue a business, change its course, or close it down. However, investors and entrepreneurs often need to make these decisions under conditions of asymmetric information or differences of opinion. Investors cannot always observe the entrepreneur’s efforts, talents, and actions. Therefore, it is hard for investors to determine the real cause of a corporation’s poor performance: it could be the entrepreneur’s incompetence or laziness, temporary business setbacks, or simply bad luck. Since the entrepreneur commonly knows more about the business and her own efforts and talent than investors, she has the ability to exploit investors by the way she manages the business. Investors will wish to contain this risk of agency costs by maintaining the right to close the business down or fire the entrepreneur. Even when investors and entrepreneurs have the same information, the complexity of the business and the uncertainty of the future might yield different beliefs as to the potential success or failure of the business. Consequently, under conditions of asymmetric information or differences of opinion, entrepreneurs and investors may disagree over whether a business should continue and in what fashion.

      Thus, in our framework, both investors and entrepreneurs value control, but for different reasons. The entrepreneur wants to retain control over management decisions to pursue her idiosyncratic vision for producing above-market returns. That is, control enables entrepreneurs to capture the value that they attach to the execution of their idiosyncratic vision.¹⁶ Investors, by contrast, value control because it allows them to minimize agency costs.¹⁷

      Henry Ford’s story illustrates our theory well. Ford did not invent the automobile, nor did he own any valuable intellectual property in the technology. He was competing with hundreds of other entrepreneurs attempting to create a horseless carriage. Ford, however, had a unique vision regarding car production. The Detroit Automobile Company, the first firm that he founded, was controlled by investors.¹⁸ While investors demanded that cars be immediately produced and sold, Ford insisted on perfecting the design prior to production, leading to delays and frustration on both sides. The tension eventually led investors to shut down the firm.¹⁹

      Ford’s second attempt, the Henry Ford Company, was also controlled by investors. Again, after designing a car, Ford resisted the investors’ pressure to move directly into production.²⁰ Ultimately, Ford’s obstinacy prompted investors to replace him with Henry Leland, who changed the company’s name to the Cadillac Automobile Company and successfully produced the car that Ford had designed.²¹ In Ford’s third attempt—the Ford Motor Company—he insisted on retaining control. This time, with no outside-investor interference, Ford transformed his innovative ideas for car design and production into one of the greatest corporate success stories of all time.²²

      The entrepreneur’s idiosyncratic vision has two distinctive features in our framework. First, it reflects the parts of the entrepreneur’s business idea that outsiders may be unable to observe or verify. This could be because the entrepreneur cannot persuade investors that she is the best person to continue running the firm or that her business plan will produce superior returns. Second, it reflects the above-market pecuniary return expected by the entrepreneur, which, if the business succeeds, will be shared on a pro rata basis between the entrepreneur and investors. Importantly, idiosyncratic vision need not concern an innovation or new invention: as long as the entrepreneur has a plan that she subjectively believes will result in above-market returns, she has idiosyncratic vision.

      While it may seem intuitive that entrepreneurs enter a business aiming to beat the market and that they fear that differences of opinion with their investors might frustrate their vision, this explanation is absent from the existing economic literature. Economists reject the idea of beating the market because, in equilibrium, investments yield only normal market returns. And economists have thus far rejected the idea of differences of opinion—as opposed to asymmetric information—because rational actors with rational expectations will not have differences of opinion when they share the same information.²³ Thus, economists have focused on private benefits as the principal motivation for holding control. This Article recognizes that controlling owners are often entrepreneurs who hope to increase the value of their firms by implementing their idiosyncratic visions. Building on this insight, we offer an explanation of controlling ownership that is more aligned with real-world experiences and therefore offers superior policy prescriptions. Indeed, only recently, and gradually, economists have started to acknowledge the pursuit of above-market returns²⁴ and the existence of differences of opinion.²⁵ Our Article thus makes an important contribution to the theory of corporate control.

      Our argument unfolds as follows. In Part I, we describe the limits of the existing explanations of corporate control. The minority-expropriation theory views controlling shareholders around the world as opportunists aspiring to expropriate minority shareholders and extract private benefits of control at their expense. The optimal-reward theory views controlling shareholders as providing a valuable service of monitoring management and suggests that an optimal level of private-benefit extractions should be allowed to induce efficient monitoring. However, these accounts fail to explain the prevalence of firms with controlling shareholders in countries with robust regimes of investor protection, such as the United States. They also offer very limited guidance concerning the corporate legal

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