Jeffrey N. Gordon

Columbia University | CU · Center for Law and Economic Studies

What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulations. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic...

How can we ensure corporations play by the "rules of the game"-that is, laws encouraging firms to avoid socially harmful conduct? Corporate compliance programs play a central role in society's current response. Prosecutors give firms incentives-through discounts to penalties-to implement compliance programs that guide and monitor employees' behavio...

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. T...

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. T...

The financial crisis has demonstrated serious flaws in the corporate governance of systemically important financial firms. In particular, the norm that managers should seek to maximize shareholder value, as measured by the stock price, proves to be a faulty guide for managerial action in systemically important firms. This is not only because the fa...

The call for benefit-cost analysis (BCA) in financial regulation misunderstands the origins and utility of BCA as a guide to administrative rule making. Benefit-cost analysis imagines an omniscient social planner who can calculate costs and benefits from a natural system that generates prices (costs and benefits) that do not change (or change much)...

The project of creating a Banking Union is designed to overcome the fatal link between sovereigns and their banks in the Eurozone. As part of this project, political agreement for a common supervision framework and a common resolution scheme has been reached with difficulty. However, the resolution framework is weak, underfunded and exhibits some s...

Equity ownership in the United States no longer reflects the dispersed share ownership of the canonical Berle-Means firm. Instead, we observe the reconcentration of ownership in the hands of institutional investment intermediaries, which gives rise to what we call “the agency costs of agency capitalism.” This ownership change has occurred because o...

This letter on Money Market Fund Reform was submitted in response to the Financial Stability Oversight Council’s proposals of November 2012. I endorse the so-called “Minimum Balance at Risk Proposal,” in which sponsors would contribute or raise capital of one percent of a MMF’s assets while users would be subject to delayed redemption of three perc...

The project of creating a Banking Union is designed to overcome the fatal link between sovereigns and their banks in the Eurozone. As part of this project, political agreement for a common supervision framework and a common resolution scheme has been reached with difficulty. However, the resolution framework is weak, underfunded and exhibits some s...

Money market funds (“MMFs”) were at ground zero of the financial crisis. Lehman Brother failed on Monday, September 15. One day later, an important money market fund, the Reserve Primary Fund, “broke the buck” because of its holdings of Lehman short-term debt, even though these holdings amounted to only 1.2 percent of the Reserve Primary Fund’s por...

Regulation that is designed to enhance the stability of individual financial institutions, micro-prudential regulation, can create and exacerbate systemic instability. This is particularly true of detailed prescriptive rules about corporate governance which are prone to incorrect specification and the imposition of unwarranted homogeneity on the co...

This letter offers a specific proposal for the regulation of Money Market Funds (MMFs). The proposal responds to comments made at the Commission’s Roundtable Discussion on May 10, 2011 and the public comments on the President’s Working Group report on Money Market Fund Reform, per Investment Company Act Release No. IC-29497. I respectfully request...

The inherent tensions in the financial sector mean that episodes of extreme stress are inevitable, if unpredictable. This is so even if the regulatory and supervisory regimes are in many respects effective. The capacity of government to intervene may determine whether the distress is confined to the financial sector or breaks out into the real econ...

Unlike the failure of a non-financial firm, the failure of a systemically important financial firm will reduce the value of a diversified shareholder portfolio because of an increased level of systemic risk. Thus diversified shareholders of a financial firm generally internalize systemic risk whereas managerial shareholders and blockholders do not....

The inherent tensions in the financial sector mean that episodes of extreme stress are inevitable, if unpredictable. This is so even if the regulatory and supervisory regimes are in many respects effective. The capacity of government to intervene may determine whether the distress is confined to the financial sector or breaks out into the real econ...

In the wake of the near-calamitous run on Money Market Funds during last fall’s financial meltdown that produced, among other things, an emergency Treasury deposit guarantee program, the SEC has recently proposed a modest set of reforms. The reform package aims to improve the quality of MMF portfolio securities, shorten maturities, enhance portfoli...

Shareholder and public dissatisfaction with executive compensation has led to calls for an annual shareholder advisory vote on a firm's compensation pratices and policies, so-called "say on pay." Proposed federal legislation would mandate "say on pay" generally for US public companies. This paper assesses the case for such a mandatory federal rule...

In this study, we examine the effect on CEO pay of new legislation introduced in the United Kingdom (UK) at the end of 2002 that mandates an annual, non-binding shareholder vote ("say on pay") on the executive pay report prepared by the board of directors. Based on a large sample of UK firms over the period from 2000 to 2005, we find no evidence of...

Current arguments to increase shareholder power in the large public U.S. corporation need to take account of the well-established historical practice of extensive delegation by shareholders of business decision-making and agenda-control to management and the board, what might be characterized as an absolute delegation rule. This practice sharply li...

By longstanding practice, shareholders of large public corporations have delegated almost all decision rights over business matters to the board of directors. Given current calls for shareholder empowerment, it is worth revisiting the basis for the existing practice, as reflected in this 1991 paper. Among other things, we see that this absolute del...

The current debate over shareholder access to the issuer's proxy for the purpose of making director nomination is both overstated in its importance and misses the serious issue in question. The Securities Exchange Commission's new e-proxy rules, which permit reliance on proxy materials posted on a website, should substantially reduce the production...

Policy debates about the appropriate risk levels for individual retirement plans and social retirement plans (like social security) often pay insufficient attention to the inescapable trade-off between payment risk (the risk of insufficient funding for anticipated benefits) and short fall risk (the risk of insufficient benefits for a satisfactory r...

Between 1950 and 2005, the composition of large public company boards dramatically shifted towards independent directors, from approximately 20% independents to 75% independents. The standards for independence also became increasingly rigorous over the period. The available empirical evidence provides no convincing explanation for this change. This...

The collapse of the UAL employee stock ownership experiment in UAL's bankruptcy does not demonstrate the inevitable failure of the institutional form any more than the collapse of Enron shows the impossibility of the large publicly held corporation. Rather, UAL suffered from particular design flaws in its stock ownership plan and, more seriously, t...

After acknowledging the strengths of Bebchuk and Fried's case for managerial power in setting executive pay, this article expresses three major reservations: First, concerns about the apparent lack of pay for performance do not alone provide a sufficient framework for understanding the controversy over CEO pay or devising a remedy. In fact, such co...

Corporate governance is on the reform agenda all over the world. How will global economic integration affect the different systems of corporate ownership and governance? Is the Anglo-American model of shareholder capitalism destined to become the template for a converging global corporate governance standard or will the differences persist? This re...

The rules governing controlling shareholders sit at the intersection of the two facets of the agency problem at the core of public corporations law. The first is the familiar principal-agency problem that arises from the separation of ownership and control. With only this facet in mind, a large shareholder may better police management than the stan...

This paper argues that the principal governance failure of the Enron board was to approve a disclosure policy that made the firm's financial results substantially opaque to public capital markets, despite also approving a compensation strategy that made managerial payoffs highly sensitive to stock price changes and despite its unwillingness to enga...

The corporate convergence debate is usually presented in terms of competing efficiency and political claims. Convergence optimists assert that an economic logic will promote convergence on the most efficient form of economic organization, usually taken to be the public corporation governed under rules designed to maximize shareholder value. Converg...

The Enron case challenges some of the core beliefs and practices that have underpinned various positions in the debates about corporate law and governance, including mergers and acquisitions, since the 1980s. In particular, Enron raises at least the following problems for the received model of corporate governance: First, it provides another set of...

The new German Takeover Act contains antitakeover provisions that reject the "board neutrality/shareholder choice" of the rejected draft of the 13th Directive. These antitakeover provisions may have a particular (albeit temporary) justification as part of negotiating strategy to obtain a Directive with a "level playing field" approach to a wide var...

Perhaps the key question in the corporate convergence debate is the extent to which parties will settle on a shareholder capitalism model, in which managerial accountability will be measured against a public shareholder wealth maximization criterion. The paper evaluates two particular events for the impact on German corporate governance: the privat...

A series of important corporate governance questions are likely to be addressed by the Delaware Supreme Court in the near future: whether a board can in fact "just say no" to a hostile bid; whether a board can thwart a proxy fight to redeem a poison pill through a "continuing director" provision in its pill (what might be called "just say never");...

This article, based on an invited lecture, argues that the current corporate governance regime plays an insufficiently appreciated role as a shaping force in the current U.S. economic framework. The dominant corporate law norms and the particular distribution of shareownership have combined to produce a responsiveness to capital market signals that...

This article argues that employee stock ownership transactions (ESOTs) may have decisive advantages in addressing the transition problems associated with significant economic change. Equity ownership by employees can increase value not only because of the better incentive alignment achieved by making employees major stockholders, but also because e...

This is a partial and preliminary draft prepared for the Conference on Cross-border Views of Corporate Governance sponsored by the Columbia Law School Sloan Project on Corporate Governance and the L'Ecole Polytechnique Federale (Zurich), March 1997. Thanks go to David Blass for research assistance, to Mark Roe for innumerable conversations on Germa...

The "New Economic Order" in the United States is a regime of trade liberalization, a robust market in corporate control, and labor market flexibility. Among the consequences over the 1980-1995 period is a divergence between the growth rate of corporate profits and stocks prices, which have increased by approximately 250% in real terms, and wages, w...

Professor Gordon argues that the Securities and Exchange Commission (SEC) should adopt a rule enabling the New York Stock Exchange (NYSE) to maintain its traditional rule forbidding NYSE firms from recapitalizing with dual class common stock. After critically evaluating the purported justifications for dual class recapitalizations, Professor Gordon...

Because the quickest, simplest way for a financial institution to increase its profitability is to increase its leverage, an enduring tension will exist be-tween regulators and systemically significant financial institutions over the issues of risk and leverage. Many have suggested that the 2008 financial crisis erupted because flawed systems of ex...

High levels of executive compensation have triggered an intense debate over whether compensation results primarily from competitive pressures in the market for managerial services or from managerial overreaching. Profs. Lucian Bebchuk and Jesse Fried have advanced the debate with their recent book, Pay Without Performance: The Unfulfilled Promise o...