November 21, 2009
Teaching Business Associates after the Crisis
Posted by Erik Gerding

Following my post on revisiting the "Contracts Crisis", I am wondering how those of you teaching Business Associations and Corporations have integrated the financial crisis into your classes.

I'm sure that the crisis will make my end-of-the semester class on Corporate Social Responsibility even more lively. I wish I had remembered, but I meant to talk about why Bear Stearns didn't just abandon their two hedge funds in the context of my veil piercing classes. Moral or implicit recourse seems an important lesson; just because shareholders have protection of the corporate veil, doesn't mean they will use it. The crisis also came up in the context of executive compensation and the Disney and Jones v. Harris cases.

The progression in the Klein Ramseyer book from Disney to Jones v. Harris also allowed a brief discussion on unintended consequences of corporate law reform. We talked a little bit about how option based compensation resulted from a desire to cure management entrenchment and better align management incentives with those of shareholders. We then talked a bit about the lesson of being careful in designing options or other compensation or you might stimulate short-term decision-making and accounting gamesmanship.

Jones v. Harris (subject of the Glom's forum two weeks ago) provided an opportunity to talk about how the rise of institutional shareholders was supposed to play a key role in corporate governance. We also discussed how institutional investing just pushes the agency costs to another level.

The law of unintended consequences should be sobering as we discuss reforms to this crisis too.

Business Organizations, Corporate Governance, Corporate Law, Disney, Financial Crisis, Law Schools/Lawyering, Teaching | Bookmark

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