University of Wisconsin–Madison

Recent UW Law Faculty Scholarship: Unpacking State Legislative Vetoes; How to Break Up Amazon; Specialist Directors; Mandatory Equity Issuances as a First-Best Solution to Punishing Corporate Misconduct

Here is the latest faculty scholarship appearing in the University of Wisconsin Law School Legal Studies Research Papers series found on SSRN. This report unpacks state legislative vetoes and aims to prompt renewed conversation on this largely overlooked state governance tool. Evaluating the significance, legality, and desirability of legislative vetoes must start with an understanding of the existing legal landscape, including the wide array of state law provisions and court decisions across the country. The report focuses primarily on state legislative vetoes in the regular administrative rulemaking process, where these mechanisms are most commonly found, though it also discusses the recent COVID-related uptick in the enactment and use of these devices to curb gubernatorial emergency declarations.The report offers two primary findings. First, state legislative veto systems are widespread but varied. This report broadly classifies 24 states as having a legislative veto over administrative rulemaking. And among the other 26 states, 11 have a system of legislative involvement in the rulemaking process that goes beyond ordinary lawmaking but does not qualify as a legislative veto. Within these broad classifications, there are several types of legislative oversight, ranging from a strong-form legislative veto resembling the model rejected by the U.S. Supreme Court in Chadha to an approach in which a legislative body’s objection halts the rulemaking process until the executive branch responds. Even within these categories, significant differences exist, both in design and in practice: For example, North Dakota provides for a strong-form two-house veto, but mandates tight timelines for its use, whereas a Wisconsin legislative committee blocks rules for years through repeated impositions of “temporary” suspensions. There are likewise various models in states that lack strong-form legislative vetoes. And adding further to the variety, legislatures often augment their powers through adoption of multiple oversight models. The end result of all these choices is that virtually no two state legislatures have the exact same system of oversight over agency rulemaking. Thus, the common instinct to discuss “the” legislative veto is inapt in the states.Second, legislative vetoes’ prevalence nationwide belies a more complicated legal story: Most state courts to consider legislative vetoes have reached the same bottom line as federal courts, deeming them unconstitutional. In reaching these rulings, states courts have based their holdings on a wide array of provisions of their state constitutions. Some of these rulings have been superseded by constitutional amendment or statutory adjustment. In other states, direct litigation over the mechanism seems not to have occurred. As an added twist, in a handful of states, current legislative practice seems to disregard key features of state judicial holdings, raising questions about the law’s stability—and calling into question the force that state constitutional holdings have in the absence of significant attention from the legal community.This report proceeds in three parts. Part I provides a 50-state survey of which states have various types of legislative vetoes and other mechanisms of legislative oversight. Because these mechanisms share both similarities and differences, the report organizes states into a broad taxonomy while also highlighting key design choices within each category. Part II addresses the constitutionality and durability of legislative vetoes in the states, charting their journey through the courts and examining how the mechanisms continue to persist despite a large body of case law declaring them unconstitutional. And Part III analyzes a more recent trend in legislative vetoes fueled by the COVID-19 pandemic: their use to curb gubernatorial emergency declarations. A short essay applying the condo and cooperative remedy model to the Amazon case.
  • Specialist Directors Yale Journal on Regulation (forthcoming) by YARON NILI, UW Law School, and Roy Shapira, Stigler Center, University of Chicago Booth School of Business
What determines the effectiveness of corporate boards? Corporate legal scholars usually approach this question by focusing on directors’ incentives, such as counting how many directors are independent or whether the roles of the CEO and Chair are separated. Yet on the ground, the focus has been shifting to directors’ skill sets and experience. Investors, regulators, and courts are now pressuring companies to appoint directors with specific types of expertise. In response, more and more companies are adding what we term “specialist directors”: a DEI director, a climate director, a cyber director, and so on. These changes in board composition could reshape corporate governance and impact broader societal issues such as data privacy and environmental degradation. This Article examines the ongoing shift in board expertise and makes the following three contributions.First, the Article presents evidence on the scope and magnitude of the changes in board expertise. We hand-collect and hand-code data from the proxy statements of S&P 500 (large cap) and S&P 600 (small cap) companies over the 2016–2022 period. We find that over the past few years companies have not only significantly increased their emphasis on expertise disclosure, but also added hundreds of directors with narrower, ESG-related expertise.Second, the Article analyzes how these shifts in board expertise could affect corporate behavior, and whether they are likely to prove overall desirable from a societal perspective. It is intuitive to think of board expertise as an unalloyed good. But we merge insights from interviews with nomination committee members with insights from the literature on group decision-making, to highlight five realistic concerns arising from the current trend. The injection of new, narrow types of expertise could distort board dynamics, create “authority bias,” overly increase the size of boards, hinder efforts to promote board diversity, and result in “board washing” whereby human capital disclosure camouflages the company’s actual behavior.Finally, the Article generates concrete policy implications. For regulators, the main lessons concern rethinking the desirability of legal intervention and ensuring more credible and comparable expertise disclosure. For courts, the main lessons revolve around how to assess board behavior in oversight-duty litigation and what to consider when approving derivative settlements. Fines imposed for corporate misconduct may lead to insolvency. Prosecutors who are concerned with job losses following insolvency may reduce liability in order to limit collateral consequences. In this article I analyze firms’ choices of financing and misconduct when prosecutors take collateral consequences into account when setting fines. I show that in equilibrium, firms will borrow excessively and engage in welfare-decreasing misconduct, and prosecutors will impose insufficient liability to deter corporations. I show that the first-best can be achieved by mandating the firms pay liability through equity issuances. For the full text of these works and additional scholarship from UW Law faculty and staff, visit the University of Wisconsin Law School Legal Studies Research Paper Series on SSRN. A free email subscription is available at the top right of the page.