Wednesday, September 19, 2007

The Drafting of the Securities Act of 1933

In April 1933, Felix Frankfurter assembled a group of three securities experts. "The team set to work on a Friday. By late Saturday they had a draft that, more than 60 years later, still constitutes the main body of the Securities Act. The Act is a masterpiece, an intellectual tour de force. It is fun to work with once you know how. For now, realize that when one works with the Securities Act, one plays a complex mental game devised by three exceptional minds, over a weekend, more than half a century ago. (Part of the probably apocryphal lore of securities law is that the Act was drafted not only over a weekend, but over a case of Scotch.)"
Soderquist & Gabaldon, Securities Law, 2004, 13.

Tenuous Japanese connection: Here's a presentation on the "Delawarization of Japanese Corporate Law" entitled "In the Shadow of Delaware? The Rise of Hostile Takeovers in Japan."

はい! Delaware からきました。


yukki said...

Forgive my ignorance, but what is "Delawarization"???

j.taylor said...

Sumimasen, "Delawarization" is an ugly word anyway. Here it means that the laws of Japan dealing with corporations might be becoming more like the laws of Delaware. (In the U.S., corporate law is made by states, not the federal government. Delaware is the leading state, as most major U.S. companies are incorporated there.)

Delaware law has 3 main features (in my amateur opinion):

1) Shareholder wealth maximization: The main goal of the corporation is to generate wealth for its shareholders. The main duty is not, for instance, to treat workers as well as possible.

2) Business Judgment discretion: The people who run the corporation have great discretion to decide how to generate wealth for shareholders.

3) Judicial involvement: If unhappy shareholders can show that the people who run a corporation are putting any interests above the interests of shareholders (like their own financial interests), shareholders can sue in court and judges will decide will the fair outcome is.

The specific area where "Delawarization" might be occurring in Japan is in relation to hostile takeovers. Hostile takeovers occur when one company (say, Sony) wants to acquire another company (say, Nintendo), but the people who run Nintendo don't want Nintendo to be swallowed by Sony. The potential conflict is that Nintendo's shareholders -- the people who "own" Nintendo -- might welcome Sony's takeover. Sony would pay them money for each Nintendo share that they own. And in a takeover, the price that Sony will pay is usually much higher than what the Nintendo shareholders could get by selling their shares in the stock market.

j.taylor said...

And on Delaware, you can search for it on Wikipedia. It's a small state...but some people love it (to paraphrase a famous politician talking about another small state).

I was born in Wilmington. Fun fact: the first Europeans to settle in Delaware were the Dutch. And they were followed by the Swedes! How cool would that have been, if the British never came?!

Catria said...

wow. been busy this week with postings eh ^^~?

interesting post nevertheless... *insert though bubble here*

yukki said...

Thank you for explaining "Delawarization". I read a lot about hostile takeover in Japanese newspapers last summer, so the concept is familiar, but I didn't know it has such a connection with Delaware law.

In my opinion, Japanese shareholders haven't been so much of "shareholders" until recently. Maybe they're "westernized" in terms of business?

Bryony said...

Good words.

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