In what I call a structural reform prosecution, prosecutors secure the cooperation of an organization in adopting internal reforms. No scholars have considered the problem of prosecutors seeking structural reform remedies, perhaps because until recently organizational prosecutions were themselves infrequent. In the past few years, however, federal prosecutors have adopted a bold new prosecutorial strategy under which dozens of leading corporations have entered into demanding settlements, including AIG, American Online, Bristol-Myers Squibb Co., Computer Associates, HealthSouth, KPMG, MCI, Merrill Lynch & Co., and Monsanto. To situate the DOJ’s latest strategy, I frame alternatives to the pursuit of structural reform remedies as well as five alternative ways prosecutors can pursue structural reform. To better understand what the DOJ accomplished by choosing to pursue structural reform and then doing so at the charging stage, I conducted an empirical study of the terms in all agreements the DOJ has negotiated to date. My study reveals imposition of deep governance reforms, consistent with the purposes of the Sentencing Guidelines, but also perceived prosecutorial abuses and some indications of overreaching. I conclude that given the breadth of prosecutorial discretion and the deferential, limited nature of judicial review, the guidance that the DOJ provides will chiefly define the future development of its emerging structural regime for deterring organizational crime.
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Treaties’ Domains
When and why do American judges enforce treaties? Today’s dominant theory of treaty enforcement is the doctrine of “self-execution,” which suggests that judicial enforcement of treaties is deduced from the nature of the treaties signed. The theory holds that some treaties are written so as to be directly enforceable, just like a statute, with full domestic effects, while other treaties are written so as to create duties only under international law. Unfortunately, as most scholars recognize, the doctrine is perplexing and of limited predictive value.
This Article, based on a new study of the history and record of treaty enforcement, provides a different theory as to when treaties are actually enforced in American courts. It finds that the question of whether a treaty is “self-executing” is acting as a proxy for questions of institutional deference. A good guide to treaty enforcement across the history of the United States is whether it is Congress, the Executive, or a State accused of breach.
The basic treaty enforcement question is, and has been, whether the alleged act of treaty breach justifies a judicial remedy. Judicial deference to Congressional action with respect to a treaty is to be expected. Conversely, the judiciary will continue to use treaty law to prevent States from putting the United States in violation of its international obligations. As to the Executive, the judiciary should begin to explain why, in terms of deference, it is or is not choosing to enforce a treaty against Executive breach.
Economic and Legal Boundaries of Firms
Two types of theories of the firm have emerged in scholarship. Economic theories concern the allocation of control rights and residual claims: a firm is a group of assets under common ownership. Legal theories focus on the legal significance of firm boundaries: each firm is a legal person. Thus, assets may be economically integrated under common control and yet be partitioned between distinct legal entities. This paper presents a theory of legal boundaries that focuses on the choice of capital structure, and traces the interplay between economic integration and legal partitioning. The law treats many capital structure decisions, including both financial and governance choices, as in personam rather than in rem. Thus, these decisions must be made firm-wide; these include the issuance of debt or equity, the adoption of takeover defenses, and the composition of the board of directors. Yet, the determinants of optimal capital structure are often asset-contingent. For example, the amount of leverage, the desirability of takeover defenses and the number of independent directors may vary with the industry. The resulting tension is significant in the choice of firm boundaries. If two groups of assets have divergent capital structure demands—in that the optimal design of financial and governance rights related to each group is different—then either the assets are put in separate firms that tailor capital structure to their respective asset groups or they are combined in a single firm with a blended capital structure. We suggest that legal integration into a single firm sacrifices efficiency in some cases, but not in others. Where the efficiency losses are large enough to offset countervailing advantages from legal integration, legal partitioning might occur. We also demonstrate, however, that legal partitioning may undermine the benefits from economic integration, even if the discrete firms are kept under common control, as that concept is defined in law. Our theory thus suggests additional factors to be considered in explaining the structure of combinations (such as mergers or acquisitions) and divestitures (such as spin-offs, carve-outs or securitizations).