!!Экзамен зачет 2023 год / Black and Kraakman - A Self Enforcing Model of Corporate Law

A second danger in control transactions is that disaggregated shareholders can be induced to sell control too cheaply. For example, an acquirer may secretly accumulate control through numerous open market transactions, when shareholders could have demanded higher prices if they could have collectively negotiated a control premium, and other potential acquirers might have offered higher prices as well. To prevent secret acquisitions of control, we would require shareholders who acquire 15% or more of a company's stock to publicly disclose their identity, shareholdings, and plans to acquire more shares, and then wait thirty days before buying more shares. This gives the company's managers time to respond to an impending control transaction by seeking a higher bidder, proposing an alternate transaction that is more favorable to the shareholders, or convincing shareholders that their shares are worth more than the acquirer is offering to pay. A similar rule would apply to acquisitions of 30% or more of a company's shares that are approved by the company's managers. These delay and notice provisions make it more likely that a new controlling shareholder will have to pay a control premium. The delay period also provides a market check on the fairness of the premium because a competing bidder has time to make a higher offer.

These delay provisions, however, exacerbate a third key concern for control transactions: managers will often try to block changes of control to preserve their own jobs. Managers typically argue that they must be able to reject hostile takeover bids to protect the shareholders' interests. We are skeptical of this argument in developed economies, and even more skeptical in emerging markets, where managers are already often heavily entrenched. Thus, we propose, again borrowing from the British City Code, a ban on preclusive defensive tactics such as "poison pills."104 Consistent with the overall self-enforcement approach, the combination of a delay period and a ban on defensive tactics vests the decision whether to transfer control in the prospective selling shareholders.105

Some corporate actions both inhibit control transactions and serve other business goals. For example, cross-ownership of shares among affiliated companies lets the managers of the affiliated firms entrench themselves by mutually supportive voting. Yet cross-ownership,

may not be able to finance the cost of honoring takeout rights. Again, these costs can be mitigated (though not eliminated) by our further proposal to permit minority shareholders to waive the takeout rights requirement by majority vote. For example, minority shareholders could waive takeout rights to permit a new investor with management skills to pay a control premium to an entrenched blockholder who is willing to sell out, but only at a price that reflects the value of control to him.

104 See City Code on Takeovers and Mergers, supra note 9, General Principle 7, at B2, Rule 21, at I13.

105 United States and European experience teaches that vesting the decision to resist a takeover in independent directors is insufficient to protect shareholders' interests. Independent directors too often back the managers' interests in resisting a takeover bid, sometimes at great cost to shareholders. American directors with the power to do so have often turned down takeover offers priced at twice the previous market value of their company's shares, on the grounds that shareholders will do even better if the takeover is defeated. These optimistic predictions do not often come true. Thus, we believe strongly that shareholders, not managers or directors, should decide whether a control change occurs by selling or retaining their shares.

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including the extreme case of subsidiaries holding their parents' stock, can also arise for good business reasons.106 The self-enforcing model responds by allowing cross-ownership but limiting cross-voting. Even in the enabling model, majority-owned subsidiaries cannot vote their parents' stock.107 In practice, managers of "parent" companies exercise working control over dependent companies at ownership levels well below majority ownership. Thus, our model Russian statute would bar a "dependent" company from voting its stock in a "parent" company when the parent holds 20% or more of the dependent company's stock.108

A further risk faced by minority shareholders is loss of liquidity if a majority shareholder acquirers a high percentage of the outstanding shares, perhaps through a tender offer. Such an offer can succeed, even if priced below the market value of the minority shares, because outside shareholders face a prisoner's dilemma. Even if they would collectively be better off if they rejected the offer, they individually cannot risk rejecting an offer that most other shareholders accept, because the price and liquidity of the remaining minority shares will collapse.109 We respond with an appraisal rights remedy: if a controlling shareholder's ownership crosses 90%, the company must offer appraisal rights to all remaining minority shareholders. The appraisal remedy eliminates the prisoner's dilemma: outside shareholders no longer have an incentive to sell their shares for less than they expect to receive in an appraisal proceeding.

D. Issuance and Repurchase of Shares

106 For example, in a reverse triangular merger, a parent company acquires a target by merging a subsidiary into the target. The consideration for the acquisition is parent stock held by the subsidiary, which is exchanged for the stock of the target company. This transaction form is useful because it does not disturb the target's corporate identity or contractual relationships.

107 See, e.g., Del. Code Ann. tit. 8, § 160(c) (1991).

108 Such a ban on cross-voting can prevent only egregious entrenchment schemes. It allows cross-voting at "parent" ownership levels below the 20% threshold, and thus permits groups of companies to tie up control internally through cross-holdings. For example, the rule would not bar a Japanese-style keiretsu, in which a dozen companies hold 5% stakes in one another -- even though such a structure precludes a challenge to control of a member company that is not sanctioned by the group. See Gilson & Roe, supra note 6, at 88290 (describing cross-ownership in keiretsu structures). We permit such structures because they can serve benign as well as defensive purposes. For example, Gilson and Roe observe that cross-ownership may encourage mutual monitoring or help to enforce relational contracts in product markets. See id. at 882-94. In addition, entrenchment is less severe when controlling shares reside in a larger group of companies, as distinct from a single parent company.

109 For a Russian example of such a tender offer, see Neela Banjerjee, Russian Oil Firm's Share Swap Draws Fire, Wall St. J., Mar. 28, 1996, at A10 (describing a Russian oil company's proposal to swap its own shares, with a market value of 63¢, for shares in its majority-owned subsidiary that, before the swap was announced, had a market value of around $2).

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Share issuances and repurchases are a fourth class of transactions that merit special procedural protections.110 Company sales and repurchases of shares have the potential both to shift value from outside investors to company insiders and to reallocate voting power among shareholders. But nothing is more critical to a company's survival and growth than its ability to raise new capital as the need or opportunity arises, without time-consuming procedural obstacles.

1. Share Issuances. -- There is a simple way to protect shareholders against share issuances at less than fair value: forbid authorized but unissued shares, thus forcing managers to seek shareholder approval for each new share issue. We reject this strict rule because it would either make raising capital too difficult or, paradoxically, come to mean nothing at all. Managers could not exploit unexpected financing and investment opportunities if every issuance of new shares required separate shareholder authorization. Moreover, such an approval requirement would greatly complicate management incentive compensation plans. Given these drawbacks, managers would search for a way around a ban. Most likely they would ask shareholders for blank-check authorization to issue new shares at every annual meeting. Yet if this ploy succeeded, the draconian restraint on share issuances would collapse into an empty formality, leaving shareholders with no protection at all.

The self-enforcing model provides several alternative mechanisms for protecting shareholders against share issuances that are priced below fair market value or shift control over a company. Shareholders may authorize unissued shares, to be issued in the future by decision of the board of directors, as in the enabling model and many emerging markets.111 Shareholders who distrust their managers could refuse to give such authorization, but we expect this to be rare. But shareholders would enjoy four additional protections against abusive share issues, other than the power to withhold authorization. First, a stock sale to insiders is a self-interested transaction, subject to the approval requirements discussed in section IV.B. Second, a sale of shares equal to 25% or more of a company's outstanding shares requires approval by a majority of these shares, excluding shares already held by purchasers of the new shares. Third, issuances for less than market value (as determined by noninterested directors) are banned outright (though the malleability of the concept of market value limits the

110 We address here the protection of shareholders during share repurchases. Section IV.E addresses protection of creditors during share repurchases, dividends, and other distributions of corporate assets. We also focus here on the interests of the company's existing shareholders. It is the job of securities law to protect the interests of the purchasers of shares when shares are sold to the general public.

111 Only 3 of the 17 emerging markets in our survey (China, Poland, and Turkey) ban authorized but unissued shares. See infra Appendix. In our Russian proposal, an increase in authorized shares, like other charter amendments, requires approval by two-thirds of the outstanding shares.

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effectiveness of this ban).112 Finally, shareholders receive the preemptive and participation rights detailed below for all issuances above a de minimis threshold (2% of the previously outstanding shares).113

The de minimis exception aside, for new share issuances, a company would have to offer to its existing shareholders rights to purchase newly issued shares in proportion to their prior holdings (preemptive rights).114 Preemptive rights protect shareholders against underpriced issues, but are costly for companies with many shareholders and can delay timesensitive transactions. Thus, the law must allow for waivers, including routine waivers approved at annual meetings. This revives the risk that shareholders may be harmed by belowmarket share issues. To limit this risk, the self-enforcing model gives to shareholders who do not vote to waive preemptive rights what we call participation rights. These rights entitle the shareholders who hold them to buy from the company after the offering has been completed as many shares, at the offering price, as they could have bought had preemptive rights been available.

If the offering price is fair, few shareholders will exercise participation rights, and an offering will take place much as in countries where a waiver of preemptive rights binds all shareholders. But if a company sells shares for substantially below market value, shareholders will rush to exercise their participation rights and buy bargain-priced stock. This will let those shareholders recoup most of the dilution caused by the below-market issuance. It will also embarrass the managers by making the underpricing obvious to all, and will make the shareholders reluctant to waive preemptive rights in the future.115

112 In developed countries, below-market issuances are used almost exclusively as a form of incentive compensation for managers. Our ban on below-market issuances has the practical effect of forcing a company that wants to issue shares to managers to pay them a (disclosed) sum of money, which they can then use to buy shares at market value. Thus, the ban is basically a rule of disclosure: the cost of the incentive compensation is made explicit by paying it as salary that is then invested in shares.

113 We do not treat an insider's exercise of preemptive rights as a self-interested transaction, even though it is technically a transaction with the company, because preemptive rights are available to all shareholders on equal terms.

114 Preemptive rights are common in both developed countries (notably Britain and Continental Europe) and emerging markets. They are available in 11 of the 17 emerging markets in our survey. See infra Appendix.

115 Participation rights pose a risk to the viability of preemptive rights waivers. The participation right is a call option, exercisable for a limited period after the company sells shares, to buy shares at the same price. Like any option, it has value. Even if all shareholders would benefit if preemptive rights were waived, individual shareholders are better off if others waive preemptive rights but they retain the participation option. The value of participation rights must be limited to make them viable. Limits arise in several ways. First, the time period for exercising participation rights should be short to reduce the time value of the participation option. Second, communications technology imposes a lag between the time when participation rights can be exercised and the time when additional shares are received. This prevents risk-free arbitrage, in which a shareholder buys shares at one price using participation rights and immediately resells the shares at a higher price in the market. Third, and most critically, an emerging market is characterized by wide bid-asked spreads

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2. Repurchase of Shares. -- Share repurchases can be as perilous for shareholders as share issues but are less critical to a firm's growth. Thus, they are banned by many corporation statutes.116 In our view, this prohibition goes too far. A pro rata (open on equal terms to all shareholders) repurchase of shares is basically just a way for the company to distribute cash to shareholders, and therefore raises only limited fairness concerns. Pro rata repurchase offers can be a valuable corporate tool, especially if (as in Russia) they are tax-favored compared to dividends. Our model permits pro rata repurchase offers without special shareholder approval.117 Nevertheless, even pro rata offers should be made at market value as determined by the company's independent directors, unless a different price was agreed upon when the shares were acquired. Approval by independent directors is necessary because insiders are usually large shareholders who want the company to buy shares from others for as low a price as possible, while outsiders may be willing to sell at a low price because they do not know the true value of their shares.118

In contrast, a non-pro-rata offer to repurchase shares raises a concern that insider shares will be repurchased at more than fair market value, or that the company will buy out a troublesome shareholder at a high price. The self-enforcing model requires that a non-pro-rata repurchase of shares be made at market value, determined by the independent directors, and be approved by shareholder vote. A non-pro-rata repurchase of shares from insiders is also regulated like any other self-interested transaction.119

and often by intervals when one cannot sell one's shares at any reasonable price. These features further reduce the option value of participation rights for a fairly valued offering. Our judgment for Russia was that the option value of participation rights would be small enough not to be a major obstacle to a waiver of preemptive rights, much as the put option inherent in appraisal rights has not, in practice, been a major obstacle to shareholder approval of mergers.

116 Twelve of the 17 emerging market jurisdictions in our survey ban repurchases of common stock. See infra Appendix.

117 We do not treat an insider's sale of stock to the company, pursuant to a pro rata repurchase offer, as a selfinterested transaction, because the offer was available to all shareholders on equal terms.

118If stock markets are well developed, a publicly announced repurchase of shares in the open market can be treated in the same manner as a pro rata repurchase, because all shareholders have an equal opportunity to sell their shares at the market price. However, in the illiquid stock markets that characterize many emerging economies, a repurchase, supposedly made on the open market at the market price, can be used to repurchase shares from insiders at a favorable price. The insiders will know when the company will be buying shares, and can sell at a high price. Once the company finishes buying shares, the price will drop again. Thus, we treat open market purchases as non-pro-rata. This regulatory treatment should change when a country's stock market becomes sufficiently liquid.

119If the shareholders whose shares are to be repurchased are known, they should be ineligible to vote. If the selling shareholders are not known, as in the case of an open market repurchase, then all shares can vote. Repurchases of preferred stock should be regulated similarly to repurchases of common stock. Non-pro-rata repurchases should require approval by the holders of the class of preferred stock to be repurchased.

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Turning from repurchases of stock (voluntary for the selling shareholder) to redemptions (mandatory for the selling shareholder), a company should be allowed to redeem preferred shares at its option if its charter so provides. The principal risk is that the price offered by the company will be too low. To respond to this risk, we believe that a company should be able to redeem preferred stock only on a pro rata basis, or by lot to the extent necessary to avoid redeeming fractional shares. There is no need to allow non-pro-rata redemption of common stock, which would permit managers to buy out unwanted shareholders at a low price. Pro rata redemption of common stock, which is functionally equivalent to paying a dividend, should be allowed if it offers more favorable tax treatment than paying a dividend.120

E. Protecting Creditors and Preferred Shareholders

Minority shareholders are not the only corporate investors who are threatened by the information asymmetries and weak capital markets that characterize emerging economies. The business failures that plague these economies put stress on credit relationships and create incentives for opportunism by shareholders or managers at creditors' expense.

In developed and emerging economies alike, contract is the principal instrument of selfprotection for creditors and preferred shareholders. Banks can take security interests in assets; bondholders can demand covenants that restrict distributions of corporate assets; trade creditors can provide only short-term credit, thus limiting their losses in the event of default; and preferred shareholders can insist on the power to elect some or all of the board of directors if dividends are missed.

But experience also suggests a role for legal limits on distributions of assets even in developed economies. In the United States, for example, company law bars dividends and stock purchases by an insolvent company;121 "look-back" provisions of bankruptcy law allow recapture of pre-bankruptcy distributions;122 and fraudulent conveyance law allows reversal of transfers made for unfair consideration by insolvent companies.123 These substantive limits respond to the powerful incentives for shareholders to extract whatever value they can from a failing company. Banks and other large creditors can protect themselves by writing detailed contracts and monitoring a borrower's compliance with contractual covenants. But experience teaches that statutory limits on distributions are important protections for trade and other small

120 We allow reverse stock splits, in which small holdings are cashed out in lieu of issuing fractional shares. This is a form of mandatory, non-pro-rata repurchase of stock. Thus, it should require approval by a majority of outstanding shares, the price paid for fractional shares should be market value (determined by the independent directors), and shareholders whose shares are cashed out should receive appraisal rights.

121See, e.g., Revised Model Business Corp. Act § 6.40 (1991).

122See 11 U.S.C. § 547 (1994).

123See, e.g., Unif. Fraudulent Conveyance Act § 4, 7A U.L.A. 474 (1985).

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creditors, for whom the transaction costs of writing or enforcing detailed contracts are prohibitive.

In emerging markets, creditors have even greater need for protection. They are often less sophisticated than creditors in developed countries, and key credit market institutions are often absent, such as financing factors who buy accounts receivable and monitor borrowers on behalf of small trade creditors, and information services that report a borrower's payment history or financial strength. Yet the available legal tools for protecting creditors are also limited. In Russia, bankruptcy law does not function at all, let alone contain sophisticated lookback provisions. Secured lending is crippled by a Civil Code provision that gives secured lenders third priority in insolvency proceedings, after personal injury claims and employee

Even ordinary contracts are often not readily enforceable.

The simplest ways for a company to distribute assets to shareholders at the expense of creditors are through dividends (whether of cash, stock, or other property) and stock repurchases. From a creditor's perspective, these are identical transactions and should be regulated in the same manner. The self-enforcing model permits dividends or repurchases only if, after the payment, (i) the company will have net assets (assets minus liabilities) greater than zero, whether assets and liabilities are measured at book or at market value; and (ii) the company reasonably expects to be able to pay its bills as they come due. The first test is an asset test for the company's solvency; the second test is a liquidity test for solvency.125 (The requirement that the company repurchase stock at fair market value also provides some creditor protection because if the company is close to insolvency, its shares will have little value.126) The market value test for asset-based solvency is familiar from developed countries. We add the book value test because one cannot rely on courts in emerging markets to apply sensibly a rule that looks to market value to determine whether a company is insolvent after paying a

We keep the market value test because book value may be an unrealistic measure

124See GK RF (Civil Code), supra note 42, pt. I, art. 64.

125In the United States, a third solvency test is also used: after the transaction, the company must not have an unreasonably small amount of capital left with which to conduct its business. See Unif. Fraudulent Transfer Act § 4(a)(2)(i), 7A U.L.A. 652-53 (1985). But this extremely vague test is rarely used in practice. In keeping with our preference for defining legal requirements clearly, to guide both directors and judges, we do not consider this third standard to be useful in an emerging market.

126 Similarly, to protect preferred stockholders, the law should allow dividends on or repurchases of common stock only if, after the payment, the company's net assets (measured at both book and market values) exceed the liquidation preference that the preferred stock would enjoy if the company were to be liquidated immediately. If there is more than one class of preferred stock, a similar restriction would apply to dividends or repurchases of a junior class of preferred stock. The dividend or repurchase would be permitted only if, after the dividend or repurchase, the company's net assets were sufficient to pay the liquidation preference of the more senior preferred stock.

127 If inflation is high, directors should have the option to adjust historical book values using a generally accepted inflation index to ensure that the book value test is not too constraining.

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of value. In Russia, for example, many intercompany debts that will never be paid are listed as assets by the company to whom they are nominally owed.

We also protect creditors and preferred shareholders through disclosure -- companies must notify creditors of dividends or stock repurchases that are large enough to significantly affect the company's creditworthiness (our threshold is a 25% decrease in the book value of the company's net assets). This disclosure permits creditors to avail themselves of contractual rights, and evaluate whether and on what terms to extend new credit. Large creditors can, of course, insist on notice of dividends or on dividend restrictions by contract. But trade creditors may not be able to, or think to do so, and trade creditors in emerging markets will often lack other sources of information about changes in a borrower's financial condition.

Although dividends and stock repurchases by a company that is in or near insolvency are particularly suspect as asset distributions, any corporate transaction can be a vehicle for extracting assets from the company, to the detriment of creditors and often shareholders as well. The challenge is how to block bogus transactions without impeding ordinary business dealings. Here we can do no better than the vague standard, familiar from fraudulent conveyance law, that a transaction is improper if (i) the company does not receive equivalent value, and (ii) the company fails an asset-based or liquidity-based solvency test after the transaction. We again use both book and market value tests for asset solvency.

The standard of equivalent value is fuzzy, but it can at least reach egregious cases where a company transfers most of its remaining assets to third parties for nominal consideration to evade its creditors. A typical Russian situation involves a raw materials company selling its product at a fraction of market value to another company controlled by its managers, who then resell the product at the market price. A creditor, irate shareholder, or even a judge should be able to spot a sale at a bargain price followed by prompt resale at a far higher price. As this example suggests, moreover, many fraudulent conveyance transactions are also self-interested, which enlists the self-interested transaction rules in protecting creditors and those shareholders who do not share in the company's largess.

These creditor-protection rules move, in part, beyond the self-enforcing model of procedural protection to substantive prohibition. Substantive restrictions on dividends, stock repurchases, and non-arms-length transfers are justified by: the strong incentives of shareholders and managers to grab what they can from a sinking ship; the dearth of legitimate reasons for a company near insolvency to pay dividends (and the total absence of reasons to enter into transactions without receiving reasonably equivalent consideration in return); and the difficulty of attacking this problem in another way because a company's relationships with creditors are too complex to permit a voting solution.

In part, however, the appearance of substantive prohibition is deceiving. For example, a company that wants to pay a dividend that the book value test would otherwise prohibit can first raise new equity capital to pay off its old creditors, then pay the desired dividend. The company can then recreate its old capital structure if new lenders can be found. In effect, the dividend limit requires the company to let creditors vote with their feet. Such a financial end run around the dividend restrictions involves substantial transaction costs, but its possibility

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softens the harshness of a book value test for solvency in an environment where book value may be a poor measure of actual value.

F. The State as Part-Owner

The state is frequently an important equity holder in emerging economies -- especially in the privatizing economies of Central and Eastern Europe. In Russia, for example (after completion of voucher privatization, but before the current, slow cash phase of privatization), regional property funds retain some equity in most privatized companies and hold stakes of 20% or more in perhaps one-third of all companies.128

Several concerns are raised by such large state holdings. One cannot expect government officials to behave as private shareholders who bear the economic consequences of company decisions. State officials may form alliances with managers at the expense of shareholders, competitive markets, or both. They may influence company policies in inefficient directions to accomplish public ends (such as preserving employment in a particular region). Or they may trade votes for personal favors that managers can supply. Because we are skeptical about whether local officials will behave as responsible shareholders, we favor neutralizing government shares in the election of boards of directors: state bodies should neither nominate nor vote for candidates for the board of directors, although they should retain authority to vote on potentially company-transforming actions such as mergers and charter amendments.129

V. Remedies

Substantive rules are only one aspect of a well-designed statute. Remedies are equally important and in some respects even more complex. In formulating substantive rules for a selfenforcing statute, the need to economize on enforcement resources leads to a preference for simple, bright-line rules -- though we occasionally use general standards for pedagogical purposes and to influence norms of behavior over the long term. For identical reasons, a selfenforcing statute should often define the remedies for violations of the substantive rules, rather than leave their development to the courts. Defining remedies isn't always possible, but some

128These estimates are from a survey of a limited number of regional property funds. See Katharina Pistor

&Joel Turkewitz, Coping with Hydra -- State Ownership After Privatization: A Comparative Study of the Czech Republic, Hungary, and Russia, in 2 Corporate Governance in Eastern Europe and Russia: Insiders and the State, supra note *, at 192, 206 tbl. 6.5.

129 Convincing government authorities to adopt a policy of neutrality may be difficult. The Russian company law, as adopted, not only failed to neutralize the state's shares, but also gave the state extra powers in some circumstances, most notably the right to maintain its percentage ownership during an issuance of additional shares if the state owns more than 25% of a company's shares. See Federal Law of the Russian Federation on Joint-Stock Companies, supra note 2, art. 28, ¶ 4.

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common violations can be anticipated and their consequences elaborated, rather than left to the uncertain wisdom of judges.

This stress on clarity and simplicity implies that remedies should often take the form of rights running to shareholders directly, rather than rights mediated by the corporation (acting on behalf of all shareholders) or by regulators. One broad example is the set of transactional rights described in Part IV -- appraisal, preemption, participation, and takeout rights -- where the substantive rule also defines a shareholder-enforced remedy. To take another example, shareholders can be given direct rights to sue an insider to recover the insider's profit from a self-interested transaction that did not receive the requisite shareholder approval. The recovery should go to the company, but the right to sue can belong to the shareholder. Conversely, the cumbersome device of the derivative suit -- a suit by the shareholder in the name of the company, with painstaking judicial oversight of when the company's board can control the suit -- has little place in an emerging economy. We limit nuisance or strike suits not through judicial oversight of derivative suits (as under Delaware law), but instead by requiring that the suing shareholders own a significant stake in the company (for Russia, we required ownership of 1% of the company's common stock).

Consistent with the spirit of a self-enforcing statute, shareholders can sometimes be left to determine the content of a remedy. For example, we penalize a shareholder who improperly crosses the 30% ownership threshold without honoring takeout rights with loss of voting rights unless these rights are restored by a majority vote of the other shareholders. Similarly, the penalty for improper voting procedures is a second vote that lets shareholders decide how to react to the misfeasance of the managers the first time around.

A second remedies issue is the severity of penalties for violating the rules. In general, sanctions should be more severe than in developed economies to compensate for the low probability of detection and enforcement.130 Consider, for example, the requirement that selfinterested transactions receive the approval of disinterested shareholders. We propose that insiders who fail to disclose an interested transaction must return all profits from the transaction to the company. Contrary to the majority rule in the United States, we reject ex post shareholder ratification and proof of substantive fairness to the company as defenses to liability because these defenses would undercut the incentive to obtain shareholder approval ex ante. Managers would be tempted to ignore the procedures in advance if the remedy for failing to follow them were merely a reprise of the required procedure. Ex post shareholder approval also sacrifices the prophylactic value of ex ante approval and ex ante disclosure. Not every transaction that would be approved ex post will be proposed ex ante; and not every transaction that would be disapproved will be challenged.

Because a self-enforcing corporate law makes heavy use of bright-line rules, it can carry strong penalties with less risk of chilling legitimate behavior than similar penalties would create

130 See, e.g., Gary S. Becker, Crime and Punishment: An Economic Approach, 76 J. Pol. Econ. 169, 183 -85 (1968).

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