Thanks to readers of this blog for comments, forthcoming in the Iowa Law Review is my paper, now available on SSRN, “A New Legal Theory to Test Executive Pay: Contractual Unconscionability.”  The paper is available for free downloading here.  The abstract follows below.

Lucrative pay to corporate managers remains controversial yet continues to evade judicial scrutiny for legitimacy. Although many arrangements likely would pass the most rigorous scrutiny, it seems equally clear that some would not. [...]]]> Executive pay continues to spark heated debate: some want it curtailed across the board, the impetus of recent federal law, while others want no legal  oversight whatsoever, the effect of Delaware corporate law.   Contract law may provide an optimal solution, narrower than the overly broad federal regime yet targeting egregious cases ignored by Delaware.  

Thanks to readers of this blog for comments, forthcoming in the Iowa Law Review is my paper, now available on SSRN, “A New Legal Theory to Test Executive Pay: Contractual Unconscionability.”  The paper is available for free downloading here.  The abstract follows below.

Lucrative pay to corporate managers remains controversial yet continues to evade judicial scrutiny for legitimacy. Although many arrangements likely would pass the most rigorous scrutiny, it seems equally clear that some would not. Some agreements are not the product of arm’s-length bargaining, can rivet managers on short-term stock prices at the destruction of long-term business value, and can misalign manager–shareholder interests.

Yet even such objectionable arrangements are immune from serious legal oversight. In theory, they are open to judicial review under corporate law, but shareholders challenging pay contracts face formidable procedural hurdles in derivative litigation and substantive obstacles from corporation law’s business judgment rule and the anemic doctrine of waste. A new legal theory would be useful to check board excesses in the population of clearly objectionable cases.

This Article explains why and how traditional contract law’s theory of unconscionability should be used to create a modicum of judicial scrutiny to strike obnoxious pay contracts and preserve legitimate ones. Under this proposal, pay contracts that are the product of managerial domination of the process and formed on terms massively favoring the executive will be stricken.

This will follow direct shareholder lawsuits in state courts where the contract is made or performed and applying that state’s contract law. This new legal theory circumvents today’s dead-end route, where pay contracts are always upheld in derivative shareholder lawsuits applying corporate law that sets no meaningful limits on executive pay. This proposal creates new but modest pressure from sister states on Delaware to take greater responsibility for the effects its production of corporate law has nationally.

For those outraged by lopsided corporate executive compensation, this Article offers an appealing new legal theory of contractual unconscionability to police them. Those who see no or few problems with contemporary pay arrangements, or who are outraged by federal regulatory schemes like the Dodd–Frank Act, will welcome how this proposal is narrowly tailored using common law to address the most obnoxious cases.

Articles

The Coercion of Trafficked Workers Kathleen Kim

IP Misuse as Foreclosure Christina Bohannan

Consent to Retaliation: A Civil Recourse Theory of Contractual Liability Nathan B. Oman

Automation and the Fourth Amendment Matthew Tokson

Essay

No Middle Ground? Reflections on the Citizens United Decision Randall P. Bezanson

Notes

(Potentially) Resolving the Ever-Present Debate over Whether Noncitizens in Removal Proceedings Have a Due-Process Right to Effective Assistance of Counsel Walter S. Gindin

Princo, Patent Pools, and the Risk of Foreclosure: A Framework for Assessing Misuse Phillip W. Goter

Holden Caulfield Grows Up: Salinger v. Colting, the Promotion-of-Progress Requirement, and Market Failure in a Derivative-Works Regime John M. Newman

Is Senator Grassley Our Savior?: The Crusade Against “Charitable” Hospitals Attacking Patients for Unpaid Bills Amanda W. Thai

Articles

Real Copyright Reform Jessica Litman

Policy Reversal on Reverse Payments: Why Courts Should Not Follow the New DOJ Position on Reverse-Payment Settlements of Pharmaceutical Patent Litigation Henry N. Butler & Jeffrey Paul Jarosch

The Uneasy Case for the Inside Director Lisa M. Fairfax

Judging Myopia in Hindsight: Bivens Actions, National Security Decisions, and the Rule of Law Peter Margulies

Tort Liability and the Original Meaning of the Freedom of Speech, Press, and Petition Eugene Volokh

Essay

Automobile Bankruptcies, Retiree Benefits, and the Futility of Springing Priorities in Chapter 11 Reorganizations Daniel Keating

Notes

Out-of-State Civil Unions in Iowa After Varnum v. Brien: Why the State of Iowa Should Recognize Civil Unions as Marriages Drew A. Cumings-Peterson

Al-Kidd v. Ashcroft: Clearly Established Confusion James E. Mosimann

Sexting: How the State Can Prevent a Moment of Indiscretion from Leading to a Lifetime of Unintended Consequences [...]]]>

Articles

Real Copyright Reform
Jessica Litman

Policy Reversal on Reverse Payments: Why Courts Should Not Follow the New DOJ Position on Reverse-Payment Settlements of Pharmaceutical Patent Litigation
Henry N. Butler & Jeffrey Paul Jarosch

The Uneasy Case for the Inside Director
Lisa M. Fairfax

Judging Myopia in Hindsight: Bivens Actions, National Security Decisions, and the Rule of Law
Peter Margulies

Tort Liability and the Original Meaning of the Freedom of Speech, Press, and Petition
Eugene Volokh

Essay

Automobile Bankruptcies, Retiree Benefits, and the Futility of Springing Priorities in Chapter 11 Reorganizations
Daniel Keating

Notes

Out-of-State Civil Unions in Iowa After Varnum v. Brien: Why the State of Iowa Should Recognize Civil Unions as Marriages
Drew A. Cumings-Peterson

Al-Kidd v. Ashcroft: Clearly Established Confusion
James E. Mosimann

Sexting: How the State Can Prevent a Moment of Indiscretion from Leading to a Lifetime of Unintended Consequences for Minors and Young Adults
Elizabeth M. Ryan

The FLSA Antiretaliation Provision: Defining the Outer Contours of What Constitutes an Employee Complaint
Erin M. Snider

Articles

 Burying the “Continuing Body” Theory of the Senate Aaron-Andrew P. Bruhl

 Protecting Patients with Passports: Medical Tourism and the Patient-Protective Argument I. Glenn Cohen

 Do Partisan Elections of Judges Produce Unequal Justice When Courts Review Employment Arbitrations? Michael H. LeRoy

 Evidence Law as a System of Incentives John Leubsdorf

 Notes

 A New Wave of Paternalistic Tobacco Regulation Robert J. Baehr

 Fair Use Through the Lenz of § 512(c) of the DMCA: A Preemptive Defense to a Premature Remedy? Joseph M. Miller

 Judicial Federalism, Equal Protection, and the Legacy of Racing Association of Central Iowa Brett F. Roberts

Articles

Insuring Understanding: The Tested Language Defense Michelle Boardman

Choice of Law Theory and the Metaphysics of the Stand-Alone Trigger Lea Brilmayer & Raechel Anglin

Managing Identity: Buying Into the Brand at Work Marion Crain

Why Should the First Amendment Protect Government Speech When the Government Has Nothing To Say? Steven G. Gey

Notes

Cybernetic-Enhancement Technology and the Future of Disability Law Collin R. Bockman

Equal Education Opportunity and the Pursuit of “Just Schools”: The Des Moines Independent Community School District Rethinks Diversity and the Meaning of “Minority Student” Jacob E. Meusch

Language Legislation in Iowa: Lessons Learned from the Enactment and Application of the Iowa English Language Reaffirmation Act Evan L. Seite

Articles

Peacemaking in the Culture War Between Gay Rights and Religious Liberty Jennifer Gerarda Brown

Inventing Tests, Destabilizing Systems Kevin M. Clermont & Stephen C. Yeazell

The Law of Vertical Integration and the Business Firm: 1880–1960 Herbert Hovenkamp

“We, the Paparazzi”: Developing a Privacy Paradigm for Digital Video Jacqueline D. Lipton

Notes

A Duty to Kiss and Tell? Examining the Uncomfortable Relationship Between Negligence and the Transmission of HPV Timothy J. Hasken

Issuing Violations Without Tangible Evidence: Computer Modeling for Clean Water Act Enforcement Sara R. Reichenauer

Drawing the Line: Niswander’s Balance Between Employer Confidentiality Interests and Employee Title VII Anti-Retaliation Rights Nicholas M. Strohmayer

Articles

W(h)ither Economic Substance? Leandra Lederman

Executive Detention, Boumediene, and the New Common Law of Habeas Baher Azmy

Where United Haulers Might Take Us: The Future of the State-Self-Promotion Exception to the Dormant Commerce Clause Rule Dan T. Coenen

Property, Privacy, and the Pursuit of Interconnected Electronic Medical Records Mark A. Hall

Notes

Cultural Pragmatism: A New Approach to the International Movement of Antiquities Matthew R. Hoffman

The Judge’s Order and the Rising Phoenix: The Role Public Interests Should Play in Limiting Author Copyrights in Derivative-Work Markets Christine M. Huggins

Unreasonable Delay at the VA: Why Federal District Courts Should Intervene and Remedy Five-Year Delays in Veterans’ Mental-Health Benefits Appeals Jacob B. Natwick

Articles

Juvenile Justice: The Fourth Option Christopher Slobogin & Mark R. Fondacaro

Testing Modern Trademark Law’s Theory of Harm Mark P. McKenna

Ignorance Is Effectively Bliss: Collateral Consequences, Silence, and Misinformation in the Guilty-Plea Process Jenny Roberts

Formalism and Pragmatism in Ruins (Mapping the Logics of Collapse) Pierre Schlag

Notes

Making Taxes More Certain: Iowa State Legislators’ Guide to Combined Reporting Lindsay C. McAfee

Rescuecom Corp. v. Google Inc.: A Conscious Analytical Shift Jessica A.E. McKinney

An Iowa Immigration Raid Leads to Unprecedented Criminal Consequences: Why ICE Should Rethink the Postville Model Cassie L. Peterson

Clearing the Air: Analyzing the Constitutionality of the Iowa Smokefree Air Act’s Gaming-Floor Exemption Kevin D. Sherlock

CRITICAL RACE THEORY SPEAKER SERIES CRT 20: HONORING OUR PAST, CHARTING OUR FUTURE

Introduction

Celebrating Critical Race Theory at 20 Angela Onwuachi-Willig

Articles

Liberal McCarthyism and the Origins of Critical Race Theory Richard Delgado

The Re-Emergence of Race as a Biological Category: The Societal Implications—Reaffirmation of Race Alex M. Johnson, Jr.

Post-Racialism Sumi Cho

Jim Crow Ethics and the Defense of the Jena Six Anthony V. Alfieri

Notes

The Branding of America: The Rise of Geographic Trademarks and the Need for a Strong Fair Use Defense Joseph C. Daniels

There’s “No Such Thing as Too Much Speech”: How Advertising Deregulation and the Marketplace of Ideas Can Protect Democracy in America Kristen M. Formanek

The Antifraud Savings Clause of the National Securities Markets Improvement Act of 1996 Evan J. Leitch

Real Estate Causes Real Problems for Investors: Regulating Executive Liquidation of Stock Options as a Source of [...]]]>

CRITICAL RACE THEORY SPEAKER SERIES
CRT 20: HONORING OUR PAST, CHARTING OUR FUTURE

Introduction

Articles

Saving Facebook James Grimmelmann

Attempt by Omission Michael T. Cahill

Strange Bedfellows: Criminal Law, Family Law, and the Legal Construction of Intimate Life Melissa Murray

Insider Trading and the Gradual Demise of Fiduciary Principles Donna M. Nagy

Notes

Corporate Liability for Violations of Labor Rights Under the Alien Tort Claims Act Wesley V. Carrington

The Right and Wrong Ways to Sell A Public Forum John C. Crees

Searching for a Solution: A Proposed Change to the Code of Iowa Chapter 808A Morgan N. Engling

Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status? Gina M. Lavarda

Articles

Cause for Concern: Causation and Federal Securities Fraud Jill E. Fisch

Twombly, Pleading Rules, and the Regulation of Court Access Robert G. Bone

Values and Value Creation in Public–Private Transactions Nestor M. Davidson

Green Is Good: Sustainability, Profitability, and a New Paradigm for Corporate Governance Judd F. Sneirson

Notes

A Newsworthiness Privilege for Republished Defamation of Public Figures Matthew J. Donnelly

The NLRB’s Oil Capitol and Toering Decisions and Their Effects on Unionization and American Labor Law Michael J. Hilkin

Stuck in a Bind: Can the Arbitration Fairness Act Solve the Problems of Mandatory Binding Arbitration in the Consumer Context? Joshua T. Mandelbaum

Extending Refugee Definitions to Cover Environmentally Displaced Persons Displaces Necessary Protection Kara K. Moberg

Articles

Unofficial Family Law

Ann Laquer Estin

Court-System Transparency

Lynn M. LoPucki

Patent Disclosure

Jeanne C. Fromer

In the Zone: Sex Offenders and the Ten-Percent Solutions

Asmara Tekle-Johnson

Notes

A Post-Granholm Analysis of Iowa’s Regulatory Framework for Wine Distribution

Jessica R. Reese

The Psychological-Parent and De Facto-Parent Doctrines: How Should the Uniform Parentage Act Define “Parent”?

Lindsy J. Rohlf

What’s It to You?: The Difficulty of Valuing the Benefits of Climate-Change Mitigation and the Need for a Public-Goods Test Under Dormant Commerce Clause Analysis

Mary Bede Russell

Backing Bundled Discounts After Brooke Group: Analyzing the Debate over the Legality of Above-Cost Bundled Discounts

Jamie L. Weber

Articles

Beyond the Call of Duty: Compelling Health Care Professionals to Work During an Influenza Pandemic

Carl H. Coleman

Rethinking Trademark Fair Use

William McGeveran

The Black Box

Marc L. Miller & Ronald F. Wright

Against Financial-Literacy Education

Lauren E. Willis

Notes

Comrades in Arms: Using the Uniform Code of Military Justice and the Military Extraterritorial Jurisdiction Act to Prosecute Civilian-Contractor Misconduct

Ian W. Baldwin

Continuing Persecution: An Argument for Doctrinal Codification in Light of In re A-T- and Brand X

Amy B. Kretkowski

Overruling a Nearly Century-Old Precedent: Why Leegin Got It Right

Julie M. Olszewski

Gambling, Greyhounds, and Gay Marriage: How the Iowa Supreme Court Can Use the Rational-Basis Test to Address Varnum v. Brien

Steven P. Wieland

Articles

Art and the Constitution

Randall P. Bezanson

The Unconstitutionality of Summary Judgment: A Status Report

Suja A. Thomas

Summary Judgment Is Constitutional

Edward Brunet

Summary Judgment and the Progressive Constitution

William E. Nelson

Why Summary Judgment Is Still Unconstitutional: A Reply to Professors Brunet and Nelson

Suja A. Thomas

Batson, O.J., and Snyder: Lessons from an Intersecting Trilogy

Camille A. Nelson

Waiting for the Other Shoe: Hudson and the Precarious State of Mapp

David A. Moran

The Exclusionary Rule and Causation

Albert W. Alschuler

Hudson v. Michigan and the Future of Fourth Amendment Exclusion

James J. Tomkovicz

Notes

Patentable Subject Matter: Do the 2005 USPTO Interim Guidelines Intersect State Street at a Roundabout?

Charles A. Damschen

Sarbanes-Oxley Section 501(a): No Implied Private Right of Action, and a Call to Congress for an Express Private Right of Action to Enhance Analyst Disclosure

Louis E. [...]]]>

Articles

Art and the Constitution

Randall P. Bezanson

The Unconstitutionality of Summary Judgment: A Status Report

Suja A. Thomas

Summary Judgment Is Constitutional

Edward Brunet

Summary Judgment and the Progressive Constitution

William E. Nelson

Why Summary Judgment Is Still Unconstitutional: A Reply to Professors Brunet and Nelson

Suja A. Thomas

Batson, O.J., and Snyder: Lessons from an Intersecting Trilogy

Camille A. Nelson

Waiting for the Other Shoe: Hudson and the Precarious State of Mapp

David A. Moran

The Exclusionary Rule and Causation

Albert W. Alschuler

Hudson v. Michigan and the Future of Fourth Amendment Exclusion

James J. Tomkovicz

Notes

Patentable Subject Matter: Do the 2005 USPTO Interim Guidelines Intersect State Street at a Roundabout?

Charles A. Damschen

Sarbanes-Oxley Section 501(a): No Implied Private Right of Action, and a Call to Congress for an Express Private Right of Action to Enhance Analyst Disclosure

Louis E. Ebinger

Roommate Wanted: The Right to Choice in Shared Living

John T. Messerly

Iowa Law Review, Volume 93, Issue 4 (June 2008)

Articles

Categorical Analysis in Antitrust Jurisprudence

Mark A. Lemley & Christopher R. Leslie

Fair Use and Copyright

Overenforcement

Thomas F. Cotter

Congress’s Power to Block Enforcement of Federal Court Orders

Jennifer Mason McAward

Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending

Katherine Porter

Notes

Forced Financial Aid: Two Arguments as to Why Iowa’s Law Authorizing Courts to Order Divorced Parents to Pay Postsecondary-Education Subsidies Is Unconstitutional

Dan Huitink

Prejudice, Procedure, and a Proper Presumption: Restoring the Remmer Presumption of Prejudice in Order to Protect Criminal Defendants’ Sixth Amendment Rights

Eva Kerr

A Procedural Approach to “Unfair Methods of Competition”

Andy J. Miller

Are We Living in a Material World?: An Analysis of the Federal Circuit’s Materiality Standard Under the Patent Doctrine of Inequitable Conduct

Elizabeth Peters

Felony Murder, the Merger Limitation, and [...]]]>

Iowa Law Review, Volume 93, Issue 4 (June 2008)

Articles

Categorical Analysis in Antitrust Jurisprudence

Mark A. Lemley & Christopher R. Leslie

Fair Use and Copyright

Overenforcement

Thomas F. Cotter

Congress’s Power to Block Enforcement of Federal Court Orders

Jennifer Mason McAward

Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending

Katherine Porter

Notes

Forced Financial Aid: Two Arguments as to Why Iowa’s Law Authorizing Courts to Order Divorced Parents to Pay Postsecondary-Education Subsidies Is Unconstitutional

Dan Huitink

Prejudice, Procedure, and a Proper Presumption: Restoring the Remmer Presumption of Prejudice in Order to Protect Criminal Defendants’ Sixth Amendment Rights

Eva Kerr

A Procedural Approach to “Unfair Methods of Competition”

Andy J. Miller

Are We Living in a Material World?: An Analysis of the Federal Circuit’s Materiality Standard Under the Patent Doctrine of Inequitable Conduct

Elizabeth Peters

Felony Murder, the Merger Limitation, and Legislative Intent in State v. Heemstra: Deciphering the Proper Role of the Iowa Supreme Court in Interpreting Iowa’s Felony-Murder Statute

Douglas Van Zanten