A healthy system of shareholder voting is crucial for any regime of corporate law. The proper allocation of governance power is subject to debate, of course, but the fitness of the underlying mechanism used to stuff the ballot boxes should concern everyone. Proponents of shareholder power, for instance, cannot argue for greater control if the legitimacy of the resulting tallies is suspect. And those who advocate for board deference do so on the bedrock of authority that reliable shareholder elections supposedly confer.
Unfortunately, our trust in the corporate franchise was forged during an era that predates modern complexities in the way that stock ownership is now tracked and traded. We do not trace shares, and any clear-eyed look at the conferral of voting rights via back-end stock clearing practices is unsettling. Evidence of the various entanglements crops up from time to time—in the form of questionable voting outcomes or disputes about standing for shareholder lawsuits—but the underlying problems are systemic, not episodic. Our stock clearing system is a kludge.
This is an important moment for corporate law, however, because new technology is approaching a state where clearing and settlement systems may soon support traceable shares. The rise of distributed ledgers and blockchain technology is poised to allow for specific share identification and precise records of share provenance. This may sound like an uninteresting technical sideshow, but as this Article will argue, the impact of traceable shares on corporate law will be profound. It will change the structure of shareholder lawsuits, alter the allocation of corporate governance rights, and require lawmakers to rethink fundamental principles of shareholder responsibility for corporate misdeeds.
Modern commercial contracts—those governing mergers and acquisitions and financial derivatives, for instance—have become structurally complex and interconnected. Yet contract law largely ignores structural complexity. This Article develops a theory of “contractual structuralism” to explain the important role of structure in every aspect of contract law, from the design of a contract to courts’ interpretation and enforcement.
For generations, scholars have debated whether a court should consider only the text of a contract or also consider broader context to determine parties’ intent. More recently, scholars have shown that parties can choose between textual and contextual interpretation by drafting a contract provision as a rule or a standard. Rules signal that parties have fully thought through the issues and a court should interpret textually, and standards signal the need for further contextual exploration.
This Article builds upon that pioneering work to make two contributions to the literature. First, it provides the first comprehensive account of structural complexity in modern contracting, and explains how modern contract designers use structure to advance their goals. Second, it shows how the design of contract structure can influence interpretation. Contracts have grown—in scope, length, and complexity—and provisions are no longer strictly rules or strictly standards. Rather, they bleed into and interact with one another, complicating parties’ ability to always pair textualist enforcement with a rule and contextualist enforcement with a standard. Tweaking deal structure provides contract designers with another way, beyond using a rule or standard, to nudge courts toward a particular interpretive mode. Specifically, structural isolation of provisions—a modular contract structure—is required for the kind of toggling between textualism and contextualism that other scholars have envisioned. Understanding how a contract’s parts are put together—the structure of the contract—is important to understanding how to design contracts and can greatly influence how courts interpret contracts.