Issue 6.1 – Winter 2016

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Disentangling Mutual Fund Governance from Corporate Governance
Eric D. Roiter

This Article addresses mutual fund governance, explaining how it has recently become entangled with the norms and rules of corporate governance. At one level, it is understandable that the Securities and Exchange Commission (SEC) and courts have viewed mutual funds as a type of ordinary corporation. Both mutual funds and corporations are separate legal entities, having directors and shareholders. Directors of each are held to fiduciary duties, charged with serving shareholders’ interests, and expected to aspire to best practices. However, there are fundamental differences between mutual funds and ordinary corporations. This Article contends that these differences have important implications for governance, differences that should lead to the disentanglement of mutual fund governance from corporate governance.

Where Have All the IPOs Gone? The Hard Life of the Small IPO
Paul Rose and Steven Davidoff Solomon

We examine firm lifecycles of 3,081 IPOs from 1996–2012. We find that small IPOs have a different lifecycle than other, larger companies. Within five years of an IPO, only 55% of small capitalization companies remain listed on a public exchange, compared to 61% and 67% for middle and large capitalization companies, respectively. Small capitalization companies generally delist either voluntarily or involuntarily, while mid and large capitalization companies largely exit the public market through takeover transactions. Those small companies that remain listed largely fail to grow, remaining in the small capitalization category. We use our findings to examine various theories explaining the decline of the small IPO. We find only minor evidence that regulatory changes caused the decline of the small IPO. The decline appears instead to be more attributable to the historical unsuitability of small firms for the public market. Absent economic or market reforms that change small firm quality, further regulatory reforms to enhance the small IPO market are thus unlikely to be effective or bring firms into the public market that have the horsepower to remain publicly listed.

The Conflict Minerals Experiment
Jeff Schwarz

In Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress instructed the Securities and Exchange Commission (SEC) to draft rules that would require public companies to report annually on whether their products contain certain Congolese minerals. This unprecedented legislation and the SEC rulemaking that followed have inspired an impassioned and ongoing debate between those who view these efforts as a costly misstep and those who view them as a measured response to human rights abuses committed by the armed groups that control many mines in the Democratic Republic of the Congo. This Article for the first time brings empirical evidence to bear on this controversy.