The Many Modern Sources of Business Law
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Description
This book grapples with an important question that has largely eluded systematic study: whether American law is keeping up with the businesses it seeks to govern. The question is important, because the increasing pace of technological change naturally gives rise to the concern that the law—created and enforced by actors who lack innovators’ powerful incentives to adapt to changed markets—will fall behind, imposing unproductive rules from another era on modern businesses. From the common law of mergers and acquisitions to securities regulation, our colleagues’ chapters help us better understand how the law might adapt to better serve corporate law’s many constituents. In this chapter, we have a much less ambitious goal. We merely observe that, for many of today’s most innovative corporations, there are so many sources of what can be called corporate law—each the subject of different political economy, policy objectives, and institutional sources—that there cannot be said to be a single, unified business law for these firms. Instead, “business law” at these companies consists of a complex ecosystem of federal, state, and local rules, all of which can be expected to change in response to emerging business models. For that reason, we argue, understanding those interactions, and how the different sources of law can challenge companies by creating inconsistent pockets of law, is the true challenge for lawmakers who hope to ensure that law facilitates, rather than impedes, innovation. We begin by illustrating this idea through a contemporary case study of an innovative industry that emerged against the backdrop of existing law arguably designed for another era: marketplace lending. These fast-growing finance firms seek to match prospective borrowers to willing lenders, enabling fast, cost effective funding decisions, and are expected to issue over $150 billion in loans within the decade. Yet marketplace lenders face extraordinary uncertainty about the law that will govern their operations at both the federal and state levels. Indeed, as we explain, marketplace lenders cannot meaningfully be said to face a single, unified corporate law. We apply the insights from our case study of marketplace lending to the broader topic of this book: whether corporate law is keeping up with our economy’s most innovative firms. We explain that the concept of corporate law encompasses not only federal securities law and the work of Delaware’s famed judiciary but also a wide range of federal and state agencies tasked with protecting consumers, investors, and the broader public. For us, then, the question is not whether corporate law is keeping up with innovation; it is whether the interdependent evolution of the institutional sources of corporate law can be expected to produce an environment in which productive innovation will occur. Understanding the interplay between these different sources of regulation is critical, because confusion over the state of the law can, and often does, stifle socially valuable innovation. This chapter proceeds as follows. The next section describes the emergence of marketplace lenders and the uniquely complex legal challenges that have arisen in response to their business model. A later section explains how the marketplace-lending experience can inform our thinking about the evolution of the institutional sources of corporate law in response to innovation. Finally, we offer a brief conclusion.
Source Publication
The Corporate Contract in Changing Times: Is the Law Keeping Up?
Source Editors/Authors
Steven Davidoff Solomon, Randall Stuart Thomas
Publication Date
2019
Recommended Citation
Honigsberg, Colleen and Jackson, Robert J. Jr., "The Many Modern Sources of Business Law" (2019). Faculty Chapters. 945.
https://gretchen.law.nyu.edu/fac-chapt/945
