Current Print Issue

Vol. 166, Issue 3

  February 2018

Featured Article

Contested Visions: The Value of Systems Theory for Corporate Law

Tamara Belinfanti & Lynn Stout
166 U. Pa. L. Rev. 579 (2018)

Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remain hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. The prevailing narrative for the past quarter century has been that corporations “belong” to shareholders and should pursue “shareholder value,” but support for that approach, which has long been justified as essential for managerial accountability, is eroding. Its proponents have retreated to the position that corporations should seek “long‐term” shareholder value. Yet, as this Article shows, when shareholder value is interpreted to mean “long‐term” shareholder value, it no longer offers the sought‐after managerial accountability.

What can? This Article argues that systems theory offers an answer. Systems theory is a well‐developed design and performance measuring methodology routinely applied in fields such as engineering, biology, computer science, and environmental science. It provides an approach to understanding the nature and purpose of corporate entities that is not only consistent with elements of the many otherwise‐conflicting visions of the corporation that have been developed, but also with important and otherwise difficult‐to‐explain features of corporate law and practice. It recognizes, and explains, the possibility and desirability of corporations pursuing multiple goals. It also offers proven methods for measuring and improving corporate performance—methods that highlight the critical role of corporate sustainability, and specific strategies to promote it. Finally, it cautions that, by ignoring the lessons of systems theory, shareholder value thinking may have encouraged regulatory and policy interventions into corporate governance that are not only ineffective, but destructive.

Featured Comment

Sufficiently Criminal Ties: Expanding VAWA Criminal Jurisdiction for Indian Tribes

Maura Douglas
166 U. Pa. L. Rev. 745 (2018)

American Indian and Alaska Native women face the highest rates of sexual assault of any group in the United States, and most often such attacks are by non‐Indian offenders. Since Oliphant v. Suquamish Indian Tribe, tribes cannot exercise criminal jurisdiction over non‐Indians, even for crimes committed against an Indian victim in federally recognized Indian country. A history of complex jurisdictional and intergovernmental issues between federal, state, and tribal authorities further impede the investigation and prosecution of these crimes. In the Violence Against Women Reauthorization Act of 2013 (VAWA 2013), Congress extended criminal jurisdiction to tribes in a limited context over non‐Indian defendants—so long as they possess ties to the tribe and to the victim as a domestic or dating partner. The requirement that a defendant must have a relationship with the victim, tribe, and land is novel. Indeed, during the VAWA 2013 legislative debates weighing the jurisdictional grant, even Senate opposition conceded that once jurisdiction was extended to crimes of domestic violence, “there would be no principled reason not to extend it to other offenses as well.” Federal Indian law affirms Congress’s plenary authority to recognize tribal sovereignty, but does the law require special domestic violence criminal jurisdiction for tribes to be so restricted? I argue it does not. This Comment first investigates the history of jurisdiction in Indian country and recognition of inherent tribal sovereignty by Congress. Second, it considers the problem of sexual violence in Indian country. Third, it assesses the main arguments in opposition to the current jurisdictional grant in VAWA 2013 to determine whether Congress can and should recognize tribal authority to prosecute all non‐Indian crimes of sexual violence, as well as concurrent crimes of domestic and dating violence, committed against Indian victims in Indian country. In light of these oppositional arguments, this Comment argues that Congress can and should recognize such jurisdictional authority of tribal governments, and proposes specific language to affirm the inherent powers of tribes to further protect their land and their people.

Online Exclusives
 Last updated: December 12, 2017


The Unicorn Governance Trap

Renee M. Jones
166 U. Pa. L. Rev. Online 165 (2017)

This Essay highlights emerging governance problems presented by persistent Unicorns. It argues that recent market trends and deregulatory reforms have weakened or eliminated the principal mechanisms that imposed discipline on start‐up company founders. Recent scandals at prominent Unicorns suggest that investors have erred in placing blind faith in the honesty and capabilities of start‐up founders. Policymakers should learn from these disasters and close regulatory loopholes that allow Unicorns to persist in limbo between private and public status for extended periods of time.

Part I provides an overview of how the IPO has shifted from the preferred exit strategy in the eyes of entrepreneurs to a regulatory morass to be shunned. It traces developments in the market for start‐up company shares, and regulatory reforms that facilitated the proliferation of Unicorns. Part II highlights unique governance risks posed by Unicorns, addressing both societal and investor protection concerns. Part III offers suggestions on how to address Unicorn risks, and raises fundamental questions about the future of Unicorns in our economy.


Auditing Algorithms for Discrimination

Pauline T. Kim
166 U. Pa. L. Rev. Online 189 (2017)

As reliance on algorithmic decisionmaking expands, concerns are growing about the potential for arbitrary, unfair, or discriminatory outcomes in areas such as employment, credit markets, and criminal justice. Legal scholars have lamented the lack of accountability of these automated decision processes and called for greater transparency. They argue that the way to avoid unfair or discriminatory algorithms is to demand greater disclosure of how they operate. Accountable Algorithms resists this call for transparency, calling it “a naive solution.” Instead, it argues that technology offers tools—“a new technological toolkit”—that can better assure accountability.

One of the examples that Kroll et al. rely on to illustrate their argument is the goal of ensuring that algorithms do not discriminate. Many commentators have pointed out the risk that automated decision processes may produce biased outcomes, and in prior work, I have argued that serious policy concerns are raised when these algorithms exacerbate historic inequality or disadvantage along the lines of race, sex, or other protected characteristics—what I’ve referred to as “classification bias.” Recognizing that the precise meaning of discrimination is uncertain and contested, Kroll et al. do not try to resolve debates over the meaning of discrimination. Instead, without choosing among the competing definitions, they simply survey the available technical tools, suggesting that these tools will be more effective at ensuring nondiscrimination than calls for transparency.

Transparency involves outside scrutiny of a decision process, for example, by allowing third parties to examine the computer code or the decision criteria it implements. Auditing is another method for promoting transparency. When the goal is nondiscrimination, auditing could involve techniques to ensure that an algorithm follows a specified rule—for example, sorting must not occur based on race or sex. Alternatively, auditing for discrimination could take the form of examining inputs and outputs to detect when a decision process systematically disadvantages particular groups. The latter form of auditing does not involve direct examination of the decision process, but is useful in detecting patterns. This type of auditing, in the form of field experiments, is well established in the social science literature as a technique for testing for discrimination in decisions such as employment and consumer transactions. Auditing the effects of decisionmaking algorithms similarly offers a method of detecting when they may be biased against particular groups. Kroll et al., however, express skepticism about auditing as a strategy, arguing that it is not only technically limited, but also likely restricted by law. More specifically, they suggest that when an algorithm is found to have a disparate impact, the Supreme Court’s decision in Ricci v. DeStefano may prevent correcting for that bias.

This Essay responds to Kroll et al., arguing that, despite its limitations, auditing for discrimination should remain an important part of the strategy for detecting and responding to biased algorithms. Technical tools alone cannot reliably prevent discriminatory outcomes because the causes of bias often lie not in the code, but in broader social processes. Therefore, implementing the best available technical tools can never guarantee that algorithms are unbiased. Avoiding discriminatory outcomes will require awareness of the actual impact of automated decision processes, namely, through auditing.

Fortunately, the law permits the use of auditing to detect and correct for discriminatory bias. To the extent that Kroll et al. suggest otherwise, their conclusion rests on a misreading of the Supreme Court’s decision in Ricci. That case narrowly addressed a situation in which an employer took an adverse action against identifiable individuals based on race, while still permitting the revision of algorithms prospectively to remove bias. Such an approach is entirely consistent with the law’s clear preference for voluntary efforts to comply with nondiscrimination goals.

Case Note

Of Laundering and Legal Fees: The Implications of United States v. Blair for Criminal Defense Attorneys who Accept Potentially Tainted Funds

Philip J. Griffin
164 U. Pa. L. Rev. Online 179 (2016).

“In the common understanding, money laundering occurs when money derived from criminal activity is placed into a legitimate business in an effort to cleanse the money of criminal taint.” 18 U.S.C. § 1957, however, prohibits a much broader range of conduct. Any person who “knowingly engages” in a monetary transaction involving over $10,000 of “criminally derived property” can be charged with money laundering under § 1957.

Because § 1957 eliminates the requirement found in other money laundering statutes that the government prove an attempt to commit a crime or to conceal the proceeds of a crime, § 1957 “applies to the most open,

above‐board transaction,” such as a criminal defense attorney receiving payment for representation. In response to pressure from commentators, Congress passed an amendment two years after § 1957’s enactment defining the term “monetary transaction” so as to exclude “any transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution.”

The statutory safe harbor found in § 1957(f)(1) has successfully immunized defense attorneys from money laundering prosecutions. However, United States v. Blair raised concerns among the criminal defense bar because of its holding that an attorney‐defendant was not entitled to protection under § 1957(f)(1). In Blair, an attorney‐defendant was convicted of violating § 1957 for using $20,000 in drug proceeds to purchase two $10,000 bank checks to retain attorneys for associates of his client. Noting that Sixth Amendment rights are personal to the accused and that Blair used “someone else’s money” to hire counsel for others, the Fourth Circuit held that his actions fell “far beyond the scope of the Sixth Amendment” and were not protected by the safe harbor. In his strongly‐worded dissent, Chief Judge Traxler criticized the court for “nullif[ying] the § 1957(f)(1) exemption and creat[ing] a circuit split.”

This Case Note discusses the implications of Blair for the criminal defense attorney who accepts potentially tainted funds and proposes a solution to ameliorate its unintended consequences. First, Part I provides relevant background information by discussing the money laundering statutory framework, the criticisms leveled at the framework as it was written, the Congressional response to that criticism, and § 1957(f)(1)’s application up until Blair. Next, Part II describes the Blair decision in detail and examines its implications. Part III then proposes a novel solution to the problems it created. Finally, the Case Note concludes with a brief word of practical advice for the criminal defense bar.