"Too much investment decision making is occuring within corporations at the top," states Merritt B. Fox, a specialist in corporate and securities law who joined the faculty this fall. Current practices, he feels, "not only result in investments that enhance the interests of management more than those of shareholders, but they stifle innovation as well."
Fox developed this thesis in his recent book, Industrial Performance in a Dynamic Economy: Theory, Practice and Policy. "I wanted to ask why we have taken for granted the notion that corporations can retain as much earnings as their management wants," he explains. "It's worth reexamining our very strong presumption that the amount of earnings to be retained is management's decision alone."
Fox's appointment to the faculty demonstrates the Law School's strengthening commitment to the field of law and economics. His credentials include both a Ph.D. in economics and a J.D. from Yale; more than six years of experience with the Wall Street firm of Cleary, Gottlieb, Steen & Hamilton; and eight years as a law professor at Indiana University in Bloomington.
In both private practice and in teaching, Fox's interest in law and economics has been focused upon international finance, corporate law, and securities law. Fox has had wide ranging experience in areas unrelated to economics. At Yale, he worked for six years with political scientist and law professor Harold Lasswell on a project that explored the relationship between politics and architecture.
Fox started out as a research assistant, taking photographs of over 1000 political buildings around the world, and later became a collaborator with Lasswell in writing The Signature of Power, the book that grew out of the project.
While in New York Fox married Ann Gellis, an associate with Cleary, Gottlieb, who subsequently went into city government. In 1980, they both accepted appointments at the Indiana University Law School in Bloomington. At present Gellis remains with the couple's two sons in Bloomington, where she teaches property and local government law, while Fox commutes to Ann Arbor.
The contractual or agency theory of corporations is one area in which Fox is developing an economics based critique. "The thrust of this theory," he explains, "is that the corporation's articles of incorporation are, in essence, a contract among shareholders and management." The analogy to contract theory suggests that the terms of the articles are presumptively in the best interests of shareholders, and, thus, should be strictly construed when in conflict with the state corporation code.
Fox disagrees. The assumption that corporate articles are in the best interests of shareholders is "not as dependable as these theorists claim. As a result, contractual theorists unduly limit the appropriate role of the legislature and the courts in structuring corporate decision making." Fox plans to become involved in the debate over "what disclosure regulations should look like in an increasingly global securities market."
Fox has found teaching at Michigan very exciting. "There appears to be a large student interest in the areas in which I teach," he observes. "Many of the students are willing both to master the technical details inherent in the subjects and to grapple in a sophisticated way with the policy issues that stand behind them. I enjoy the challenge."
-- From the University of Michigan Law School's Law Quadrangle Notes, V. 33, Iss. 02 (Winter 1989).
Fox left Michigan Law in 2003 to join the faculty at Columbia Law School.