Works in Progress Group #17 Entrepreneurship, Small Business & Local Government

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Session Type: Works-in-Progress

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The State of Startup Corporate Governance: The Good, The Bad, and The Impact of COVID-19

Professor Fan's article looks at both the period of economic prosperity before COVID-19 and the downturn in the economy after to illustrate how corporate governance practices in high technology companies evolve depending on the state of the economy. Through insights gleaned from attorneys experienced in venture capital financings, using survey and interview methodologies, this article makes a unique contribution to corporate governance scholarship by challenging underlying assumptions that scholars have long-held about corporate governance in startups and revealing the lack of progress on diversity, equity, and inclusion (“DEI”) matters on private company boards. First, independent directors do not play as important a role as scholars have theorized. Second, the composition of the board of directors of high technology companies significantly changed during our last period of economic growth, and a different model of governance, oftentimes dominated by founders, emerged. Third, while fiduciary duties and contractual mechanisms still loom large in corporate governance, most of the work is done informally with best practices and the growth at all costs model influencing corporate governance. It is during economic downturns that corporate governance practices are more robustly followed. Fourth, DEI efforts are still in their nascent stages in private companies even with the increased focus on these issues; corporate governance efforts in this area need to be reimagined.

Commercial Rent Stabilization: One Local Response to Skyrocketing Rents

Long before the COVID-19 pandemic, small businesses and nonprofits were closing at alarming rates. In Fall 2019, New York City Councilmembers introduced a rent control bill to address rampant commercial tenant displacement amidst rent hikes throughout the city. The bill aims to support small businesses and nonprofits, as well as their employees and communities. However, property owners and their allies argue the bill is bad economic policy for a number of reasons, including that it removes incentives for owners to reinvest in their property, encourages stagnated commercial corridors, and ignores the real barriers to commercial tenant success, such as e-commerce and property taxes. They also argue that the bill is an unauthorized exercise of local power by New York City and violates several rights protected by the U.S. Constitution, including the contracts and due process clauses.

Professor Hill argues that the displacement of local small businesses, and oft-ignored nonprofits, contributes to current trends around gentrification that destabilize livelihoods and exacerbate pre-existing economic disadvantages. Further, I argue that critics, in suggesting the bill violates state law, have misapplied New York State’s jurisprudence and that federal courts have repeatedly found commercial rent control bills, like that proposed by New York City, constitutional. This article contributes to the literature on municipal home rule and offers community organizers and local legislators across the country analysis worth considering in evaluating whether New York City’s response to skyrocketing rents, with some modifications, could work in their communities.