Exploring the Combined Power and Influence of Law and Ethics in Business

Unfortunately, for many of today’s business leaders, these two questions remain separate, and the set of rules that serve to govern best business practices are often applied in a manner divorced from ethical norms that should be upheld.

Fordham University’s Gabelli School of Business is one of only a few business schools in the country to not only house law and ethics in a single department, but also to holistically engage with legal and ethical questions across the business spectrum. Gabelli School faculty members are shaping the conversation in academia, industry, and legal circles on subjects ranging from securities regulation, to director responsibility, to sports. Their distinctly diverse backgrounds, years of experience, and ability to connect the dots between what is lawful and what is ethical converge to create an academic environment that is uniquely positioned to address today’s most pressing issues and to instill in students the fundamental premise that law and ethics are intrinsically intertwined.

According to Brent Horton, J.D., LL.M., associate professor and chair of the Law and Ethics area, a monumental scandal arises every decade or so that illustrates a failure to train individuals on the legal and ethical guardrails of business. Rather than simply educating business students to turn a profit and increase a bottom line, “we want to be graduating students who are going to be leaders in the business world… moving forward both legally and ethically,” he asserted. One tool Horton uses to educate students about those guardrails is his scholarly work on corporate disclosures, which he incorporates directly into his class on securities regulation.

Horton recently published a series of papers addressing changes to rules contained in the New York Stock Exchange (NYSE) Listed Company Manual. Those changes allow companies to be listed on the exchange without a traditional initial public offering (IPO). Where an IPO requires an underwriter to assume risk, this new type of listing, called a direct listing, does not. “Without an underwriter playing a gatekeeping role, is the information [in the company’s disclosures] going to be accurate? Are the investors going to be getting the disclosure that they need to make sound investment decisions?” Horton asked. “My conclusion was, there’s a very good chance that they won’t.”

Horton—through his scholarship—urged the NYSE and SEC to require the use of underwriters in direct listings. His scholarship has carried weight in important policy decisions and in the courts. He calls his influence and that of his colleagues a “thought soup,” which can lead to positive results, including better regulation.

Most recently, the SEC cited Horton in an SEC release discussing, among other matters, whether companies should have underwriting for a direct listing. Shortly thereafter, it approved a change to the NYSE Listed Company Manual that requires an underwriter for certain kinds of direct listings. In February 2024, the Delaware Chancery Court also cited his concern over “limited disclosure requirements, lack of underwriter diligence, and optional investor safeguards” for direct listings. It is this type of thought leadership and influence on emerging legal and ethical issues that make the classes Horton teaches so invaluable to students who are preparing to become the next generation of business leaders.

Santiago Mejia, Ph.D., assistant professor and William J. Loschert Endowed Chair in Social Entrepreneurship at the Gabelli School, earned his doctorate in moral philosophy at the University of Chicago. He writes widely about the ethical obligations of corporate leaders, often addressing the tensions that companies face between profit-driven motivations and moral concerns.

Mejia has been using his ethical expertise to discuss an important legal concept called the business judgment rule, which “is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company.” Courts use this rule to evaluate cases in which shareholders challenge the actions of boards of directors.

The interpretation of the rule equates “acting in the best interest of the company” with “increasing profits.” This entails that when boards or executives are faced with an immoral but attractive business opportunity, they need to justify their decision to shun it by appealing to the bottom line, for instance, by suggesting that pursuing this opportunity may lead to a reputational fallout with consumers or costly boycotts among employees.

“The business judgment rule does not allow executives to be transparent when they make unprofitable decisions motivated by moral reasons,” Mejia said. “Moreover, the need to present all moral choices as contributing to the bottom line cheapens ethical values and principles by turning them into mere instruments for profit.”

Mejia is currently working on an article that proposes that courts should complement the business judgment rule with what he calls an “ethics judgment rule,” a rule that would protect a board decision from a shareholder challenge when it is done because the board believed that it was the right thing to do (even if it was unprofitable).

Mejia’s scholarship dovetails with work Brent Horton has done arguing for a social policy exception to the business judgment rule. When there is a significant social policy at issue, such as climate change or human rights, Horton believes there should be a greater degree of review than with the normal business judgment rule. In particular, he argues that courts should review any such board decision to determine if it used a reasonable decision-making process, and chose from one of several reasonable alternatives.

While Horton and Mejia approach the business judgment rule from different perspectives, Mejia perceives their work and scholarship as being complementary. “[Horton is] trying to open up space within the business judgment rule to pursue select social issues,” he noted. “I’m suggesting that we need to have a more expansive version of the rule that encompasses both ethics and profits.” Both legal and ethical perspectives are important as companies and the public continue to grapple with the social responsibilities of businesses, and this point is brought up repeatedly in the classes that Mejia teaches.

Associate Professor Elizabeth Cosenza, J.D., graduated from Fordham University at the top of her class and then went on to earn a law degree at Harvard Law School. She returned to New York as an associate for multinational law firm Davis Polk & Wardwell LLP, where she specialized in securities law. Although she eventually left private practice to pursue her passion for teaching, she continues to leverage her early career connections in her current scholarly research, which explores the practical impact of the securities laws, particularly in the class action context. Her research also serves to inform her teaching and provides deep content for stimulating discussion in her classes.

Cosenza frequently writes amicus curiae briefs in securities fraud class action lawsuits. Amicus curiae—“friend of the court” in Latin—briefs are not filed by any party to the litigation, but by interested third parties, often academics and industry groups. Cosenza, along with a group of attorneys and legal scholars with whom she regularly collaborates, generally writes about class certification, the process that allows plaintiff shareholders to proceed as a group rather than as individuals. Class certification is a crucial step in large-scale litigation against companies accused of defrauding investors.

“The goal of these amicus briefs is to provide expertise on the legal issue at hand and oftentimes to give the court a sense of what the policy implications of its decision will be,” Cosenza said. “That’s part of the reason why these briefs are an important part of my work. They are practical and have the potential to impact high-profile decisions currently pending before the courts.”

Last year, Cosenza and other professors filed an amicus curiae brief in an influential securities fraud case pending in the Court of Appeals for the Sixth Circuit involving half-truths made by defendant FirstEnergy Corp. Class certification in the case turns on whether FirstEnergy’s alleged half-truth statements are categorized as omissions or affirmative misstatements. In either type of case, a company defending against a fraud suit can rebut the court’s presumption that plaintiff shareholders relied on the statement or omission. However, the standard for rebutting the presumption is generally considered to be less stringent in omission cases. If the shareholders can’t show that they relied on FirstEnergy’s statements, they will not be able to pursue the case as a class action.

Cosenza is concerned that a decision allowing shareholders to use the less stringent presumption in the case of half-truths, which are normally treated as affirmative misstatements, would upset the balance the Supreme Court has struck between corporations and shareholders.

“I think there’s the practical concern about maintaining the balance achieved by the Supreme Court over the course of 35 years of jurisprudence. While we want to ensure that shareholders are afforded the requisite protections under the federal securities laws, we do not want to incentivize artful pleading by plaintiff-shareholders to avail themselves of a less stringent presumption of reliance, which could potentially increase the pressure on corporations to settle cases and ultimately lead to more, and perhaps even unmeritorious, litigation,” said Cosenza.

This would not be the first time Cosenza’s scholarship impacted class certification law. In 2021, the U.S. Supreme Court clarified the type of evidence that could be used at the class certification stage to prove whether a misstatement by Goldman Sachs impacted its stock price. “I believe that the court carefully reviewed the amicus brief in that case and that the amici provided wise counsel and I think it had an impact on the result,” she noted. It is this type of groundbreaking work that she discusses with her students, providing them with legal perspectives that could ultimately influence their own thinking about complex business issues in the years to come.

With a law degree, a background in journalism, and a deeply rooted passion for sports, Professor Mark Conrad, J.D., has taught courses on sports law, business and ethics of sports, and media law. His scholarship reflects his diverse areas of expertise, and this permeates into his classroom teaching, as well as his thought leadership. In a new article that will soon be published in the Harvard Journal of Sports and Entertainment Law, Conrad looks at First Amendment issues involved in the regulation of broadcast advertising for sports betting. He advocates for restrictions that he believes would meet constitutional muster, while addressing some of the harms of gambling ads that include exposure of minors and misleading statements.

Conrad’s work isn’t just the stuff of Ivy League law journals. In Fall 2023, he launched The Sports Business Podcast with Prof. C., part of the Gabelli School’s Sports Business Initiative, which he directs. During each podcast episode, he explores emerging issues, such as the future of the Olympic movement, the evolution of the NCAA student-athlete model, and athlete abuse, with sports business experts, as well as those advocating for change in the industry.

In addition to writing and providing commentary on important and sometimes controversial topics on the business of sports based upon his own extensive experience, Conrad acknowledges that he is constantly learning from his students. “I’ve taught those who are professional athletes, Olympic competitors, as well as those who have done very well in college sports,” he said, noting that their perspectives provide invaluable context for class discussions and often reveal things he didn’t know about the sports industry. “It’s really a symbiotic relationship.”

No matter who is involved in the conversation, Conrad wants to engage in robust discussions on issues that might not normally receive widespread attention or may not be covered in a nuanced manner. “That’s the goal, to expose people—whether it’s students, faculty, or the general public at large—to some of the trends that are not examined enough and to take on salient issues,” Conrad asserted.

The thought leadership, advocacy, and research of the Gabelli School’s Law and Ethics faculty members are vital in identifying and amplifying the direct and critical relationship between law and ethics. From the filing of influential amicus curiae briefs to the creation of thought-provoking podcasts, they are changing the way we think about business law and ethics, and are providing the thought leadership that will pave the way for the next generation of business leaders who will face unprecedented legal and ethical dilemmas.

Suzi Morales, LAW ’04, is a freelance writer specializing in higher education and law. She previously practiced intellectual property law in Manhattan.