Wednesday, January 18, 2017
"The corporate governance heads at seven of the 10 largest institutional investors in stocks are now women, according to data compiled by The New York Times. Those investors oversee $14 trillion in assets."
Mutual and pension funds are some of the largest stock block holders casting crucial votes in director elections and on shareholder resolutions that will span the gamut from environmental policy to political spending to supply chain transparency. While ISS and other proxy advisory firms have a firm hand shaping proxy votesFN1 (and have released new guidelines for the 2017 proxy season), that $14 trillion in assets are voted at the behest of women is new and noteworthy. As the spring proxy season approaches-- it's like New York fashion week, for corporate law nerds, but strewn out over months and with less interesting pictures--these asset managers are likely to vote with management. FN2 Still, there is growing consensus that institutional investors' corporate governance leaders are "working quietly behind the scenes to advocate for greater shareholder rights" fighting against dual class stock and fighting for gender equality on corporate boards, to name a few.
I now how a new ambition in life: get invited to the Women in Governance lunch.
FN1: See Choi et al, Voting Through Agents: How Mutual Funds Vote on Director Elections (2011)
FN2: Gregor Matvos & Michael Ostrovsky, Heterogeneity and Peer Effects in Mutual Fund Voting, 98 J. of Fin. Econ. 90 (2010).
Tuesday, January 17, 2017
Here we go again. Oregon Federal District Court has a new rule on the books:
In diversity actions, any party that is a limited liability corporation (L.L.C.), a limited liability partnership (L.L.P.), or a partnership must, in the disclosure statement required by Fed. R. Civ. P. 7.1, list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens. If any owner/member/partner of the L.L.C., L.L.P., or partnership is another L.L.C., L.L.P., or partnership, then the disclosure statement must also list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens.
The certification requirements of LR 7.1-1 are broader than those established in Fed. R. Civ. P. 7.1. The Ninth Circuit has held that, “[L]ike a partnership, an LLC is a citizen of every state of which its owners/members/partners are citizens.” Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Early state citizenship disclosure will help address jurisdictional issues. Therefore, the disclosure must identify each and every state for which any owner/member/partner is a citizen. The disclosure does not need to include names of any owner/member/partner, nor does it need to indicate the number of owners/members/partners from any particular state.
For federal law purposes, it appears that the rule has excluded LLCs, despite the intent (and likely specific purpose) of the rule. Interestingly, Oregon law, has extended "unless context requires otherwise" the concept of LLCs to apply to partnership and corporate law. Oregon law provides:
Unless the context otherwise requires, throughout Oregon Revised Statutes:
(1) Wherever the term “person” is defined to include both a corporation and a partnership, the term “person” shall also include a limited liability company.(2) Wherever a section of Oregon Revised Statutes applies to both “partners” and “directors,” the section shall also apply:(a) In a limited liability company with one or more managers, to the managers of the limited liability company.(b) In a limited liability company without managers, to the members of the limited liability company.(3) Wherever a section of Oregon Revised Statutes applies to both “partners” and “shareholders,” the section shall also apply to members of a limited liability company.
Monday, January 16, 2017
Professor Mike Schuster of Oklahoma State University, Spears School of Business, will be guest blogging at BLPB for the next 4 weeks. Prior to joining Oklahoma State's faculty, Professor Schuster was at attorney at Vinson & Elkins LLP in Houston, Texas. His research is primarily in the intellectual property space, which, as we all know, is quite important to businesses.
Professor Schuster's most recent academic article, "Invalidity Assertion Entities and Inter Partes Review: Rent Seeking as a Tool to Discourage Patent Trolls" is forthcoming in the Wake Forest Law Review and his SSRN page is available here.
Please join me in welcoming Professor Mike Schuster to BLPB.
Today, we again celebrate the life of a great American, Martin Luther King, Jr. His legacy is felt in so many ways in this country every day in the year. But today, we call him and his work out for special attention.
Many have noted that Martin Luther King, Jr. had messages for those engaged in and with business. I have gathered some of those observations, as interpreted by a variety of folks, for today's post. Perhaps you have favorite quotes or stories of your own from Dr. King's life that have touched your business law teaching or practice. If so, please share them in the comments. But here are some of the nifty ones I found.
- 9 Business Lessons from the Words of Martin Luther King Jr. (They're all good, but perhaps my favorite is: "The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.")
- Martin Luther King: His 'dream' is great business strategy ("The reasons for King’s success were simple. First, he defined his dream, and then, he created a plan for how his dream could be realized. This same strategy can be applied with great success to businesses.")
- Martin Luther King and Leadership (This one includes a reference to a related Harvard Business School case.)
- 5 Leadership Lessons From Martin Luther King Jr. (This article features a nice story about a former president of The Harvard Crimson.)
It also seems significant to note that business awards (including these out in Colorado) have been named after Dr. King in that same spirit.
As I prepare to lead a faculty-staff-student discussion group on Wednesday at The University of Tennessee College of Law (an annual MLK week tradition at UT Law that I mentioned in a prior Martin Luther King Day post), I am reminded of the many aspects of life--including professional life--that Dr. King's actions and words touch. They represent a rich gift to us all. Although I aspire to incorporate much of his wisdom into my daily life, I remain grateful to have a day each year made for thoughtful reflection on how his work affects my own (and the rest of my life, too).
Sunday, January 15, 2017
Tulane Law School invites applications for a one-semester visiting position in the Fall of 2017. Our specific needs for the Fall 2017 semester include basic income tax and corporate tax, criminal law, and professional responsibility. Applicants must possess a J.D. from an ABA-accredited law school, strong academic credentials, and at least three years of relevant law-related experience; prior teaching experience is strongly preferred. Applicants should submit a letter of interest, CV, and the names and contact information of three references through Interfolio at https://apply.interfolio.com/40060. For additional information, please contact Onnig Dombalagian at email@example.com.
Tulane University is an equal employment opportunity/affirmative action employer committed to excellence through diversity. All eligible candidates are invited to apply for position vacancies as appropriate.
"worker participation in #corpgov": "the inefficiency argument sits at odds with the historical evidence" 23 Colum. J. Eur. L. 135 (2016)— Stefan Padfield (@ProfPadfield) January 10, 2017
Saturday, January 14, 2017
A couple of months ago, investors in Theranos filed a class action complaint seeking damages for fraud and negligent misrepresentation under California law. Theranos is based in California; presumably, the plaintiffs intend to argue that any false statements emanated from California and therefore California law covers even out of state purchases. See Diamond Multimedia Systems, Inc. v. Superior Court, 19 Cal. 4th 1036 (Cal. 1999).
The reason this interests me is because it’s rare – not unheard of, of course, but rare – to see fraud-based securities class actions concerning securities that are not publicly traded. SLUSA eliminated the possibility for most companies, but SLUSA alone isn’t the problem; the other hurdle is the difficulty of establishing reliance on a classwide basis, as even before SLUSA, fraud-on-the-market doctrine was largely limited to Section 10(b) claims.
California law, however, is different from most states’, because California’s blue sky law explicitly permits claims for deceit based on price distortion. See Mirkin v. Wasserman, 5 Cal. 4th 1082 (Cal. 1993); Cal. Corp. Code, §§ 25400, 25500.
It will be interesting to see if that’s how the Theranos class plans to approach matters; the difficulty will be establishing that, for example, Investor A’s willingness to purchase stock on such-and-such terms had the effect of distorting the price for other investors, outside the context of an efficient market.
The complaint also alleges certain causes of action, like statutory and common law fraud, that do require actual reliance and do not permit a price-distortion substitute. But investors are also in luck for that, as well; there is a fair amount of precedent for the principle that when similar misrepresentations are made to purchasers, and those misrepresentations are important to the transaction, the mere fact that the purchaser chose to engage in the transaction creates a presumption of reliance. That is, certain kinds of misrepresentations are so fundamental to a purchase that it is difficult to imagine anyone would have engaged in the transaction if they were not relying upon them. Courts in the Ninth Circuit have repeatedly embraced this principle. See, e.g., In re First Alliance Mortg. Co., 471 F.3d 977 (9th Cir. 2006); Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir. 2004).
In Theranos’s case, different investors may have heard different statements at different times – the class period stretches for over 3 years – which puts a crimp in the plaintiffs’ case, but presumably all of the statements basically were about the efficacy of Theranos’s product. And since this was a one-product company, it’s not a stretch to assume that all investors expected that the product, you know, actually worked.
Of course, this is just the complaint; it’s possible that Theranos will be able to introduce doubt into the mix by, among other things, presenting evidence of disclaimers/warnings/etc that raise questions about whether each investor relied on the same information.
But that’s the class cert issue; I’ll be interested to see the kinds of arguments defendants raise in their motion to dismiss, due next week.
Friday, January 13, 2017
Over at the Harvard Law School Forum on Corporate Governance and Financial Regulation, Rick Alexander has a post on benefit corporations. I plan to post some comments on Rick's post next week, when I have a bit more time, but for now, I will just bring our readers' attention to the post and include a small portion of his post below:
Benefit corporations dovetail with the movement to require corporations to act more sustainably. However, the sustainability movement often treats the symptom (irresponsible behavior), not the root cause—the focus on individual corporate financial performance. Proponents of corporate responsibility often emphasize “responsible” actions that increase share value, by protecting reputation or decreasing costs. Enlightened self-interest is an excellent idea, but it is not enough. As long as investment managers and corporate executives are rewarded for maximizing the share value of individual companies, they will have incentives to impose costs and risks on everyone else.
On Friday, I will present as part of the American Society of International Law’s two-day conference entitled Controlling Corruption: Possibilities, Practical Suggestions & Best Practices. The ASIL Conference is co-sponsored by the University of Miami School of Business Administration, the Business Ethics Program of the University of Miami School of Business Administration, UM Ethics Programs & the Arsht Initiatives, the Zicklin Center for Business Ethics Research, Wharton, University of Pennsylvania, Bentley University, and University of Richmond School of Law.
I am particularly excited for this conference because it brings law, business, and ethics professors together with practitioners from around the world. My panel includes:
Marcia Narine Weldon, St. Thomas University School of Law, “The Conflicted Gatekeeper: The Changing Role of In-House Counsel and Compliance Officers in the Age of Whistle Blowing and Anticorruption Compliance”
Todd Haugh, Kelley School of Business, Indiana University, “The Ethics of Intercorporate Behavioral Ethics”
Shirleen Chin, Institute for Environmental Security, Netherlands, “Reducing the Size of the Loopholes Caused by the Veil of Incorporation May lead to Better Transparency”
Edwin Broecker, Quarles &Brady LLP, Indiana,& Fernanda Beraldi Cummins, Inc, Indiana, “No Good Deed Goes Unpunished: Possible Unintended Consequences of Enforcing Supply Chain Transparency”
Stuart Deming, Deming PLLC, Michigan, “Internal Controls and Compliance Programs”
John W. Fanning, Kroll Compliance, “Lessons from ‘Sully’: Parallels of Flight 1549 and the Path to Compliance and Organizational Excellence”
I will discuss some of the same themes that I blogged about here last July related to how the Department of Justice Yates Memo (requiring companies to turn over culpable individuals in order to get cooperation credit) and to a lesser extent the SEC Dodd-Frank Whistleblower program may alter the delicate balance of trust in the attorney-client relationship. Additionally, I will address how President-elect Trump’s nomination of Jay Clayton may change the SEC’s FCPA enforcement priorities from pursuing companies to pursuing individuals, and how that will change corporate investigations. If you’re in Miami on Friday the 13th and Saturday the 14th, please consider attending the conference.
January 13, 2017 in Behavioral Economics, Compliance, Conferences, Corporate Governance, Corporations, Current Affairs, Ethics, International Business, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)
Wednesday, January 11, 2017
The late December announcement of Carl Icahn as a special advisor overseeing regulation piqued my professional interest and raises interesting tension points for both sides of the aisle, as well as for corporate governance folks.
Icahn's deregulatory agenda has the SEC in his sights. Deregulation, especially of business, is a relatively safe space in conservative ideology. Several groups such as the Chamber of Commerce and the Business Roundtable may be pro-deregulation in most areas, but, and this is an important caveat-- be at odds with Icahn when it comes to certain corporate governance regulations. Consider the universal proxy access rules, which the SEC proposed in October, 2016. The proposed rules would require companies to provide one proxy card with both parties' nominees--here we don't mean donkeys and elephants but incumbent management and challengers' nominees. Including both nominees on a single proxy card would allow shareholders to "vote" a split ticket---picking and choosing between the two slates. The split ticket was previously an option only available to shareholders attending the in-person meeting, which means a very limited pool of shareholders. "Universal" proxy access-- a move applauded by Icahn--is opposed by House Republicans, who passed an appropriations bill – H.R. 5485 –that would eliminate SEC funding for implementing the universal proxy system. On January 9th, both the Business Roundtable and the Chamber of Commerce submitted comment letters in opposition to the rules. The Chamber of Commerce cautions that the proposed rules "[f]avor activist investors over rank-and-file shareholders and other corporate constituencies." The Business Roundtable echos the same concerns calling the move a "disenfranchisement" of regular shareholders due to likely confusion. This is a variation of the influence of big-business narrative. Here, we have pitted big business against big business. The question is who is the bigger Goliath--the companies or the investors?
President-elect Trump's cabinet and administrative choices have generated an Olympic-level sport of hand wringing, moral shock and catastrophizing. I personally feel gorged on the feast of terribles, but realize that many may not share my view. Icahn's informal role in cabinet selections (such as Scott Pruitt for EPA which favors Icahn's investments in oil and gas companies) and formal role in a deregulatory agenda foreshadows no end in sight to this royal feast. On this particular pick, both sides of the aisle may be invited to the feast. My only question is, who's hungry?
Tuesday, January 10, 2017
I am happy to say I just received my new article, co-authored with a former student, S. Alex Shay, who is now a Trial Attorney in the Office of the United States Trustee, Department of Justice. The article discusses property law challenges that can impeded business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia portion of the Marcellus Shale. The article is Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom, 49 John Marshall Law Review 413-447 (2015).
If you note the 2015 publication date, you can see the article has been a long time coming. The conference it is linked to took place in September 2015, and it has taken quite a while to get to print. On the plus side, I was able to do updates to some of the issues, and add new cases (and resolutions to cases) during the process. I just received my hard copies yesterday -- January 9, 2017 -- and I received a notice it was on Westlaw as of yesterday, too.
I always find it odd when law reviews use a specific year for an issue, as opposed to the actual publication year. I can understand how a January publication might have a 2016 date. That would have made sense, but dating the issue back to 2015, when I discuss cases decided in 2016 seems a little weird. I know there is a certain level of continuity that the dates can provide, but still, this seems too long.
When I was editor in chief of the Tulane Law Review, one of the things we prided ourselves on was not handing off any issue from our volume to the next board. A few years prior to our arrival, a committed group of Law Review folks caught up everything -- publishing, if memory serves (and legend was correctly passed on), two and a half volumes. And Tulane Law Review publishes six issues a year. They, apparently, did not sleep.
I am happy to have the article our, and the editors did good work. It just would have been nice to have it appear a little more timely and relevant than I think this "new" article does. For anyone who is interested, here's the abstract (article available here):
This article focuses on key property challenges appearing as part of the West Virginia Marcellus Shale play. The paper opens with an introduction to the Marcellus Shale region that is the focus of our analysis. The paper explains the horizontal drilling and hydraulic fracturing process that is an essential part of shale oil and gas development. To help readers understand the property challenges related to shale development, we include an introduction to the concept of severed estates, which can create separate ownership of the surface estate and the mineral estate. The article then focuses on two keys issues. First, the article discusses whether horizontal drilling and hydraulic fracturing constitute a “reasonably necessary” use of surface land to develop mineral rights, and concludes they are, at least in most instances. Second, the article discusses difficulties in analyzing deed language related to minerals rights and royalty interests, which has created challenges for mineral owners, leasing companies, and oil and gas developers. Please note that although the publication date is 2015, the article was not in print until January 2017 and discusses cases from 2016.
Ultimately, the article concludes, legislators and regulators may choose to add surface owner protections and impose other measures to lessen the burden on impacted regions to ease the conflict between surface owners and mineral developers. Such efforts may, at times, be necessary to ensure continued economic development in shale regions. Communities, landowners, interest groups, companies, and governments would be well served to work together to seek balance and compromise in development-heavy regions. Although courts are well-equipped to handle individual cases, large-scale policy is better developed at the community level (state and local) than through the adversarial system.
RESEARCH COLLOQUIUM: CALL FOR PAPERS
Law and Ethics of Big Data
Hosted and Sponsored by:
The Carol and Lawrence Zicklin Center for Business Ethics Research
The Wharton School of the University of Pennsylvania
Virginia Tech Center for Business Intelligence Analytics
The Department of Business Law and Ethics, Kelley School of Business
Washington & Lee Law School
April 21st and 22nd 2017
Wharton School of the University of Pennsylvania, Philadelphia, Pennsylvania
Abstract Submission Deadline: February 24, 2017
We are pleased to announce the research colloquium, "Law and Ethics of Big Data," at The Wharton School of the University of Pennsylvania, Philadelphia, Pennsylvania, co-hosted by Professor Philip M. Nichols, Assistant Professor Angie Raymond of Indiana University and Professor Janine Hiller of Virginia Tech.
Due to the success of this multi-year event that is in its fourth year, the colloquium will be expanded and we seek broad participation from multiple disciplines; please consider submitting research that is ready for the discussion stage. Each paper will be given detailed constructive critique. We are targeting cross-discipline opportunities for colloquium participants, and the Wharton community has expressed interest in sharing in these dialogues.
A non-inclusive list of topics that are appropriate for the colloquium include: Ethical principles for the Internet of Things, Intellectual Property and Data Intelligence, Bribery and Algorithms, Health Privacy and MHealth, Employment and Surveillance, National Security, Civil Rights, and Data, Algorithmic Discrimination, Smart Cities and Privacy, Cybersecurity and Big Data, Data Regulation. We seek a wide variety of topics that reflects the broad ecosystem created by ubiquitous data collection and use, and its effect in society.
TENTATIVE Colloquium Details:
- The colloquium will begin at noon on April 21st and conclude at the end of the day on April 22nd 2017.
- Approximately 50 minutes is allotted for discussion of each paper presentation; 5-10 minute author comments, and then a discussant will lead the overall discussion.
- The manuscripts will be posted in a password protected members-only forum online.
- Participants agree to read and be prepared to participate in discussions of all papers. Each author may be asked to lead discussion of one other submitted paper.
- A limited number of participants will be provided with lodging, and all participants will be provided meals during the colloquium.
Submissions: To be considered, please submit an abstract of 500-1000 words to Lauretta Tomasco at firstname.lastname@example.org by February 24, 2017. Abstracts will be evaluated based upon the quality of the abstract and the topic’s fit with the theme of the colloquium and other presentations. Questions may be directed to Angie Raymond at email@example.com or Janine Hiller at firstname.lastname@example.org. If you are interested in being a discussant, but do not have a paper to present, please send a statement of interest to the same.
Authors will be informed of the decision by March 3, 2016. If accepted, the author agrees to submit a discussion paper by April 10, 2017. While papers need not be in finished form, drafts must contain enough information and structure to facilitate a robust discussion of the topic and paper thesis. Formatting will be either APA or Bluebook. In the case of papers with multiple authors, only one author may present at the colloquium.
If you haven't yet heard, the 2016 revision of the Model Business Corporation Act has been released. A memorandum from the Corporate Laws Committee describes the evolution of the recent revision:
Sixty-six years ago the Committee on Corporate Laws of the ABA’s Business Law Section (the Committee) published the Model Business Corporation Act (the Act or the Model Act). Now substantially adopted by a majority of the States, the Act has strongly influenced the law governing U.S. corporations. Like corporate law, however, the Act has not been static: the Committee approved a substantial revision of the Act in 1969, less than 20 years after its initial publication; and just 15 years later, in 1984, the Committee adopted what was then called the Revised Model Business Corporation Act, a top to bottom revision of the original Act.
Through periodic amendments, the Act has continued to evolve in significant ways since 1984, as further described below. Until recently, however, the Committee has not undertaken a comprehensive revision of the Act in a form that could be adopted by state legislatures as a means to capture all of the changes to the Act since 1984. Nor has there been any systematic attempt to revise the Act to eliminate inconsistent terminology and adjust provisions that have become outdated over the more than three decades since the 1984 Revision.
Accordingly, since 2010, under the leadership of Karl John Ege and A. Gilchrist Sparks III, as its chairs, the Committee, now formally known as the "Corporate Laws Committee,” has undertaken a thorough review and revision of the Act and its Official Comment . . . .
The memorandum describes some of the notable recent changes to the MBCA:
• Adoption of a new subchapter E of chapter 1 of the Act, permitting the ratification of defective corporate actions, including actions in connection with the issuance of shares.
• Amendments to sections 2.02 and 8.70 (and related changes to sections 1.43, 8.31 and 8.60) that permit corporations to include in their articles of incorporation a provision that limits or eliminates a director’s or an officer’s duty to present a business opportunity to the corporation.
• The addition of section 2.08, permitting the articles of incorporation or the bylaws to specify the forum or forums for litigation of internal corporate claims.
• Amendments to section 8.02 clarifying the scope and operation of qualifications for nomination and election as directors.
• Amendments to sections 8.53 and 8.54 that eliminate the requirement that a director or officer seeking advancement of expenses provide a written affirmation that he or she has met the applicable standards for indemnification under the Act, or, in the case of a director, that the proceeding involves conduct for which liability has been eliminated under the articles of incorporation.
• Amendments to section 11.04 and certain provisions in chapter 13, permitting the merger of corporations without a shareholder vote following a tender offer, if certain conditions are met.
• Amendments to section 16.20 and to certain other sections of chapter 16 that address, among other things, the obligations of corporations to make financial statements available to shareholders, the maintenance of corporate records, and the inspection rights of shareholders and directors of corporations.
Other changes are described in the memorandum, which can be accessed at http://www.americanbar.org/content/dam/aba/administrative/business_law/corplaws/memo_2016_mbca.authcheckdam.pdf.
At least to me, one unfortunate development of the revisions is a serious shortening of many of the Official Comments. I find the comments to be very helpful, so cutting out material is worrisome. I need to look a little closer, but in some cases, it appears that useful examples have been deleted. The memorandum states the following:
The Committee proposes to extensively revise the Official Comment to the Act so that it functions solely as a guide to interpretation of the statutory black letter provisions. Thus, the Committee proposes to:
• Eliminate language in the Official Comment that merely restates operative statutory language.
• Eliminate comparisons with prior versions of the Act or with state corporation statutes. (It is expected, however, that such comparative material will be included in the next edition of or supplement to the Model Business Corporation Act Annotated).
• Eliminate discussion of case law and law review articles. (Although again, it is expected that such material will be included in the next edition of or supplement to the Model Business Corporation Act Annotated).
In summary, the wait is over, and your New Year's gift is here. The 2016 MBCA revisions have arrived!
Monday, January 9, 2017
The members of Friday's AALS discussion group about which I wrote last week came to an inescapable--if unsurprising--overall conclusion: the U.S. Supreme Court's opinion in the Salman case does little to address major unresolved questions under U.S. insider trading law. That having been said, we had a wide-ranging and sometimes exciting discussion about the Court's opinion in Salman and what might or should come next. I found the discussion very stimulating; a great way to start a new semester--especially one in which I am teaching Securities Regulation and Advanced Business Associations, both of which deal with insider trading law. I will offer brief outtakes from the proceedings here for your consideration and (as desired) comment.
John Anderson and I framed three questions around which we structured the formal part of the discussion session (which commenced after brief introductory comments from each participant).
- What, if anything, does the Court's Salman opinion say by its silence?
- What, if anything, is left of the Second Circuit opinion in the Newman case after Salman?
- Is law reform needed after Salman, and if so, should we continue to permit it to occur through further, incremental judicial developments or should reform be undertaken through legislation or regulatory rule-making or guidance?
The questions drew both divergent and overlapping responses. It would take too long to try to capture it all, but a recording of the discussion will be available, if all went well with the technology, etc., on the AALS website in the coming months.
I want to pass on here, however, two key reading recommendations that Don Langevoort made to all of us that offer a basis for responding to all three questions--and more. First, Don recommended that we all read the Solicitor General's Brief for the United States in the Salman case. From this, he suggested (among other things), we can review issues not addressed in Salman and get an idea of how the U.S. government--at least at present--is processing those issues as across the Department of Justice and the Securities and Exchange Commission. Second, he recommended reading the First Circuit opinions in the Parisian and McPhail cases--two criminal prosecutions alleging insider trading violations (tipping and trading) by members of a golf group. These opinions also address important issues not taken up by Salman--including how the "knew or should have known" language from the Court's Dirks opinion relates to both the mens rea requirement in criminal insider trading actions (which require proof of a "willful" violation under Section 32(a) of the Securities Act of 1933, as amended) and misappropriation actions--and may offer windows on future judicial decision making.
No doubt, insider trading law in the United States remains a bit of an open book in many respects after Salman. Given that, I may report on more from this AALS discussion session in future posts. But I will leave the matter here, for now, having posed a few questions for your consideration and passed on some good advice from a trusted colleague who has followed U.S. insider trading law for many years . . . .
Sunday, January 8, 2017
Saturday, January 7, 2017
The University of Georgia, Terry College of Business has posted information about two legal studies professor positions - one tenure-track and one lecturer. I know each of the University of Georgia legal studies professors; they are an impressive and thoughtful and friendly group.
Assistant or Associate Professor of Legal Studies:
Lecturer of Legal Studies:
Applications received by February 15, 2017, are assured of consideration; however applications will continue to be accepted until the positions are filled.
A couple of months ago, Snapchat’s parent announced that the company would hold an IPO in 2017 – the largest and most high-profile IPO since Alibaba in 2014. Given the sluggish IPO market, as well as Snapchat’s general name recognition and tech cachet, the announcement was a big deal.
But it’s possible there’s going to be a monkey in the wrench. On January 4, a former Snapchat employee (fired after 3 weeks) filed a lawsuit alleging two of Snapchat’s metrics – and which ones are redacted from the complaint – were fraudulently manipulated in order to inflate Snapchat’s valuations to private investors and in anticipation of the IPO. (The redactions are due to concerns that the allegations are covered by the plaintiff’s confidentiality agreement). The unredacted portions of the complaint allege that the company never built an appropriate team to analyze its metrics, and that the employee was illegally fired in retaliation for blowing the whistle.
Snapchat has given a statement to the media denying the allegations as the fictional creations of a “disgruntled former employee.”
Though the redactions are extensive, the complaint does offer at least a hint of what’s at stake. In Paragraph 24, the complaint lists certain “key performance metrics” for all social media applications. These are Daily Active Users, Monthly Active Users, User Retention Rate, Active User Growth Rate, Registration Completion Rate, Installations, Frequency, Session Length, and Average Revenue Per User. It’s impossible to know whether the two allegedly fraudulent Snapchat metrics are in this group, but these are probably the best hint we have. And these are significant numbers for Snapchat; it has claimed daily and monthly users in excess of Twitter, and – though not on the list in the complaint – has claimed daily video views in excess of Facebook (and that was before Facebook admitted it view counts were wrong).
So this will be an interesting story to watch going forward; until it’s resolved, it could spook potential IPO investors, and may even prompt investigation by Snapchat’s pre-IPO investors.
One point of interest: Apparently, the plaintiff signed an arbitration agreement with Snapchat, and has designed his claims to get around it (and, I assume, make sure his complaint was picked up by the media to pressure the company). According to the complaint, the arbitration agreement permits both parties to seek preliminary injunctions in court – and so, the plaintiff is seeking an injunction to force Snapchat to stop spreading allegedly false stories claiming that he was fired for incompetence. The plaintiff has separately filed an arbitration claim seeking lost wages and damages.
Friday, January 6, 2017
Tulane Law School invites applications for its Forrester Fellowship and visiting assistant professor positions, both of which are designed for promising scholars who plan to apply for tenure-track law school positions. Both positions are full-time faculty in the law school and are encouraged to participate in all aspects of the intellectual life of the school. The law school provides significant support, both formal and informal, including faculty mentors, a professional travel budget, and opportunities to present works-in-progress to other faculty at workshops and in various settings.
Tulane’s Forrester Fellows teach legal writing in the first-year curriculum to two sections of 25 to 30 first-year law students in a program coordinated by the Director of Legal Writing. Fellows are appointed to a one-year term with the possibility of a single one-year renewal. Applicants must have a J.D. from an ABA-accredited law school, outstanding academic credentials, and at least three years of law-related practice and/or clerkship experience. To apply, please submit your materials via Interfolio at https://apply.interfolio.com/40042. If you have any questions, please contact Erin Donelon at email@example.com.
Tulane’s visiting assistant professor (VAP), a two-year position, is supported by the Murphy Institute at Tulane University (http://murphy.tulane.edu/home/), an interdisciplinary unit specializing in political economy and ethics that draws faculty from the university’s departments of economics, philosophy, history, and political science. The position entails teaching a law school course or seminar in three of the four semesters of the professorship (presumably the last three semesters). It is designed for scholars focusing on regulation of economic activity very broadly construed (including, for example, research with a methodological or analytical focus relevant to scholars of regulation). In addition to participating in the intellectual life of the law school, the visiting assistant professor will be expected to participate in scholarly activities at the Murphy Institute. Candidates should apply through Interfolio, at https://apply.interfolio.com/40013, providing a CV identifying at least three references, post-graduate transcripts, electronic copies of any scholarship completed or in-progress, and a letter explaining your teaching interests and your research agenda. If you have any questions, please contact Adam Feibelman at firstname.lastname@example.org.
The law school aims to fill these positions by March 2017. Tulane University is an equal employment opportunity/affirmative action employer committed to excellence through diversity. All eligible candidates are invited to apply for position vacancies as appropriate.
I recently finished my first consistent year of running since high school. To celebrate, I bought and read Once a Runner. Yes, that is how nerds like me celebrate - buy and read a book. I was asleep by 10pm on New Year's Eve.
Once a Runner is a cult classic published in 1978 and authored by a former University of Florida runner (and fellow lawyer), John Parker Jr. The novel was originally self-published, sold at running stores and out of the back of the author's car. It eventually became a New York Times Bestseller. The story follows the fictional Quenton Cassidy as he moves from a successful (but still somewhat distracted) college runner to a laser-focused, woods-dwelling hermit who increases his training to beat the best runners in the world. He does, eventually, beat one of the very best milers (in a small track meet), and then goes on to win silver in the Olympic Games.
Among the passages that struck me was the following from Quenton's time at a cocktail party, after spending months (in relative solitude) training and logging 100+ mile weeks:
What was the secret, they wanted to know; in a thousand different ways they wanted to know The Secret. And not one of them was prepared, truly prepared, to believe that it had not so much to do with chemicals and zippy mental tricks as with that most unprofound and sometimes heartrending process of removing, molecule by molecule, the very tough rubber that comprised the bottoms of his training shoes, The Trial of Miles; Miles of Trials.
Along those same lines, I recently listened to the How I Built This podcast on Angie Hicks of Angie's List. Angie stated that she was an unlikely entrepreneur - introverted, risk-adverse, and not a "big idea" person. But she credited her success to one main thing, perseverance. I am still working on how to best teach my students to persevere, and in this instant access society, more and more students are looking for The Secret to allow them to master the material (or at least get an A) with as little effort as possible. While it can be good to look for more efficient ways to do things, I also think we need to teach our students that some things of great value are only acquired through old fashioned hard work.
Thursday, January 5, 2017
As regular readers of this blog know, I am skeptical of many disclosure regimes, particularly those related to conflict minerals. I am, however, a fan of the Sustainability Accounting Standard Board’s (SASB's) efforts to streamline the disclosure process and provide industry-specific metrics that tie into accepted definitions of materiality.
Dr. Jean Rogers, the CEO and Founder of SASB, presented at the Association of American Law Schools yesterday with other panelists discussing the pros and cons of environmental, social, and governance disclosures. To prove SASB’s case that investors care about sustainability, Dr. Rogers noted that in 2016, sustainable investment strategies came into play in one out of every five dollars under professional management. She cited a number of key sustainability initiatives that investors considered including the United Nations Principles for Responsible Investments ($59 trillion AUM), the Carbon Disclosure Project ($95 trillion AUM), the International Corporate Governance Network ($26 trillion AUM), and the Investor Network on Climate Risk ($13 trillion AUM).
Despite this interest, SASB argues, investors lack information that equips them with an apples to apples comparison on material information related to sustainability. What might be material in the beverage industry such as water usage for example, may not be material in another industry.
Dr. Rogers cited a 2014 PwC study reporting that 89% of global institutional investors request sustainability information directly from companies, 67% are more likely to consider ESG information if it is based on a common framework or standard, and 50% are “very likely” to sponsor or co-sponsor a shareholder proposal.
Many who criticize the disclosure regime talk about disclosure overload and challenge the assumptions that investors care as much about sustainability as they care about earnings per share. On the flip side, companies experience what SASB acknowledges is “questionnaire fatigue.” GE for example, indicated that 75 people took months to answer 650 questionnaires with no value to the customers, shareholders, or the environment.
SASB is an independent 501(c)(3) with a who’s who of heavy hitters on the board, including Michael Bloomberg, former SEC Chair Mary Schapiro, the CEO of CalSTRS, and the former Chair of the FASB, among others. The organization first started this initiative in 2011 right after I left in-house life, and I remember thinking that this was an idea whose time has come. Over the years, SASB has worked to develop specific standards for 79 industries in 10 sectors to be used in Form 10-K and 20-F. Although it is a voluntary process, the goal is to allow investors to look at peers across an industry with standards that those industries have helped to develop.The SASB standards integrate into MD & As and risk factors without the requirement of any new regulation.
Some criticize SASB’s mission and fear more disclosure could lead to more lawsuits from investors or consumers. I don’t share this fear, but companies such as Nestle have been sued for fraud and other state law claims after disclosure required under the California Transparency in Supply Chain Act.
I’m a fan of SASB’s work so far. I hope that more organizations and advocacy groups continue to provide constructive feedback. Eventually, using the SASB methodology should become an industry standard that provides value to both investors and the company. Take a look at their 2016 State of Disclosure Report for more information and to find out how you can contribute to the effort.