Friday, April 24, 2015
These types of social impact funds seem to becoming more and more common. Social impact funds, however, vary greatly. Some social impact funds appear to be primarily focused on profits (while simply avoiding some "sin stocks"), others focus on serious social enterprises, and others fall somewhere in-between.
I recently finished my law review submission season, placing two articles: The Social Enterprise Law Market at Maryland Law Review (on jurisdictional competition and social enterprise entity forms) and An Early Report on Benefit Reports at West Virginia Law Review (on data collected last summer on statutory reporting compliance by benefit corporations).
Below, I share a few words of advice for my new law review editors and any law review editor readers. I share this advice acknowledging that I disregarded much of it when I was an editor on my school’s law review. Also, as mentioned below, I fully recognize and appreciate the work law review editors put into our articles.
Consider Blind Review. I still haven’t heard a good argument against law reviews moving to blind review of articles. A very few, maybe two, of the top-ranked journals appear to have made the move, but the vast majority have not.
Consider Peer Review. I understand, a bit better, the pushback against a traditional peer-review system, but consider involving your faculty in the process more heavily and consider obtaining outside faculty reviewers (as some of the elite journals are already doing).
Consider Exclusive Submission Windows. A few journals are doing this, and it seems to be a smart move for many journals and authors. The editors have many fewer articles to review -- from authors who are serious about their journal -- and the authors get the assurance that their articles are receiving more attention in the review.
Respond. Typically, 40-50% of the journals I submit to never respond. Some of those journals are starting to get reputations for never responding. While we realize that law students have plenty on their plate, divide and conquer with your editorial team and try to respond (at least to the expedites). Even a form response, saying that the journal is full or expects a certain delay reviewing articles, is appreciated.
Express Excitement. When extending an offer, show that you appreciated and are excited about the article. Both Maryland and West Virginia did this with my articles, and I chose them over some similarly ranked journals that sent boilerplate acceptance e-mails.
Call. Extending an offer to publish over the phone is often much more personal and effective than an e-mail offer.
Provide an Editing Schedule. Providing an editing schedule early in the process can be helpful.
Edit Lightly, if at All, on Style. I violated this rule repeatedly when I was an editor, but I now see that edits that appear to be style-based can often change the very precise message that the author is trying to communicate. If a sentence is unclear or poorly written, simply note this in a comment – perhaps with a suggested revision in the comment – rather than rewriting the sentence in the text.
Edit Heavily on Bluebook and Typos/Clear Errors. Editors typically know the Bluebook better than authors, so do not be afraid to edit heavily on Bluebook issues. Also, attempt to catch any typos or other clear errors. Some editors who claim to “respect the author’s voice” do too light of an editing job on Bluebook issues and clear errors.
Not Every Sentence Needs a Footnote. Be reasonable on whether a sentence actually needs a citation or not.
Provide Redlines. In the past, a few editors have not provided redlines, which makes it incredibly difficult to check what has been changed. Also, on occasion, editors have not provided complete redlines – They provide redlines, but I found changes that did not show up on the redline, which reduces confidence and slows the process.
Stick to the Editing Schedule. As much as possible, stick to the editing schedule. Authors need to honor the schedule as well. Of course there are emergencies and those are understandable, but editors might want to build in some additional time in the schedule for these unpredictable occurrences.
Communicate. Much can be forgiven if editors communicate clearly, promptly, and respectfully with the authors.
Twitter. Post-publication, Twitter can be a great tool to promote the journal’s articles. Many, but definitely not all, journals now have Twitter accounts.
All of that said, I vividly remember the hard work and long hours of editing – on top of classes and interviews and internships and other responsibilities. We professors appreciate all that law review editors do, and we probably should express our thanks more often.
My co-bloggers and readers likely have additional thoughts – as many are more experienced than I. All are encouraged to share in the comments.
Thursday, April 23, 2015
BU LAW TO BECOME FIRST U.S. LAW SCHOOL TO OFFER A MOOC IN COMPLIANCE
Course series will focus on legal risk management for companies doing businesses overseas
(APRIL 23, 2015) -‐ Boston University School of Law will launch a massive open online course, Legal Risk Management Strategies for Multinational Enterprises, in October, becoming the first U.S. law school to offer a MOOC in the fast-‐growing field of compliance. In a partnership with BU’s Digital Learning Initiative, the School of Law will deliver the four-‐part series on the edX online platform.
“BU Law is committed to using new technologies to open up our classrooms not only to our students, but to all qualified practitioners with an interest in studying legal topics,” says BU Law Dean Maureen O’Rourke. “I am pleased that our very first MOOC will focus on compliance, and will provide all students, both with and without law degrees, with marketable skills for which there is significant demand in the US and abroad.”
The course will examine the issues that multinational companies face in adhering to the numerous laws and regulations that govern their operations. Students will be introduced to new tools for managing risk in the global marketplace and learn how to identify, analyze and control compliance risks in various commercial and financial contexts.
“I am excited to develop this course and to make it available to a global audience,” says course instructor Babak Boghraty, who teaches Compliance Risks in International Business in BU Law’s Executive LL.M. Program. “The subject matter really lends itself to online learning tools.”
With the introduction of the MOOC, BU Law continues to expand its online learning programs. In 2011, the School launched a first-‐of-‐its-‐kind Executive LL.M. Program in International Business Law, where students learn in a blended format of residential and online courses. In 2012, BU Law began offering an online LL.M. degree in Taxation.
“At BU Law, we are committed to making our superior LL.M. instruction available to experienced practitioners who are unable to attend our traditional, nine-‐month residential programs,” says BU Law Assistant Dean John Riccardi. “Our launch of this MOOC further demonstrates our commitment to becoming a leader in the field of global compliance and a pioneer in digital learning.”
The course will be offered as part of edX's exclusive professional development course roster for a fee of $950.
Communications & Marketing
An ongoing issue in many securities cases concerns the precise state of mind necessary to satisfy the element of scienter in a Section 10(b) violation. The basic dispute is about whether the defendant must have intended to harm investors, or whether it is sufficient if the defendant simply intended to mislead them.
One would have thought this issue was settled by the Supreme Court’s decision in Basic Inc. v. Levinson, 485 U.S. 224 (1988). There, the defendants lied to investors by falsely claiming that they were not engaged in merger negotiations. The lie was not intended to harm anyone; if anything, the defendants intended to benefit investors by concealing the talks so as not to prejudice a beneficial deal. The Supreme Court did not weigh in on the definition of scienter per se, but it did emphasize that the defendants’ benign motives would not immunize them from liability. As the Court put it, “[W]e think that creating an exception to a regulatory scheme founded on a prodisclosure legislative philosophy, because complying with the regulation might be ‘bad for business,’ is a role for Congress, not this Court.”
Similarly, in Nakkhumpun v. Taylor, 2015 U.S. App. LEXIS 5547 (10th Cir. Apr. 7, 2015), the Tenth Circuit rejected a defendant’s argument that his false statements – in that case, false characterizations as to why a corporate asset sale had fallen through – were intended to benefit investors by attracting new deal partners. The Tenth Circuit held that whatever the defendant’s ultimate motive, Section 10(b) liability would be imposed if he intentionally or recklessly misled investors.
Nonetheless, courts continue to sporadically define Section 10(b) scienter in a more limited manner.
[More under the jump]
Wednesday, April 22, 2015
Marco Ventoruzzo (Penn State Law) alerts us to the upcoming international conference for the sixtieth anniversary of the Rivista delle società, which will be held in Venice, on San Giorgio Maggiore, on 13-14 November 2015. The title of the conference is "Rules for the Market and Market for Rules. Corporate Law and the Role of the Legislature." The program and information on how to register (and other logistics) can be found here. It looks like only an Italian version of the program is available on the website as of the time this is being posted, but I have an English version. So, please just contact me if you want one.
Marco notes that the conference, organized every ten years by the Rivista, is one of the major events for corporate law scholars and practitioners in Italy (and probably in Europe as a whole). He anticipates well over 300 participants from several European countries, the U.S., and elsewhere. He notes that, as an additional incentive to participate, the venue is probably one of the most spectacular that can be imagined. San Giorgio is a tiny island in the Venice lagoon, just in front of Saint Mark's Square, that overlooks the entire Venetian waterfront. On the island, inhabited since Roman times, the conference will be hosted in a monastery partially designed by Andrea Palladio in the XVI century.
Hat tip to Marco for this announcement.
There's good news and no news from me on the 3L job search front.
First, the good news. One of the talented 3L business law students whom I have been mentoring in the Quest for Employment (Q4E) recently secured a position that is perfect for him. He is a great fit for the firm and the position, and the firm is lucky to get him. Yay for our team!
The rest of the news on the Q4E front is same-old, same-old. Two other terrific 3L business law students who have had career/life changes that have led them to seek employment in new markets better suited to their professional or personal objectives are still on the market. Of course, this is nothing new in Knoxville and much of the rest of the State of Tennessee, where many law firms cannot really assess their needs until much closer to the bar exam/hiring start date. And these two promising lawyers-to-be are getting bites at the line.
Haskell earlier wrote a great post here on resumes and interviews, and I earlier wrote a companion post on cover letters. But what happens after you've sent the cover letter and resume and have not been granted an interview? Give up on the Q4E with those folks? No way! At least, that's not my advice . . . .
Some business schools are still hiring for this coming August. Here is a recent legal studies professor posting by University of Louisiana-Lafayette. University of Louisiana-Lafayette is a special school to me because they made my first tenure track offer, which was quickly followed by an offer from another school that was in a better geographic location for my family. While my decision was definitely the right one for our family, I have only good things to say about University of Louisiana-Lafayette. They ran a professional search process and have a collegial, bright faculty. Also, Lafayette seemed to have a wonderful, unique culture and excellent food.
I have updated my legal studies professor openings list here.
Last week the New York Times hosted a debate about the Public Corporation's Duty to Shareholders. Contributors include corporate law professors Stephen Bainbridge, Tamara Belinfante, Lynn Stout, David Yosifan and Jean Rogers, CEO of Sustainability Accounting Standards Board.
This collection of essays is not only more interesting than anything that I could write, but it is also the type of short, assessable debate that would be a great starting point for discussion in a seminar or corporations class.
Tuesday, April 21, 2015
In North Dakota, the state has seen drastically falling revenues due to low oil prices. Lower revenues makes it more challenging for the communities in that state that are still trying to provide the necessary infrastructure and services that remain a challenge due to the enormous growth over the last several years. The response from some in the North Dakota legislature? Cut taxes.
Oil companies always seek lower taxes because they are rational actors. Lower taxes means higher revenues. This was true with sky high oil prices and is even more true with lower prices. From a company perspective, the position makes sense. From a legislative perspective, the position should be more nuanced.
(Please click below to read more.)
Monday, April 20, 2015
As most of you know, this year's U.S. News rankings of law schools are now available. I'm not a big fan of those rankings. I don't think they're a particularly meaningful way of comparing law schools. They sometimes provide a laugh or two, as when a dean disparages the rankings while pointing to his or her school's rise in the rankings as a sign of successful decanal leadership. But no student should be choosing a law school based on those rankings.
However, the rankings are fun to play with from time to time, and here's one example for your amusement.
Most of the top 100 law schools in the rankings are affiliated with universities that are ranked in the U.S. News rankings of national universities. Everything else being equal, one would expect a law school's ranking to be comparable to that of its university, and many are. Yale is the top-ranked law school (an obvious mistake in this Harvard grad's opinion); its university ranking is number 3. But that's not always the case; many of the law school rankings are significantly different from the rankings of their universities.
I computed a comparison score for each of the top 100 law schools by subtracting its ranking from the ranking of its university on the U.S. News list of national universities. (Some of the top law schools aren't affiliated with a U.S. News "national university," so they don't get to play.) The higher the number in a positive direction, the better the law school did in comparison to its university. The lower the number, the worse the law school did in comparison to its university. (U.S. News only provides national university rankings down to number 201, so I used 201 for any university below that in the list, with a plus in the comparison score to indicate that the difference is actually greater than that.)
These comparison scores might actually have greater validity than the rankings themselves, because they net out some of the factors, such as geographical differences and name recognition, that bias the underlying rankings. A university and its law school share the same name and they're in the same location.
Here are the ten law schools with the highest comparison rankings (those which are outperforming their university the most):
Georgia State 145+
Nevada-Las Vegas 134+
New Mexico 118
Arizona State 103
George Mason 96
West Virginia 74
Here are the ten law schools with the lowest comparison ranking:
Yeshiva (Cardozo) -27
Penn State -23
Case Western Reserve -21
Wake Forest -20
Michigan State -9
Notre Dame -6
(The comparison numbers tend more to the positive because there are so many national universities without law schools.)
Here's a full listing of the comparison scores if you want to look up your school.
As I said, the U.S. News rankings don't mean much, so these comparisons probably don't mean much. I will leave it to others to figure out why these particular schools are so different from their universities. In the interest of full disclosure, the comparison score of Nebraska, where I teach, is 43.
Sunday, April 19, 2015
PwC report analyzes trends likely to drive future securities litigation http://t.co/hxZLHQZZHL— kevinlacroix (@kevinlacroix) April 13, 2015
Special Projects Segment: Opposition to Adopting Crowdfunding Rules: We are discussing possible rulemaking for... http://t.co/j3YqIfLfP0— TheRacetotheBottom (@RTTBCorpGov) April 13, 2015
New survey paper on M&A contracts by yours truly: http://t.co/kVnciDteTz— John Coates (@jciv) April 15, 2015
Trinity Wall Street v. Wal-Mart: 3d Circuit puts life back in ordinary business exception http://t.co/VjrI2sktal— Stephen Bainbridge (@ProfBainbridge) April 14, 2015
"power of the American executive and the American board as due in part to their influence on political ... outcomes" http://t.co/zQ2DBgnyfb— Stefan Padfield (@ProfPadfield) April 16, 2015
Saturday, April 18, 2015
It was recently announced that the SEC has reached a settlement in its lawsuit against Freddie Mac executives Richard Syron, Patricia Cook, and Donald Bisenius. The basic allegation in the case was that these executives violated Section 17 of the Securities Act and Section 10(b) of the Exchange Act by dramatically understating Freddie Mac’s exposure to subprime mortgages. The executives falsely claimed that Freddie Mac’s portfolio included $2 to $6 billion of subprime loans, when the true figure was closer to $141 billion to $244 billion. Freddie Mac’s exposure to subprime loans ultimately caused it to experience dramatic losses, thus harming investors.
The SEC ran into difficulty because there is no accepted definition of “subprime.” The SEC alleged that investors understood the term to refer to certain loans issued with a high likelihood of default, such as loans with high loan to value and debt to income ratios. The executives, however, claimed that “subprime” was understood by investors only to refer to loans that were designated as subprime by their originators.
The case has now settled, and, under the terms of the settlement, the executives will make payments to a Fair Funds account for the benefit of investors, in the amounts of $250K, $50K, and $10K, respectively.
Unusually, this is not your classic “no admit, no deny” settlement. Instead, it appears to be straight up “no admit,” because after the settlement was reached, Bisenius said that "The dismissal of the case today under these terms vindicates me completely."
Perhaps even more unusually, the payments are characterized as neither fines nor disgorgements. Instead, they are described as “donations.” Meanwhile, the amounts – coincidentally! – were calculated in proportion to the stock and options granted to the defendants during the (alleged) fraud period.
So what gives?
As far as I can tell, the euphemism is because of who’s paying. The settlement amounts will be paid by insurance (which itself is paid for by Freddie Mac). D&O insurance tends to exclude coverage for disgorgement and regulatory fines, see Lawrence J. Trautmana & Kara Altenbaumer-Price, D&O Insurance: A Primer, 1 Am. U. Bus. L. Rev. 337 (2011-12); Jon N. Eisenberg, How Much Protection Do Indemnification and D&O Insurance Provide?, and the SEC has taken the position that contracts to indemnify for Securities Act violations are unenforceable as against public policy. See 17 C.F.R. §229.512.
But I guess the SEC doesn't feel too strongly about it, because by characterizing the payments as donations rather than fines or disgorgement, the defendants are able to get the benefit of insurance and avoid paying out of pocket.
Though the SEC's fair funds statute does contemplate that donations may be included in a fund, see 15 U.S.C. § 7246(b), the settlement is an outlier, by SEC standards. According to Urska Velikonja’s article, Public Compensation for Private Harm: Evidence from the SEC's Fair Fund Distributions, 67 Stan. L. Rev. 331 (2015), executives who pay fines and disgorgement to an SEC fair fund typically pay out of pocket – an important feature, if the SEC is to avoid the criticism that fair fund distributions suffer from the same “circularity” problem that plagues private lawsuits.
Given all of this, one wonders why the SEC even bothered. If they thought they had a case, they could have just taken it to trial, risks be damned. And if they had doubts about the merits of the case, they should have simply dropped the matter.
One possibility is that the SEC believed its legal case was too weak for trial but that the reimbursement to investors was worth it – after all, circularity criticisms notwithstanding, not all investors are diversified, and some may have suffered losses that they did not make up in gains elsewhere. But that's not the motivation here, because the SEC will not establish a new fund to compensate investors for the alleged fraud. Instead, the defendants' donations will be added to an existing fair fund that was set up for the SEC's earlier case against Freddie Mac, brought in 2007, regarding accounting fraud that took place from 1998 through 2002. Which apparently means that the SEC will not even pretend to distribute the funds to the investors who were harmed by the more recent misconduct.
(I suspect this is because the SEC believes it lacks authority to establish a fund consisting solely of donations, with no penalties or disgorgements.)
In any event, $310K is a rather paltry sum if investor compensation was the goal; according to the parallel private lawsuit (dismissed on the pleadings, see Ohio Pub. Emples. Ret. Sys. v. Fed. Home Loan Mortg. Corp., 2014 U.S. Dist. LEXIS 155375 (N.D. Ohio Oct. 31, 2014)), Freddie Mac’s misrepresentation of its subprime exposure resulted in over $6 billion in losses to shareholders.
So the point is, if paid by insurance, the amounts aren’t large enough to deter, and as it stands, they are facially not even intended to compensate. Instead, the settlement seems an exercise in face-saving – the SEC believed it had a weak legal case (though possibly a strong moral one) but didn’t want to exit the field with nothing at all. The whole adventure thus raises the question whether face-saving payments are appropriate for regulators to collect (as well as the question whether much face-saving was actually accomplished).
Friday, April 17, 2015
At the end of next week, I will be at the University of Connecticut School of Business and the Thomas J. Dodd Research Center for their Social Enterprise and Entrepreneurship Conference.
Further information about the conference is available here, a portion of which is reproduced below:
In October 2014, Connecticut joined a growing number of states that empower for-profit corporations to expand their core missions to expressly include human rights, environmental sustainability, and other social objectives. As a new legal class of businesses, these benefit corporations join a growing range of social entrepreneurship and enterprise models that have the potential to have positive social impacts on communities in Connecticut and around the world. Designed to evaluate and enhance this potential, SE2 will feature a critical examination of the various aspects of social entrepreneurship, as well as practical guidance on the challenges and opportunities presented by the newly adopted Connecticut Benefit Corporation Act and other forms of social enterprise.
Presenters at the academic symposium on April 23 are:
- Mystica Alexander, Bentley University
- Norman Bishara, University of Michigan
- Kate Cooney, Yale University
- Lucien Dhooge, Georgia Institute of Technology
- Gwendolyn Gordon, University of Pennsylvania
- Gil Lan, Ryerson University
- Diana Leyden, University of Connecticut
- Haskell Murray, Belmont University
- Inara Scott, Oregon State University
Presenters at the practitioner conference on April 24 are:
- Gregg Haddad, State Representative, Connecticut General Assembly (D-Mansfield)
- Spencer Curry & Kieran Foran, FRESH Farm Aquaponics
- Sophie Faris, Community Development, B-Lab
- James W. McLaughlin, Associate, Murtha Cullina LLP
- Michelle Cote, Managing Director, Connecticut Center for Entrepreneurship and Innovation
- Mike Brady, CEO, Greyston Bakery
- Jeff Brown, Executive Vice President, Newman’s Own Foundation
- Justin Nash, President, Veterans Construction Services, and Founder, Til Duty is Done
- Vishal Patel, CEO & Founder, Happy Life Coffee
- Anselm Doering, President & CEO, EcoLogic Solutions
- Dafna Alsheh, Production Operations Director, Ice Stone
- Tamara Brown, Director of Sustainable Development and Community Engagement, Praxair
On April 3, Delaware Governor Jack Markell signed the Delaware Rapid Arbitration Act (DRAA) into law. The DRAA becomes effective on May 4, 2015. The DRAA is a different take on the attempted Chancery Arbitration that the Third Circuit ruled unconstitutional in 2013.
Under the DRAA, all parties in the dispute must agree to the arbitration. The DRAA does not use sitting judges to arbitrate, as the Chancery Arbitration attempted to do, but the Delaware Court of Chancery will be “facilitating” the process under the DRAA. Among other things, the Delaware Court of Chancery can assist in appointing an arbitrator for the process, enter final judgments, and determine an arbitrator’s fees. The Delaware Supreme Court can hear appeals of awards.
The DRAA appears to be encouraging a relatively fast and cost effective dispute resolution process. The process is limited to 180 days – final award to be issued within 120 days of the arbitrator’s appointment and allowable extensions up to an additional 60 days.
Given the privacy and the apparent time and cost-savings, this may be an attractive alternative dispute resolution process for various businesses.
For more analysis see:
Thursday, April 16, 2015
Regular readers know that I have blogged repeatedly about my opposition to the US Dodd-Frank conflict minerals rule, which aims to stop the flow of funds to rebels in the Democratic Republic of Congo. Briefly, the US law does not prohibit the use of conflict minerals, but instead requires certain companies to obtain an independent private sector third-party audit of reports of the facilities used to process the conflict minerals; conduct a reasonable country of origin inquiry; and describe the steps the company used to mitigate the risk, in order to improve its due diligence process. The business world and SEC are awaiting a First Amendment ruling from the DC Circuit Court of Appeals on the “name and shame” portion of the law, which requires companies to indicate whether their products are DRC Conflict Free.” I have argued that it is a well-intentioned but likely ineffective corporate governance disclosure that depends on consumers to pressure corporations to change their behavior.
The proposed EU regulation establishes a voluntary process through which importers of certain minerals into the EU self-certify that they do not contribute to financing in “conflict-affected” or “high risk areas.” Unlike Dodd-Frank, it is not limited to Congo. Taking note of various stakeholder consultations and the US Dodd-Frank law, the EU had originally limited the scope to importers, and chose a voluntary mechanism to avoid any regional boycotts that hurt locals and did not stop armed conflict. Those importers who choose to certify would have to conduct due diligence in accordance with the OECD Guidance, and report their findings to the EU. The EU would then publish a list of “responsible smelters and refiners,” so that the public will hold importers and smelters accountable for conducting appropriate due diligence. The regulation also offers incentives, such as assistance with procurement contracts.
One of the problems with researching and writing on hot topics is that things change quickly. Two days after I submitted my most recent article to law reviews in March criticizing the use of disclosure to mitigate human rights impacts, the EU announced that it was considering a mandatory certification program for conflict minerals. That meant I had to change a whole section of my article. (I’ll blog on that article another time, but it will be out in the Winter issue of the Columbia Human Rights Law Review). Then just yesterday, in a reversal, the European Parliament’s International Trade Committee announced that it would stick with the original voluntary plan after all.The European Parliament votes on the proposal in May.
Reaction from the NGO community was swift. Global Witness explained:
Today the European Parliament’s Committee on International Trade (INTA) wasted a ground-breaking opportunity to tackle the deadly trade in conflict minerals. […] Under this proposal, responsible sourcing by importers of tin, tantalum, tungsten and gold would be entirely optional. The Commission’s proposed voluntary self-certification scheme would be open to approximately 300-400 companies—just 0.05% of companies using and trading these minerals in the EU, and would have virtually no impact on companies’ sourcing behaviour. The law must be strengthened to make responsible sourcing a legal requirement for all companies that place these minerals on the European market–in any form. This would put the European Union at the forefront of global efforts to create more transparent, responsible and sustainable business practices. It would also better align Europe with existing international standards on responsible sourcing, and complement mandatory requirements in the US and in twelve African countries.
I’m all for due diligence in the supply chain and for forcing companies to minimize their human rights impacts. Corporations should do more than respect human rights-- they must pay when they cause harm. I plan to spend part of my summer researching and writing in Latin America about stronger human rights protections for indigenous peoples and the deleterious actions of some multinationals.
But a mandatory certification scheme on due diligence is not the answer because it won’t solve deep, intractable problems that require much more widespread reform. To be clear, I don't think the EU has the right solution either. Reasonable people can disagree, but perhaps the members of the EU Parliament should look to Dodd-Frank. SEC Chair Mary Jo White disclosed last month that the agency had spent 2.75 million dollars, including legal fees, and 17,000 hours writing and implementing the conflict minerals rule. A number of scholars and activists have argued that the law has in fact harmed the Congolese it meant to help and news reports have attempted to dispel some of the myths that led to the passage of the law.
So let’s see what happens in May when the EU looks at conflict minerals again. Let’s see what happens in June when the second wave of Dodd-Frank conflict minerals filings come in. As I indicated in my last blog post about Dodd-Frank referenced above, the first set of filings was particularly unhelpful. And let’s see what happens in December when parents start the holiday shopping—how many of them will check on the disclosures before buying electronics and toys for the members of their family? Most important, let's see if someone can actually tie the money and time spent on conflict minerals disclosure directly to lower rates of rape, child slavery, kidnapping, and forced labor-- the behaviors these laws intend to stop.
April 16, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, International Business, Law Reviews, Marcia Narine, Securities Regulation | Permalink | Comments (0)
Wednesday, April 15, 2015
"Laws, like sausages, cease to inspire respect in proportion as we know how they are made." -- John Godfrey Saxe
This is a brief legislative update on the progress of Tennessee's current bills, introduced in the house (HB0767--amendment not yet filed) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee. The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.
As you may know from my prior posts (including here and here), I am a benefit corporation skeptic. Please read those posts for details. And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone. We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA. This year was no different. We opposed the benefit corporation bills that were introduced in Tennessee this year, too.
What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked. But we ultimately were afforded two weeks to attempt to write an amended bill--one that better reflected Tennessee law and norms.
Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises. Heck. We couldn't even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks! [It seems hardest to find a plaintiff's bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).] Our requests for more time to work on the proposed legislation were, however, rejected.
So, we set out to make a better sausage . . . .
In an earlier BLPB post, I wrote about President Obama's call for greater regulation of retirement investment brokers. The proposed reforms focused on elevating the current standard that brokers' investment advice must be "suitable" to something closer to an enforceable fiduciary duty to counter financial incentives for some brokers to channel investors into higher-fee investment options.
Yesterday, the U.S. Department of Labor released new proposed rules (Proposed Rule), which would classify brokers as "fiduciaries" under ERISA but allow them to continue to receive brokerage commissions and fees (a practice that would otherwise violate ERISA conflict-of-interest rules) so long as the brokers and customers enter into a "Best Interest Contract".
The exemption proposed in this notice (“the Best Interest Contract Exemption”) was developed to promote the provision of investment advice that is in the best interest of retail investors such as plan participants and beneficiaries, IRA owners, and small plans. Proposed Rule at 4.
In 1975, the DOL issued rules defining investment advice for purposes of triggering fiduciary status under ERISA and the attended duties and conflict-of-interest prohibitions. That 1975 definition is still in use, is narrow, and excludes much of paid-for investment advice, particularly that provided in the self-directed retirement space (i.e., 401(k) and IRA).
The narrowness of the 1975 regulation allows advisers, brokers, consultants and valuation firms to play a central role in shaping plan investments, without ensuring the accountability ... [and] allows many advisers to avoid fiduciary status.... As a consequence, under ERISA and the Code, these advisers can steer customers to investments based on their own self-interest, give imprudent advice, and engage in transactions that would otherwise be prohibited by ERISA and the Code. Proposed Rule at 12.
The proposed rule expands the definition of investment advise (see Proposed Rule at 13) making brokers "fiduciaries" under ERISA, but then creates an exemption (which allows for the continued collection of commissions and fees), requiring:
the adviser and financial institution to contractually acknowledge fiduciary status, commit to adhere to basic standards of impartial conduct, warrant that they have adopted policies and procedures reasonably designed to mitigate any harmful impact of conflicts of interest, and disclose basic information on their conflicts of interest and on the cost of their advice. The adviser and firm must commit to fundamental obligations of fair dealing and fiduciary conduct – to give advice that is in the customer’s best interest; avoid misleading statements; receive no more than reasonable compensation; and comply with applicable federal and state laws governing advice. Proposed Rule at 6.
Under the proposed exemption, all participating financial institutions must provide notice to the U.S. DOL of their participation, as well as collect and report certain data.
As justification for the proposed rules, the DOL asserted that:
In the absence of fiduciary status, the providers of investment advice are neither subject to ERISA’s fundamental fiduciary standards, nor accountable for imprudent, disloyal, or tainted advice under ERISA or the Code, no matter how egregious the misconduct or how substantial the losses. Retirement investors typically are not financial experts and consequently must rely on professional advice to make critical investment decisions. In the years since then, the significance of financial advice has become still greater with increased reliance on participant directed plans and IRAs for the provision of retirement benefits. Proposed Rule at 11.
Critics claim that these rules will limit small investors' access to sophisticated financial advice for investments, while proponents consider this a powerful tool against the eroding effects of high fees on long-term retirement savings.
I think this is a symbolically important change. It modernizes the regulatory framework to more closely reflect why many people invest in the stock market (as a tax incentivized alternative to pension plans), the purpose that these investments serves (long-term retirement savings) and the information asymmetries (born of financial illiteracy) confronting the average investor, as well as the changes to the financial services industry. The enforcement mechanism is placed on the individual investor, who will have limited monitoring resources and and other disincentives to fiercely serve that role, which is why my initial reaction that this is a good "symbolic" measure that has potential to fulfill a more meaningful role.
Tuesday, April 14, 2015
Energy is big business, and there is evidence that renewables are starting to play along with the more traditional big-time players. The Economist recently published the article, Renewable Energy: Not a Toy, which reports that renewable energy installations are continuing to increase even as subsidies fall because prices are continuing to drop. The energy sector is likely to continue to diversify, in part because diversification is good for resilience and for financial management. The Economist article notes:
Nearly half of last year’s investment was in developing countries, notably China, whose energy concerns have more to do with the near term than with future global warming. It worries about energy security, and it wants to clean up its cities’ air, made filthy partly by coal-burning power plants.
Sometimes lost in the discussion about cleaner energy is that climate concerns are not the only reasons to consider other resources. Cleaner air, more stable prices, and locally sourced energy can all be good reasons to consider renewable energy sources along side more traditional resources. Prices, are the big one, of course, but when it's close, other considerations can more easily be part of the analysis. It appears we're approaching that point, which means more opportunity, along with more upheaval. That's why some of us like the energy business so much. If nothing else, it's usually interesting,
Monday, April 13, 2015
I may be hopelessly old-fashioned, but I believe academic scholarship demands evenhanded objectivity. An academic should present all sides of an issue fairly, weigh those arguments, and reach a conclusion that, to the extent humanly possible, is not merely a reflection of the academic’s predispositions. One must openly acknowledge the weaknesses of one’s conclusions as well as the strengths of the arguments against one’s conclusions.
An advocate also needs to deal with the opponents’ arguments, but the advocate begins with a pre-determined conclusion. In writing a brief, a lawyer is trying to convince the court to rule in favor of his or her client, not to weigh both sides evenhandedly and objectively.
Many faculty candidates are practicing lawyers or work for organizations that have a particular policy position. They’re advocates. In my experience, some candidates find it difficult to make the transition from advocacy to academic analysis, and their job talks (and their early scholarship) often reflect that.
Here’s a question to test that: “Make the strongest argument you can against your position.”
If a candidate can do that in a way that would satisfy those on the other side of the issue, that candidate is probably ready for the academic world. If the candidate can’t effectively do that, there are two possibilities. First, there may be no strong argument on the other side. But, if that’s the case, the candidate is dealing with a trivial issue that really isn’t worth talking about. If the issue is a debatable one and the candidate can't make a strong argument for the other side, then the candidate needs to work on academic analysis. And we on the hiring side have to think about whether the candidate, over the long run, is capable of doing that. I have met many people, including a few academics, who simply aren’t capable of seeing another side of issues they care about.
Sunday, April 12, 2015
"Amedisys Asks Justices to Fix Circuit Split on Loss Causation" http://t.co/hNdjFFI0Nv— Stefan Padfield (@ProfPadfield) April 8, 2015
"New White Paper: Second Wave of States Address Crowdfunding" http://t.co/JiUtkYSkZk— Stefan Padfield (@ProfPadfield) April 8, 2015
"Companies’ Pro-Equality Rhetoric Belied By Their Campaign Donations" http://t.co/AGW3YmM2Ds— Stefan Padfield (@ProfPadfield) April 12, 2015