Sunday, December 21, 2014

ICYMI: Tweets From the Week (Dec. 21, 2014)

December 21, 2014 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, December 20, 2014

The incompleteness of "leaning in"

Joshua Fershee has previously noted that men and women experience careers in business differently.  If women want to get to the top, they often have a longer haul than men.

Previous research has also shown that women are evaluated negatively for seeking raises (an attitude that Microsoft's CEO inadvertently seemed to endorse) and that (at least in the tech industry) performance reviews of women tend to be more critical than those of men, and include more personality-based criticism.

Now a new study in the Harvard Business Review shows that men and women have very different expectations regarding how they balance their careers and their personal lives when they graduate from Harvard Business School – and men’s expectations are more accurate than women’s.

According to the study, in general, men who graduate from HBS expect their careers will take precedence over their spouses’ careers – and they turn out to be right.  Women expect that their careers will have equal importance – and their hopes are dashed.  (It should be noted that men’s responses differ along racial lines; men of color tend to expect a more equal division of career precedence). 

The authors conclude:

Whatever the explanation, this disconnect exacts a psychic cost—for both women and men. Women who started out with egalitarian expectations but ended up in more-traditional arrangements felt less satisfied with how their careers have progressed than did women who both expected and experienced egalitarian partnerships at home. And in general, women tended to be less satisfied than men with their career growth—except for those whose careers and child care responsibilities were seen as equal to their partners’. Conversely, men who expected traditional arrangements but found themselves in egalitarian relationships were less satisfied with their career growth than were their peers in more-traditional arrangements, perhaps reflecting an enduring cultural ideal wherein men’s work is privileged. Indeed, traditional partnerships were linked to higher career satisfaction for men, whereas women who ended up in such arrangements were less satisfied, regardless of their original expectations.

Which is why I watched this video made by Columbia Business School students with both amusement and sadness:


(Warning:  The video contains explicit language and sexual innuendo.  Perhaps that's more of an advertisement than a warning?  Anyway, yeah, the lyrics are pretty explicit so, you know, go in with that expectation.)

Anyway, the basic theme of the video is that the women proclaim that they will not tolerate sexism and double standards, they will not tolerate being told that they should be nicer or less abrasive, and they will still succeed in business regardless of the obstacles placed in their path.  I appreciate and applaud the attitude and determination, but the reality is – as the HBS study concludes – it’s not simply about women’s determination and goals.  So long as women work within institutional structures that place higher values on male contributions - when even professors are more likely to offer guidance and mentoring to white males over women and people of color - women can be assertive and produce high quality work, but their individual determination not to back down in the face of criticism won't solve the problem.


December 20, 2014 in Ann Lipton | Permalink | Comments (0)

Friday, December 19, 2014

Social Subsidiaries

This week I had nice conversations with Brad Edmondson (Author of Ice Cream Social: The Struggle for the Soul of Ben & Jerry’s) and Michael Pirron (CEO of ImpactMakers, a certified benefit corporation).*

Both conversations turned to a topic that has been on my mind recently – that of social businesses that are acquired by large conglomerates that do not seem to have a similar mission.

A few of the parent/sub relationships that spring to mind (or that were discussed) include:

  • Campbell Soup / Plum Organics
  • Coca-Cola / Honest Tea
  • Colgate-Palmolive / Tom’s of Maine
  • Clorox / Burt’s Bees
  • Group Danone / Stonyfield Farm   
  • Unilever / Ben & Jerry’s

I may update this list from time to time, so feel free to suggest additions in the comments. 

At The Guardian, Kyle Westaway argues that Burt Bees worked from within Clorox to make the entire company more sustainable. Similarly, some argue that Unilever has become more sustainable after (and maybe because of) their acquisition of Ben & Jerry’s.

I have heard others argue that social businesses like Burt's Bees and Ben & Jerry’s “sold out,” and that the acquiring large conglomerates tend to cut many socially beneficial initiatives. The conglomerates, these folks argue, are only doing enough for society to keep the customer goodwill and the resulting profits. 

While each acquisition is different, I imagine both sides of the argument can find some support in the facts.

As someone interested in corporate governance, I hope to explore the governance issues involved when a conglomerate owns a social subsidiary in future articles. In Ben & Jerry’s case, I know they put a number of interesting clauses into the acquisition agreement, such as restricting certain action by Unilever regarding employees and local operations (for a period of time) and establishing an independent (and I believe self-perpetuating) board of directors for Ben & Jerry’s.  I am still investigating exactly how much power the Ben & Jerry’s board of directors has, and Unilever did eventually lay off some Ben & Jerry’s employees and close some local plants. In addition, Unilever and Ben & Jerry’s have not always agreed and have taken different, public stances on issues like GMO labeling. But Unilever has become a champion of sustainability among larger companies.  

Personally, I am not sure whether social businesses will tend to have more impact as independent businesses or as social subsidiaries of larger companies – and it may be impossible to generalize – but I will continue to watch future acquisitions and development in this area with interest. 

* My co-bloggers Joan Heminway and Marcia Narine may remember Michael Pirron from a Regent Law symposium they spoke at on social enterprise law. That was a fun conference and it was good to catch up with Micheal and hear how much his company has grown in the past year and a half. 

December 19, 2014 in Business Associations, Corporate Governance, Corporations, CSR, Haskell Murray, Social Enterprise | Permalink | Comments (0)

How well does the media portray business?

In each of the classes I have taught I have offered extra credit for a reflection paper on how the media portrays the particular subject because most Americans, including law students, form their opinions about legal issues from television and the movies. Sometimes the media does a great job. I’m told by my friends who teach and practice criminal law that The Wire gets it right. Although I have never practiced criminal law, I assume that ABC’s How to Get Away With Murder, in which first-year students skip their other classes to both solve and commit murders, is probably less accurate. I do have some students who now watch CNBC because I show relevant clips in class. After a particularly heated on-air debate, one student called the network “the ESPN for business people.”

I’m looking for new fiction movies or TV shows to suggest to my students next semester. In addition to the standard business movies and documentaries, what makes your list of high-quality business-related shows? Friends, colleagues, and students have suggested the following traditional and nontraditional must-sees: 

1)   Game of Thrones (one student wrote about it in the partnership context)

2)   House of Cards (not purely business, but shows how business and politics intersect)

3)   House of Lies (a look at the world of management consulting)

4)   Silicon Valley (one episode I saw talked about entity selection)

5)   The Newsroom (during the last season writers tackled insider trading, hostile takeovers, and white knights)

6)   Sons of Anarchy (I don’t watch this one so I can’t judge)

7)   Shark Tank (not always a complete or accurate depiction but entertaining)

I look forward to your suggestions and to some binge-watching over the holidays.

December 19, 2014 in Business Associations, Current Affairs, Film, Law School, Marcia Narine, Teaching, Television | Permalink | Comments (0)

Wednesday, December 17, 2014

High Frequency Trading 101

I recently participated in an institutional investor round table where one of the topics of the day was high frequency trading. Although embarrassed to do so, I will admit that I had to do some serious groundwork on this topic because I had heretofore largely avoided it in any substantive way. If you (or your students) are in the position I was in just a few weeks ago, this post may be a good starting point to understanding a very complex and interested set of issues.

Being new to the high frequency trading debate, I needed to build a basic understanding of the issues. If you haven't read Michael Lewis' Flash Boys (or anything other than this delightful synopsis courtesy of the NYT Magazine) check out Forbes' explanation of high frequency trading.  Even if YOU don't need it, this is a great reference for students interested in the topic.  

Of course, another starting point was the flash crash of 2010, where the Dow Jones Industrial Average fell over 1000 points in a matter of minutes.  The flash crash wasn't the start of high frequency trading, but it was an event that highlighted the role it plays in the markets.  You can read the SEC's report on the Flash Crash here. The publicity raised awareness and scrutiny of the practice.  For example, the NY Attorney General indicted financial institutions in June 2014 for practices related to high frequency trading.

The debate on the pros and cons of high frequency trading can be boiled down to two very simple points, and both relate to efficiency.  High frequency trading promotes efficient market pricing by  relaying information across markets and reducing buy-sell price spreads.  Eric Budish and John Shim both at the University of Chicago and Peter Cramton at University of Maryland published a 2013 paper studying S&P 500 trading data where futures and exchange-traded funds are correlated at the minute intervals.  Their study found that the correlation disappears at the 250 millisecond interval.  At the 250 millisecond interval the prices are discordant, but by 1 second the price has smoothed.  This is how the bid/ask spread shrinks, a trend of efficiency that has reduced the bid/ask spread from 90 basis points 20 years ago to 3 points today.

The second argument is that high frequency trading is bad for small investors because it is not value oriented (buy and sell decisions have no relationship to the underlying value of the assets) and capitalizes on the supply/demand problems posed by large institutional investor buy/sell orders.  The fear is that high frequency trading distorts the long term value proposition of stocks.  This argument suggests that high frequency trading is not efficient but rather is superfluous financial intermediation because it isn't connecting buyers and seller of securities (making markets), but is jumping in between buyers and sellers who would otherwise find each other.  

A newly posted article on SSRN by Jonathan Broggard et al. using Nasdaq data finds that high frequency traders provide liquidity (and therefore stability) in times of high financial stress, and thus may perform a protective market function.  The same study also observes that in normal market conditions, high frequency traders demand more liquidity than they create.  These findings suggest the validity of both arguments summarized above.

If you have any suggestions for must read articles-- academic or popular press--on high frequency trading, please respond in the comments.


December 17, 2014 | Permalink | Comments (1)

Tuesday, December 16, 2014

What Stock Prices and Oil Prices Don't Have in Common: You Can't Chart Stocks

In September, Myles Udland  wrote an article citing Burton G. Malkiel and his book, A Random Walk Down Wall Street, noting, "The past history of stock prices cannot be used to predict the future in any meaningful way." This is a great point.

I also saw Udland's article from today, which notes oil prices (and stock prices) have gone bonkers. Both prices have fluctuated wildly, and oil has been mostly trending mostly downward. As I have said before, I don't expect prices to stay low (sub-$70 per barrel) for long, but time will tell.  

Low oil and gas prices are certainly having an impact on markets and economies. The big one right now is Russia, which is struggling, in major part because of low oil prices.  The ruble has taken a beating, and the nation's central bank raised interest rates from 10.5 to 17 percent. Wow.  

The bulk of U.S. oil production appears safe well in the low- to mid-$40 per barrel price range, and I don't think it will stay below $55 for long.  Then again, as much as I follow all of this, I am still a law professor, and not a financial analyst, so keep that in mind.  

Anyway, having read all of this, I was reminded that people are sometimes inclined to view stock prices and commodities markets similarly. That would be wrong. Despite my views that oil is likely to go back up, at least some, it's also worth noting that using history as a predictor of markets is a dangerous game.  It's reasonable to assume that, eventually, a market will go up, but whether it will take three weeks, three months, or three years (or more) is hard to say.  

One recent report notes that oil price histories suggest we're near the bottom, and that (on average) prices should rebound significantly. The timing here is unpredictable, too, but the history of oil prices do suggest a rebound will happen sooner rather than later, even with global markets struggling. 

Uland's articles keep the issues separate, but still, lest anyone get confused (and history suggest they might), it is worth noting that charting commodity markets is different than charting stock prices.  As Professor Bainbridge's Safety Tip of the Day: Charting Doesn't Work  from ten years ago notes, "Consistently, empirical studies have demonstrated that securities prices move randomly and, moreover, have shown that charting is not a long term profitable trading strategy." Bainbridge similarly cites Burton G. Malkiel, A Random Walk Down Wall Street  (1996)  in that post, and in an earlier one from 2003, Random stock traders and the ECMH; with a review of Malkiel's Random Walk.  

I learned a lot about stock markets (and Business Organizations) from reading the good professor's writing, and I thought it worthwhile to continue to spread the message: Even though some people like to think that stock prices will follow historical trends and that stocks are like commodities and currencies, you follow their lead at your own peril. 

December 16, 2014 in Corporate Finance, Current Affairs, International Business, Joshua P. Fershee, Law and Economics | Permalink | Comments (3)

Yale/Stanford/Harvard 16th Junior Faculty Forum--Request for Submissions

Yale, Stanford, and Harvard Law Schools announce the 16th session of the Yale/Stanford/Harvard Junior Faculty Forum to be held at Harvard Law School on June 16-17, 2015 and seek submissions for its meeting.  The request for submissions is available at this link: Download JFF final call for submissions.




December 16, 2014 in Anne Tucker, Conferences | Permalink | Comments (0)

Monday, December 15, 2014

For Those of You Who Love the Dodge v. Ford Motor Company Case . . .

 . . . here's a relatively new Dodge Challenger commercial (part of a series) that you may find amusing.  I saw it during Saturday Night Live the other night and just had to go find it on YouTube.  It, together with the other commercials in the series, commemorate the Dodge brand's 100-year anniversary.  "They believed in more than the assembly line . . . ."  Indeed!

You also may enjoy (but may already have read) this engaging and useful essay written by Todd Henderson on the case.  The essay provides significant background information about and commentary on the court's opinion.  It is a great example of how an informed observer can use the facts of and underlying a transactional business case to help others better understand the law of the case and see broader connections to transactional business law generally.  Great stuff.

December 15, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Dirks Reaffirmed and Clarified . . . But Insider Trading Law Remains Murky

On December 10, the press reported the Second Circuit's decision in the insider trading prosecution of Todd Newman and Anthony Chiasson (two of multiple defendants in the original case).  In its opinion, the court reaffirms that tippee liability for insider trading is predicated on a breach of fiduciary duty based on the receipt of a personal benefit by the tipper and clarifies that insider trading liability will not result unless the tippee has knowledge of the facts constituting the breach (i.e., "knew that the insider disclosed confidential information in exchange for a personal benefit").  The court summarized its opinion, which addresses these matters in the context of the Newman case, a criminal case, as follows:

[W]e conclude that, in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit. Moreover, we hold that the evidence was insufficient to sustain a guilty verdict against Newman and Chiasson for two reasons. First, the Government’s evidence of any personal benefit received by the alleged insiders was insufficient to establish the tipper liability from which defendants’ purported tippee liability would derive. Second, even assuming that the scant evidence offered on the issue of personal benefit was sufficient, which we conclude it was not, the Government presented no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.

Continue reading

December 15, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Securities Regulation | Permalink | Comments (0)

Conflicts of Interest on the College Football Playoff Committee

Many people have been talking about the four teams chosen for the inaugural college football playoff. I, good business law blogger that I am, have been thinking about conflicts of interest on the selection committee.

If you’re a football fan, you know that this year, for the first time, the national champion in NCAA major college football will be chosen through a four-team playoff. The four teams selected—Alabama, Oregon, Florida State, and Ohio State—will participate in two semifinal games, with the two winners to play for the championship. (Yes, Art Briles, Baylor should be one of the four, but, no, Ohio State is not the team that shouldn’t be there.)

The four participating schools are chosen by a thirteen-person selection committee, although one of the members, Archie Manning, has taken a leave of absence this year for health reasons. The committee includes several people with current relationships to schools that play major college football, including the following athletic directors:  Jeff Long, Arkansas; Barry Alvarez, Wisconsin; Pat Haden, USC; Oliver Luck, West Virginia; and Dan Radakovich, Clemson.

The selection committee adopted a recusal policy that requires committee members to recuse themselves if the committee member or an immediate family member “(a) is compensated by a school, (b) provides professional services for a school, or (c) is on the coaching staff or administrative staff at a school or is a football student-athlete at a school.” A recused committee member may not participate in any votes involving that team or be present during any deliberations involving that team’s selection or seeding.

Under this policy, all of the athletic directors recused themselves from voting involving their schools. Others connected to particular schools also recused themselves: Condoleeza Rice, because she’s a professor at Stanford; Tom Osborne, because he’s still receiving payments as a former coach and athletic director at Nebraska; Mike Gould because he’s the Superintendent at Air Force.

As it turned out, none of the committee members were recused as to the six schools seriously considered for the final four—the four chosen, plus Baylor and TCU. But should they have been?

Consider Barry Alvarez, the athletic director at Wisconsin, a member of the Big Ten. The Big Ten schools share bowl revenues with other members of the conference. Thus, when Ohio State was chosen for the fourth spot over Baylor and TCU, Wisconsin became entitled to part of the $6 million paid to participants in the semifinal game (and additional money if Ohio State wins the semifinal and plays in the championship game). A vote for Ohio State directly benefitted the Wisconsin athletic department Alvarez heads.

The problem is not unique to Coach Alvarez. Other conferences also share bowl revenue, so Pat Haden (PAC-12), Jeff Long (SEC), and Dan Radakovich (ACC) also benefited when the representatives from their respective conferences were chosen. But those choices, unlike the choice of Ohio State over Baylor or TCU, were relatively uncontroversial. (The choice of Florida State over any of those schools should have been controversial, in my opinion, but it wasn’t.) Oliver Luck (Big 12) also had a financial incentive to vote for either Baylor or TCU, but, unfortunately for him and for his athletic department, neither of them was selected.

This conflict of interest may have been intentional. The committee appointments were carefully apportioned among the Power 5 conferences, and the expectation may have been that each of these athletic directors would vote for representatives of their respective conferences. (We don’t know if they actually did.) But no one is even talking about this clear conflict of interest, not even Art Briles, and that’s a little surprising.

December 15, 2014 in C. Steven Bradford, Corporate Governance, Sports | Permalink | Comments (6)

Sunday, December 14, 2014

ICYMI: Tweets From the Week (Dec. 14, 2014)

December 14, 2014 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, December 13, 2014

Did Harvard Violate Federal Securities Law? SEC Commissioner Gallagher Thinks So

Professor Lucian Bebchuk runs the Harvard Shareholder Rights Project, which helps investors filed proposals to be included in corporate proxies under Rule 14a-8.  The Project has filed several precatory proposals to express shareholders' views that corporations should destagger their boards, arguing that research demonstrates that declassified boards improve corporate returns.

In a new paper posted to SSRN, SEC Commissioner Daniel Gallagher and Professor Joseph Grundfest accuse the Project of making misleading statements regarding the benefits of declassified boards.  They suggest that Harvard could be vulnerable to lawsuits by shareholders or the SEC under Rule 14a-9, which forbids false statements in proxy solicitations.  The paper, with the provocative title “Did Harvard Violate Federal Securities Law?” is discussed in the Wall Street Journal here.

The basic argument made by Gallagher and Grundfest is that the proposals misleadingly cite only research in favor of declassified boards, and fail to cite contradictory research. 

Now, I have to say, I’m trying to evaluate how this claim would proceed if brought by a private shareholder, and I don’t like its chances.  First, as Gallagher and Grundfest admit, the proposals are precatory – so even if they succeed, they only have an effect if the corporate directors bow to investor pressure and choose to destagger the board.  Gallagher and Grundfest argue that this is sufficient “causation” to constitute a Rule 14a-9 violation by analogizing to a case where management lied in response to a precatory shareholder proposal, and the court ordered a re-vote.  But that case seems obviously distinguishable, because in that instance, the damage wrought by the misstatement was, in effect, damage to the right to offer proposals in the first place.  And the shareholder had few options other than a truthful revote as a means of vindicating that right.

Here, of course, because the ostensibly misleading proposal is submitted by shareholders, and misstatements are not being used by management as a way to thwart shareholders, it's difficult to see what concrete harm the alleged misstatements are actually causing.  Moreover, there are a variety of remedies for false statements beyond a private lawsuit: management can exclude proposals that are misleading, counter with its own information when opposing the proposal, or simply ignore the vote.

Apparently aware of the weaknesses in their causation theory, Gallagher and Grundfest also argue that these precatory proposals have a substantive effect sufficient to satisfy the causation requirement because proxy advisors like ISS often recommend voting against corporate directors who fail to declassify a board after a shareholder vote in favor of declassification.  Corporate directors may therefore feel pressure from ISS and vote in favor of declassification after a shareholder vote on the subject.

This chain of causation seems speculative, to say the least.  First, not only are ISS’s actions independent of the initial proposal, ISS’s threats are only going to matter if there’s a contested director election, and there usually isn’t one.  Even if votes are withheld from a director in a majority-vote corporation, the director will only actually lose his position if the Board accepts his resignation – which it may choose not to do if it concludes the voting was based on a misleading proxy proposal.

Second, the information that’s allegedly omitted here – countervailing research on a contested subject – is publicly available.  Leaving aside how that affects the analysis of the legal element of materiality (an omitted fact is only material if it affects the “total mix” of information available to shareholders, including public-domain information), if ISS pressure is a key step in the chain of causation, well, ISS is a sophisticated entity, as are the investors it advises – all of whom are no doubt capable of identifying and evaluating the research for themselves.

Finally, no damages would be available in a private action (because there’s no chance of a shareholder demonstrating loss causation).  The only remedy would be for a court to undo a vote in favor of the proposal and possibly order the re-staggering of a board – once again, difficult to imagine given the attenuated causation involved and the public nature of the omitted information.

That said, I’m fascinated by the fact that Commissioner Gallagher has chosen to fight this battle not in his capacity as Commissioner, but as the co-author of a paper posted to SSRN.*  (The paper claims, one suspects disingenuously, Gallagher and Grundfest  are not taking a position on the merits of declassification; they simply want to ensure that proxy proposals are truthful.)  Despite the paper’s suggestion that the SEC could bring an action against Harvard, the authors openly admit that the SEC’s policy has not been to challenge statements made in these proposals, but simply to allow corporate managers to refute them in proxy materials.  If anything, the goal of the article seems to be more about intimidating Bebchuk into altering the wording of his proposals (or intimidating Harvard into reining him in - the paper spends a bit of time on Harvard's responsibility for the Project), giving ammunition to corporate boards to resist such proposals, and firing a shot across the bow of proxy advisory firms that recommend in favor of such proposals.  Commissioner Gallagher has long sought greater regulation of proxy advisors – winning new SEC guidance on the subject in June.  In this article, Commissioner Gallagher seems to be dropping a hint that they should revise their recommendations or be subject to further investigation and regulation.

*Who does he think he is, a Delaware judge?

December 13, 2014 in Ann Lipton | Permalink | Comments (4)

Friday, December 12, 2014

Challenge to Termination Fee Survives Motion to Dismiss

The Delaware Court of Chancery recently denied a motion to dismiss in In re Comverge, Inc. Shareholders Litigation. In this case, the plaintiff claimed bad faith by the board of directors that approved an allegedly unreasonable termination fee in a merger agreement. Transactional attorneys and professors who teach M&A will want to read this case.  

I am deep into grading my business associations exams, so I will outsource to a nice client alert on the case by Steven Haas at Hunton & Williams. A bit of the alert is below, and you can access the entire alert here.

The court then found that the termination fees of 5.55% of equity value (or 5.2% of enterprise value) during the go-shop period and 7% of equity value (or 6.6% enterprise value) after the go-shop period “test the limits of what this Court has found to be within a reasonable range for termination fees.” The court also analyzed the termination fee in connection with the convertible note held by the buyer in connection with the bridge financing. The plaintiff alleged that the conversion feature in the note, which allowed the buyer to purchase common stock at a price below the merger consideration, would significantly increase the cost to a topping bidder of acquiring the company. Factoring in that cost to the existing termination fee, the plaintiff argued, would result in a total payment equal to 11.6% of the deal’s equity value during the go-shop period and 13.1% of the deal’s equity value after the go-shop period.

The court concluded that, for purposes of surviving a motion to dismiss, it was “reasonably conceivable that the Convertible Notes theoretically could have worked in tandem with the termination fees effectively to prevent a topping bid” from a buyer that might otherwise offer greater value to the company’s stockholders. Perhaps more importantly, the court found that the plaintiff adequately alleged that the board of directors acted in bad faith in approving these terms....

Despite the amount of litigation challenging M&A transactions, there are not many Delaware rulings that have upheld challenges to deal protections such as termination fees, matching rights, and no-shop provisions. This is because the Delaware courts have generally created a body of precedent that provides helpful guidance to buyers and sellers and also recognized the value of such terms. In Comverge, the parties appear to have deviated from this precedent, but more importantly, the court looked to the bridge loan to view the aggregate effect of the various terms on the ability of a third party to make a topping bid. 

December 12, 2014 in Business Associations, Corporate Governance, Delaware, Haskell Murray, M&A | Permalink | Comments (0)

Thursday, December 11, 2014

Reflections of a former supply chain professional turned academic on business and human rights

In many companies, executives and employees alike will give a blank stare if you discuss “human rights.”  They understand the terms “supply chain” and “labor” but don’t always make the leap to the potentially loaded term “human rights.” But business and human rights is all encompassing and leads to a number of uncomfortable questions for firms. When an extractive company wants to get to the coal, the minerals, or the oil, what rights do the indigenous peoples have to their land? If there is a human right to “water” or “food,” do Kellogg’s, Coca Cola, and General Mills have a special duty to protect the environment and safeguard the rights of women, children and human rights defenders? Oxfam’s Behind the Brands Campaign says yes, and provides a scorecard. How should companies operating in dangerous lands provide security for their property and personnel? Are they responsible if the host country’s security forces commit massacres while protecting their corporate property? What actions make companies complicit with state abuses and not merely bystanders? What about the digital domain and state surveillance? What rights should companies protect and how do they balance those with government requests for information?

The disconnect between “business” and “human rights” has been slowly eroding over the past few years, and especially since the 2011 release of the UN Guiding Principles on Business and Human Rights. Businesses, law firms, and financial institutions have started to pay attention in part because of the Principles but also because of NGO pressures to act.  The Principles operationalize a "protect, respect, and remedy" framework, which indicates that: (i) states have a duty to protect against human rights abuses by third parties, including businesses; (ii) businesses have a responsibility to comply with applicable laws and respect human rights; and (iii) victims of human rights abuses should have access to judicial and non-judicial grievance mechanisms from both the state and businesses.

Many think that the states aren’t acting quickly enough in their obligations to create National Action Plans to address their duty to protect human rights, and that in fact businesses are doing most of the legwork (albeit very slowly themselves). The UK, Netherlands, Spain, Italy and Denmark have already started and the US announced its intentions to create its Plan in September 2014.  A number of other states announced that they too will work on National Action Plans at the recent UN Forum on Business and Human Rights that I attended in Geneva in early December. For a great blog post on the event see ICAR director Amol Mehra's Huffington Post piece.

What would a US National Action plan contain? Some believe that it would involve more disclosure regulation similar to the Dodd-Frank Conflict Minerals Rule, the Ending Trafficking in Government Contracting Act, Trafficking Victims Protection Act, the Burma Reporting Requirements on Responsible Investment, and others. Some hope that it will provide additional redress mechanisms after the Supreme Court’s decision in Kiobel significantly limited access to US courts on jurisdictional grounds for foreign human rights litigants suing foreign companies for actions that took place outside of the United States.

But what about the role of business? Here are five observations from my trip to Geneva: 

1)   It's not all about large Western multinationals: As the Chair of the Forum Mo Ibrahim pointed out, it was fantastic to hear from the CEOs of Nestle and Unilever, but the vast majority of people in China, Sudan and Latin American countries with human rights abuses don’t work for large multinationals. John Ruggie, the architect of the Principles reminded the audience that most of the largest companies in the world right now aren’t even from Western nations. These include Saudi Aromco (world’s largest oil company), Foxconn (largest electronics company), and India’s Tata Group (the UK’s largest manufacturing company).

2)   It’s not all about maximization of shareholder value: Unilever CEO Paul Pollman gave an impassioned speech about the need for businesses to do their part to protect human rights. He was followed by the CEO of Nestle.  (The opening session with both speeches as well as others from labor and civil society was approximately two hours long and is here). In separate sessions, representatives from Michelin, Chevron, Heinekin, Statoil, Rio Tinto, Barrick, and dozens of other businesses discussed how they are implementing human rights due diligence and practices into their operations and metrics, often working with the NGOs that in the past have been their largest critics such as Amnesty International, Human Rights Watch and Oxfam. The US Council for International Business, USCIB, also played a prominent role speaking on behalf of US and international business interests.

3)   Investors and lenders are watching: Calvert; the Office of Investment Policy at OPIC, the US government’s development finance institution; the Peruvian Financial Authority; the Supervision Office of the Banco Central do Brasil; the Vice Chair of the Banking Association of Colombia; the European Investment Bank; and Swedfund, among others discussed how and why financial institutions are scrutinizing human rights practices and monitoring them as contractual terms. This has real world impact as development institutions weigh choices about whether to lend to a company in a country that does not allow women to own land, but that will provide other economic opportunities to those women (the lender made the investment). OPIC, which has an 18 billion dollar portfolio in 100 countries, indicated that they see a large trend in impact investing.

4)   Integrated reporting is here to stay: Among other things, Calvert, which manages 14 billion in 40 mutual funds, focused on their commitment to companies with solid track records on environmental, social, and governance factors and discussed the benefits of stand alone or integrated reporting. Lawyers from some of the largest law firms in the world indicated that they are working with their clients to prepare for additional non-financial reporting, in part because of countries like the UK that will mandate more in 2016, and an EU disclosure directive that will affect 6,000 firms.

5)   Is an International Arbitration Tribunal on the way?: A number of prominent lawyers, retired judges and academics from around the world are working on a proposal for an international arbitration tribunal for human rights abuses. Spearheaded by lawyers for better business, this would either supplement or possibly replace in some people’s view a binding treaty on business and human rights. Having served as a compliance officer who dealt extensively with global supply chains, I have doubts as to how many suppliers will willingly contract to appear before an international tribunal when their workers or members of indigenous communities are harmed. I also wonder about the incentives for corporations, the governing law, the consent of third parties, and a host of other sticking points. Some raised valid concerns about whether privatizing remedies takes the pressure off of states to do their part. But it’s a start down an inevitable road as companies operate around the world and want some level of certainty as to their rights and obligations.

On another note, I attended several panels in which business executives, law firm partners, and members of NGOs decried the lack of training on business and human rights in law schools. Even though professors struggle to cover the required content, I see this area as akin to the compliance conversations that are happening now in law schools. There is legal work in this field and there will be more. I look forward to integrating some of this information into an upcoming seminar.

In the meantime, I tried to include some observations that might be of interest to this audience. If you want to learn more about the conference generally you can look to the twitter feed on #bizhumanrights or #unforumwatch, which has great links.  I also recommend the newly released Top 10 Business and Human Rights Issues Whitepaper.



December 11, 2014 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, International Business, Jobs, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Tuesday, December 9, 2014

LLC Loophole Is Not Clearly a Loophole

The New York Times reports that LLCs have the ability to do things in New York politics that corporations cannot do: 

For powerful politicians and the big businesses they court, getting around New York’s campaign donation limits is easy.

. . .

Corporations like Glenwood are permitted to make a total of no more than $5,000 a year in political donations. But New York’s “LLC loophole” treats limited-liability companies as people, not corporations, allowing them to donate up to $60,800 to a statewide candidate per election cycle. So when Mr. Cuomo’s campaign wanted to nail down what became a $1 million multiyear commitment — and suggested “breaking it down into biannual installments” — the company complied by dividing each payment into permissible amounts and contributing those through some of the many opaquely named limited-liability companies it controlled, like Tribeca North End LLC.

It may appear unseemly to allow LLCs to do things corporations cannot do, but (as usual) I bristle at the implication that LLCs should be treated like corporations just because they are limited-liability entities. Perhaps LLCs and corporations should be treated the same for campaign purposes (and I am inclined to think they should be), but there are lots of reasons to treat LLCs differently than corporations, and it is not inherently "a loophole" when they are treated differently.

A loophole is an ambiguity or inadequacy in the law.  Here, the different treatment is not an ambiguity, though it is inadequate to limit funding in campaigns. However, it is not at all clear that the intent was to limit funding through LLCs.  The law was likely passed so that the legislature could say it did something to reform finance.  It did -- it closed the door for corporations and opened the door for LLCs.  Playing entity favorites is permissible, even if it's not sensible.  

LLCs and corporations are different entities, and different rules for different entities often makes a whole lot of sense.  And even when it doesn't make sense, the idea that different entities should have different rules still does. Let's not conflate the two concepts, even when decrying the impact. 

December 9, 2014 in Business Associations, Corporations, Current Affairs, Joshua P. Fershee, LLCs | Permalink | Comments (1)

Monday, December 8, 2014

More on Executive Health and Disclosure . . .

Many of you may have seen this already, but this past week's news brought with it an update to JPMorgan Chase CEO Jamie Dimon's health situation--positive news on his cancer treatment results, for which we all can be grateful. I posted here about Dimon's earlier public disclosure that he was undergoing treatment for this cancer.  Based on publicly available information, I give Dimon my (very unofficial) "Power T for Transparency" cheer for 2014.  (The "Power T" is The University of Tennessee's key--and now almost exclusive--branding symbol.  See my earlier posts on UT's related branding decisions regarding the Lady Volunteers here and here.) 

As many of you know, I have written about  securities  law and corporate law disclosure issues relating to private facts about key executives (which include questions relating to the physical health of these important corporate officers).  I do not plan to rehash all that here. But I will note that I think friend and Glom blogger David Zaring gets it just right in his brief report on the recent Dimon announcement (with one small typo corrected and a hyperlink omitted):

Not to pile on, but there's the slightly unsettling trend of CEOs talking, or not, about their health.  Surely material information a real investor would want to know about when deciding whether to buy or sell a stock in these days of the imperial CEO.  But deeply unprivate. . . . The stock is up 2% on the day.  It will be interesting to see whether this email makes its way into a securities filing.

Love that post.  Thanks, David.

Sadly, as I was drafting this post, I learned that Kansas City Chiefs safety and former Tennessee Volunteer football standout Eric Berry has been diagnosed with Hodgkin's lymphoma.  This obviously is not a matter of public company business disclosure regulation (given that the Kansas City Chiefs franchise, while incorporated, apparently is privately held).  But I know I join many in and outside Vol Country in wishing Eric the same success in his cancer treatment that Dimon appears to have had to date with his.

December 8, 2014 in Business Associations, Joan Heminway, Securities Regulation, Sports | Permalink | Comments (0)

Splitting Business Associations into Two Courses (3 + 2)

In the comments to my post last week on teaching fiduciary duty in Business Associations, Steve Diamond asked whether I had blogged about why we changed our four-credit-hour Business Associations course at The University of Tennessee College of Law to a three-credit-hour offering.  In response, I suggested I might blog about that this week.  So, here we are . . . .

Continue reading

December 8, 2014 in Business Associations, Corporate Governance, Corporations, Joan Heminway, Law School, M&A, Securities Regulation, Teaching | Permalink | Comments (10)

National Business Law Scholars Conference--Call for Papers

National Business Law Scholars Conference

Thursday & Friday, June 4-5, 2015
Seton Hall University School of Law, Newark, NJ

This is the sixth annual meeting of the NBLSC, a conference which annually draws together legal scholars from across the United States and around the world. We welcome all scholarly submissions relating to business law. Presentations should focus on research appropriate for publication in academic journals, law reviews, and should make a contribution to the existing scholarly literature. We will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate. For additional information, please email Professor Eric C. Chaffee at

Call for Papers

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by February 13, 2015. Please title the email “NBLSC Submission – {Name}.” If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.” Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late April.

 Conference Organizers:

Barbara Black (The University of Cincinnati College of Law, Retired)
Eric C. Chaffee (The University of Toledo College of Law)
Steven M. Davidoff Solomon (The University of California Berkeley Law School)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia Law)

More information is available here:


December 8, 2014 in Call for Papers, Conferences | Permalink | Comments (0)

Evaluating Law Students: My Two Worlds

The end of the semester is here. And, once again, I’m giving my Business Associations students a single, end-of-semester exam that counts for almost all of their grade.

My on-line Accounting for Lawyers class is different. My Accounting students have multiple assignments due each week, and they get feedback from me on each assignment. Those weekly assignments count for 30% of their final grade.

I know what the educational research says: a single end-of-semester evaluation is not as effective in promoting learning as multiple evaluations throughout the semester. My experience with regular assessment in Accounting for Lawyers confirms that. Since I began teaching Accounting for Lawyers this way three years ago, the final exams have been much better. Students are clearly learning more, and they have been rewarded with higher grades than I gave before.

So why do many law professors continue to rely on a single, end-of-semester exam?

Student expectations are a major issue. I have tried multiple exams in the past, but my students didn’t like it. After the first year of law school, they’re used to the end-of-semester format; multiple assessments require them to change their study routines. Assessment throughout the semester also changes the classroom dynamic; once you’ve critically evaluated students, the interaction is never quite the same. It’s easier in my on-line Accounting course. An on-line course already violates law school norms, so students expect something different.

Workload is also an issue. Regular assignments are a tremendous amount of work, both for me and for my students. Grading the Accounting assignments and providing feedback takes a great deal of my time, even with only 16 students. My fall semester is spent because of it. There’s no way I could also do this for a much larger Business Associations class.

And, frankly, the students are forced to do substantially more work in my Accounting course than they would in an equivalent classroom course—although it helps that, in an on-line class, students can work on their own schedules. Students continue to sign up for the Accounting course, but what works for one course might not work if they were taking five or six similarly structured courses.

But the biggest problem is probably inertia. If you have done something one way for a long time, and the results have been satisfactory, there’s no serious momentum for change—especially if that change is going to involve substantially more work and require changes to the law school’s administrative structure. In that sense, the end-of-semester exam issue is just a microcosm of the broader issues in legal education today. Will we continue to march forward as before or will we make significant changes to the usual way of doing things?

December 8, 2014 | Permalink | Comments (2)

Sunday, December 7, 2014

ICYMI: Tweets From the Week (Dec. 7, 2014)

December 7, 2014 in Stefan J. Padfield | Permalink | Comments (0)