Friday, February 5, 2016

Why a Corporation?

Starting on the first day of my Advanced Business Associations course, I attempt to tease out the policy underpinnings and theoretical conceptions of entity law and, in particular, corporate law.  This turns out to be a somewhat difficult task, since most students in the course, to the extent that they remember anything at all from their experience in the foundational Business Associations course, are more focused on what a corporation is and does than why we might have one in the first place.  As the semester proceeds and the readings unfold, the students get more comfortable talking about the rationale for certain aspects of the corporate form and why corporate law structures and operating rules promise to achieve the goals of those organizing a firm as a corporation.  But it's a slow process.

I have to believe that some of my fellow law professors face similar challenges with their students.  I also believe that instructors in other educational settings face analogous difficulties when they incorporate abstract notions into the teaching of more "black letter" (for want of a better term at this point in my day) concepts.  My approach has been to assign readings of primary and secondary material and use classroom discussion time and projects to reveal things about why the corporation exists, why venturers form them (as opposed to conducting business as sole proprietors or using another business form), and what issues we observe and might expect to observe as among corporate constituents as time unfolds.  So, I plan to cover everything from the general role of entity law in fostering the conduct of business (by offering off-the-shelf rules for use by venturers in structuring and operating  businesses) to notions of corporate personhood and the role of the corporation in society.

I am wondering if there is an alternative to my approach that any of you use in a similar course, or whether there is a particularly good set of foundational readings that you use to approach this set of issues in a business law offering.  At the end of this semester, I will have taught this course in this general format twice, and I will be taking stock to shore it up to make sure the third time's a charm.  [FYI, I start the semester with Bebchuk and Bainbridge, take a tour through the public company using the Disney case and its corporate documents, then move on to compare/contrast the publicly held firm with closely held corporations and unincorporated business associations before moving into some depth topics (M&A, complex business litigation, corporate social responsibility and the benefit corporation, etc.).  It is a two-hour course.]  Suggestions and other thoughts in comments or by email are welcomed.

February 5, 2016 in Business Associations, Corporate Governance, Corporate Personality, Corporations, Joan Heminway, Teaching | Permalink | Comments (6)

University Billboards, Local Grants, and Super Bowl Ads

I have been on the road a good bit over the past few months. Like Stephen Bainbridge, I greatly prefer driving to flying. On these road trips, I have noticed an increasing number of billboard advertisements for universities (my university included).

When I was in high school, I cannot remember any respectable 4-year universities or graduate schools using billboards to advertise. Maybe they did, and I just did not notice; but I do remember for-profit and community colleges using them. Today, however, I have seen billboard advertisements for schools ranked as high as the top-25 universities in the country, not to mention many solid public (including state flagship) and private universities. The Ivy League schools and their chief competitors seem to still be avoiding billboards, though even some them resort to billboards for their executive programs. (The for-profit schools still use billboards, but have also moved on to things like buying stadium naming rights).

I do wonder what accounts for the shift towards university billboard advertising, if there has been a shift. I also wonder about the costs and benefits of billboard advertising for universities. And I wonder about the comparative costs and benefits of alternative marketing.

Super Bowl ads – costing a record high $5 million for a 30-second spot – are likely a much more significant investment than your average billboard ad, but I imagine most companies that are advertising during the Super Bowl have decided that the costs outweigh the benefits. A few years ago, however, Pepsi decided to withdraw from the Super Bowl advertising frenzy for the first time in 23 years. Instead, Pepsi made more than $20 million in local grants, in the amount of $5,000 to $250,000 each. The local grants included things like buying uniforms for a high school's band. I imagine the local grants were powerful, relatively narrow in impact, and perhaps difficult to tie directly to sales. This year, it looks like Pepsi is back advertising during the Super Bowl where the advertising is much broader, if shallower. (Hat tip to the Coursera and University of Illinois digital marketing course for the link to the Pepsi story).

So maybe the decision for universities to use billboards is similar to the decision of multinational corporations to advertise during the Super Bowl: the ad might not be as personally powerful as something more individualized like local grants, but the ad will reach many more people. While I think the broader reach makes some sense, I do wonder if that will continue to hold true with social media; I imagine some of Pepsi’s local grants, for example, could “go viral” when shared on social media and could possibly rival the reach of a Super Bowl ad. 

February 5, 2016 in Business School, Current Affairs, Haskell Murray, Law School, Sports | Permalink | Comments (0)

Thursday, February 4, 2016

The thorny relationship between business and human rights

For the past four weeks I have been experimenting with a new class called Transnational Business and Human Rights. My students include law students, graduate students, journalists, and accountants. Only half have taken a business class and the other half have never taken a human rights class. This is a challenge, albeit, a fun one. During our first week, we discussed CSR, starting off with Milton Friedman. We then used a business school case study from Copenhagen and the students acted as the public relations executive for a Danish company that learned that its medical product was being used in the death penalty cocktail in the United States. This required students to consider the company’s corporate responsibility profile and commitments and provide advice to the CEO based on a number of factors that many hadn’t considered- the role of investors, consumer reactions, the pressure from NGOs, and the potential effect on the stock price for the Danish company based on its decisions. During the first three weeks the students have focused on the corporate perspective learning the language of the supply chain and enterprise risk management world.

This week they are playing the role of the state and critiquing and developing the National Action Plans that require states to develop incentives and penalties for corporations to minimize human rights impacts. Examining the NAPs, dictated by the UN Guiding Principles on Business and Human Rights, requires students to think through the consultation process that countries, including the United States, undertake with a number of stakeholders such as unions, academics, NGOs and businesses. To many of those in the human rights LLM program and even some of the traditional law students, this is all a foreign language and they are struggling with these different stakeholder perspectives.

Over the rest of the semester they will read and role play on up to the minute issues such as: 1) the recent Tech Terror Summit and the potential adverse effects of the right to privacy; 2) access to justice and forum non conveniens, arguing an appeal from a Canadian court’s decision related to Guatemalan protestors shot by security forces hired by a company incorporated in Canada with US headquarters; 3) the difficulties that even best in class companies such as Nestle have complying with their own commitments and certain disclosure laws when their supply chain uses both child labor and slaves; 4) the Dodd-Frank conflict minerals debate in the Democratic Republic of Congo and the EU, where students will play the role of the State Department, major companies such as Apple and Intel, the NGO community, and socially-responsible investors debating some key corporate governance and human rights issues; 5) corporate codes of conduct and the ethical, governance, and compliance aspects of entering the Cuban market, given the concerns about human rights and confiscated property; 6) corporate culpability for the human rights impacts of mega sporting events such as the Super Bowl, World Cup, and the Olympics; 7) human trafficking (I’m proud to have a speaker from my former company Ryder, a sponsor of Truckers Against Traffickers); 8) development finance, SEC disclosures, bilateral investment treaties, investor rights and the grievance mechanisms for people harmed by financed projects (the World Bank, IMF, and Ex-Im bank will be case studies); 9) the race to the bottom for companies trying to reduce labor expenses in supply chains using the garment industry as an example; and 10) a debate in which each student will represent the actual countries currently arguing for or against a binding treaty on business and human rights.

Of course, on a daily basis, business and human rights stories pop up in the news if you know where to look and that makes teaching this so much fun. We are focusing a critical lens on the United States as well as the rest of the world, and it's great to hear perspectives from those who have lived in Europe, Africa, Asia, and South America. It's a whole new world for many of the LLM and international students, but as I tell them if they want to go after the corporations and effect change, they need to understand the pressure points. Using business school case studies has provided them with insights that most of my students have never considered. Most important, regardless of whether the students embark on a human rights career, they will now have more experience seeing and arguing controversial issues from another vantage point. That’s an invaluable skill set for any advocate.

February 4, 2016 in Business Associations, Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Business, International Law, Investment Banking, Law School, Lawyering, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Super Bowl Referee is a Nebraska Law Grad

I am proud to announce that the lead official (the referee in NFL parlance) in Sunday’s Super Bowl is a graduate of my law school. Clete Blakeman graduated from the University of Nebraska College of Law in 1991, after playing for the Nebraska football team as an undergraduate. In addition to being an NFL referee, Clete is an attorney for an Omaha firm. (That's right: the same Clete Blakeman who somehow managed to toss a coin in the Packers-Cardinals game without it flipping.)

Clete took Corporations from me so, if any corporate law issues come up during the course of the game, I’m confident he will handle them well.

If he screws up an important call, I will, of course, delete this post immediately after the game.

February 4, 2016 | Permalink | Comments (0)

Wednesday, February 3, 2016

BlackRock's Fink Wants CEO Strategic Plans to Stem "Quarterly-Earnings Hysteria"

Laurence Fink, CEO of BlackRock, the largest asset manager in the U.S., wrote a letter to the CEO's of S&P 500 Companies urging reforms aimed at fostering long-term valuation creation and curbing a myopic focus on near-term profits.  Fink has long been a public advocate of long-term valuation creation for the health of American companies and the wealth of society (for an example see this April 2015 letter on the "gambling nature" of the economy").  His message has been consistent:  long term, long term, long term. 

Citing to increased dividends and buyback programs as evidence of corrosive short-termism, Fink laid out a modest play for action.  He asks every CEO to publish an annual strategic plan signed off on by the board.  The CEO strategic plan should communicate the vision for the company and how such long-term growth can be achieved.  

[P]erspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry, that support a framework for long-term growth. 

Fink wants companies to create these long-term vision statements as a routine part of governance and not just in the context of hedge-fund motivated proxy fights.  The idea is that informing the investing public as to the long-term direction of the company and short-term obstacles frames the company message and dampens the "quarterly earnings hysteria".  Also interesting to me as I approach a class on corporate social responsibility is Fink's encouragement of companies to pay more attention to social and environmental risks as increasingly difficult obstacles that must be addressed as part of a long term plan.  Fink also called upon lawmakers to incentivize a long-term view by thinking beyond the next election cycle as would be needed to enact tax reform (specifically capital gains) and increased resources for infrastructure.  

As readers of the blog know, I am in interested in the long-term/short-term debate and have written past posts about it. How controversial would such a CEO statement be?  Venture capital/private equity funds investing in companies often require an annual CEO statement.  If the language can be crafted to avoid liability for future statements, what are the downsides?  Tipping off competitors and losing information advantages or first actor advantages?  Letting lesser competitors free ride and adopt market leaders's plans a year or two later?  Exposing the board of directors and officers to breached duty claims for failure to meet the objectives? (this last one seems very unlikely given the liability standards and exculpation provisions.)     

The financial press and blogs are awash in stories on this. If you are interested in the related commentary, here are a few:

NYTimes

Reuters

Bloomberg

Business Insider

CNBC

The Globe & Mail

 -Anne Tucker

February 3, 2016 in Anne Tucker, Business Associations, Corporate Governance, Corporations, CSR, Financial Markets, Legislation, Management, Shareholders | Permalink | Comments (0)

Tuesday, February 2, 2016

Embracing Freedom of Contract in the LLC: Linking the Lack of Duty of Loyalty to a Duty of Disclosure

I have been giving a lot of thought to the idea of waiving the duty of loyalty in LLCs in Delaware.  The more I think about it, the more I am okay with the concept of allowing members of an LLC to decide to do away with the duty of loyalty when they form the entity.  Delaware, of course, retains the implied covenant of good faith and fair dealing in any contract, and I think parties to a contract should be able to decide the terms of their deal.  

Still, I am sympathetic to those who are concerned about eliminating the duty of loyalty because it does seem rather awful, and yet, I am also a proponent of freedom of contract.  How to reconcile these things?  Well, I am now of the mind that perhaps we need to bring a partnership principle to LLCs to help.  In partnerships, the default rule is that changes to the partnership agreement or acts outside the ordinary course of business require a unanimous vote. See UPA § 18(h) & RUPA § 401(j).  I think changes to the duty of loyalty should have the same requirement, and perhaps that even the rule should be mandatory, not just default.  

At formation, then, those creating an LLC would be allowed to do whatever they want to set their fiduciary duties, up to and including eliminating the consequences for breaches of the duty of loyalty.  This is part of the bargain, and any member who does not agree to the terms need not become a member.  Any member who joins the LLC after formation is then on notice (perhaps even with an affirmative disclosure requirement) that the duty of loyalty has been modified or eliminated.  This is not especially concerning to me. 

What would concern me more is a change in the duty of loyalty after one becomes a member.  That is, if the majority of LLC members could later change the loyalty provision, then that seems problematic to me, as fiduciary duties are not just to protect the majority.  As such, it seems to me more proper that changes to the duty of loyalty, when a member does not have any say in that change, is what should be restricted. Like in changing a partnership agreement, if everyone agrees, then there is not a problem.  And if you accept the provision when you join, it is not a problem.  But you shouldn't have a fiduciary duty removed or modified after the fact without your consent.  

Because the duty of loyalty is a fixture that most people expect, I do see value in requiring (at least for some time) that there be clear disclosure of the applicable to duties to potential LLC members.  But at least for the moment, I am feeling the freedom of contract option on the duty of loyalty is quite reasonable.  

February 2, 2016 in Joshua P. Fershee, LLCs | Permalink | Comments (7)

Monday, February 1, 2016

Winning the Citation Lottery: Attracting Quality Articles to Lower-Ranked Law Reviews

Most law professors want to place their articles in the top law reviews. The higher the ranking, the better. Because of that, editors at schools further down the chain have trouble getting high-quality articles.

Personally, I think it’s inappropriate to judge articles by where they’re placed. I don’t trust the quality judgments student editors make. They lack the subject-matter background to judge the true quality of an article and they often have a preference for faddish topics. But placement matters to many people, and that has a negative effect on many law reviews. They never even see some of the best articles.

The Harvard, Yale, and Chicago law reviews are never going to have trouble getting good submissions. If you’re a law review editor at a top-20 law review, you can stop reading here. But what about the rest of the reviews?
One option many people have tried is to organize symposia, but that’s not always effective. Even if leading scholars are willing to participate in those symposia, they often don’t submit their top work.

My proposed solution: use money as a motivation.

Paying for each article is a possibility, but that’s financially difficult. Professors might be willing to publish in a lower-ranked review for a thousand dollars or two, but schools aren’t going to give their law reviews enough extra money to pay $2,000 for each article. And $100 or so per article isn’t going to motivate many law professors. There’s also no quality assurance; leading scholars might just dump their lower-quality work on the review to get the money.

But there’s a better way to spend the money that might work. Assume a law school is willing to cough up an extra $2,000-$3,000 a year to improve its law review. (That’s not a huge amount for many law schools; it’s certainly less than schools pay for symposia.) Instead of trying to spread that out among the authors, the review could offer a $2,000-$3,000 cash prize to the article in each volume that gets the most citations within 2-3 years of publication. The better the article (at least in terms of citations), the more likely it is to win the prize.

That amount of money might motivate authors. I’ve written things for foreign journals for cash payments like that.

It’s a lottery, but many law professors have big egos and would assume their article would win. It would be most attractive to the professors who are cited most often, increasing the review’s readership.

Law reviews could even phrase the payment as an award, giving professors something to put on their vitas. “I won the John J. Smith Award for Legal Writing Excellence.”

If you’re a law review editor considering something like this, let me know. I have this article I’m working on and I need some money for a backpacking trip I’m planning.

February 1, 2016 | Permalink | Comments (0)

Sunday, January 31, 2016

ICYMI: Tweets From the Week (Jan. 31, 2016)

January 31, 2016 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, January 30, 2016

IPOs and Camouflage of Shareholder-Unfriendly Governance Provisions

This piece in the Wall Street Journal reports on a recent article by David F. Benson, James C. Brau, James Cicon, Stephen P. Ferris regarding the language used in charters and bylaws of companies going public.  As described in the WSJ, they conclude that companies with shareholder-unfriendly provisions – such as, for example, staggered boards or supermajority voting – are inclined to “camouflage” this fact by using more obscure, harder-to-parse language.  And this effect is more pronounced for companies that can expect they won’t be caught – such as, companies with a smaller analyst following and fewer institutional investors.  They also find that companies that use camouflage reap benefits in the form of higher pricing.  I was intrigued by the description in the WSJ, and thought the findings might be a useful point of discussion in my Sec Reg class, so I tracked down the actual study.  But I found myself a bit confused by the evidence offered to support their conclusions.

[More under the cut]

Continue reading

January 30, 2016 in Ann Lipton | Permalink | Comments (3)

Friday, January 29, 2016

Legal and Ethical Problems in Sports

Sports have had some well-publicized legal and ethical problems over the past few months.

I hope to look into these scandals more deeply in coming months, but it seems unchecked power and/or loose oversight are at least part of the problem.

As with many of the recent business scandals, I wonder if punishments need to be more severe to curb these problems, or if there is another, more effective, solution waiting to be uncovered.

January 29, 2016 in Ethics, Haskell Murray, Sports | Permalink | Comments (0)

Thursday, January 28, 2016

Villanova Law Professor Position and Updated Job Lists

From the Faculty Lounge: "Villanova University - Charles Widger School of Law seeks an outstanding lawyer/educator/scholar to teach business law and entrepreneurship courses, broadly defined, and to serve as the Faculty Director for The John F. Scarpa Center for Law and Entrepreneurship." More information available here.

Updated Law Professor (Business Areas) Position List.

Updated Legal Studies Professor Position List (Mostly Business Schools).

At this point in the year, I imagine that some, if not many, of the positions on the list may be filled.

January 28, 2016 in Business School, Haskell Murray, Jobs, Law School | Permalink | Comments (0)

Wednesday, January 27, 2016

Dow DuPont Merger of "Equals" Raises Several Equality Questions

In December, 2015, Dow Chemicals Co. and DuPont announced a proposed merger between their two companies.  Under the proposed deal, and with the approval of stockholders and regulators, the two agro/chemical giants will merger their companies in 2016 to create DowDuPont, with an estimated $130 billion value.  Within 18-24 months of closing, DowDuPont will be split into three independent, publicly traded companies .

The proposed "merger of equals" is structured to share power equally between Dow and DuPont and its leadership in the new company.  Dow and DuPont stockholders will each own roughly half of DowDuPont.  There will be 16 members on the new DowDuPont board of directors:  8 from each company.  The roles of Chairman and CEO will be split with Andrew Liveris (Dow) serving as Chairman and Edward Breen (DuPont) as CEO.

Questions of equality and perceived power imbalance arise when we examine the relationships between  (1) corporate boards and activist investors; (2) various shareholders (hedge funds vs. institutional investors vs. retail investors, etc.), and (3) possibly, CEO's.  

Let's tackle the first (and tangentially the second) imbalance by talking about hedge funds.  Last year, Trian hedge fund targeted DuPont in a very expensive, public and close proxy contest.  DuPont defeated Trian, even with ISS recommendations to vote with Trian.  The DuPont defense was widely regarded as a model proxy contest defense strategy (see here, e.g.,) and even more enthusiastically as

"a victory not only for DuPont and its chief executive, Ellen Kullman, but for others in corporate America concerned that activist investors’ influence has grown too strong and that companies have capitulated to their demands too readily." WSJ May 13, 2015

By October, Ellen Kullman, the trimphant CEO of DuPont, however stepped down. By December DuPont announced the mega-merger with Dow. DuPont's role in the mega-merger with Dow is being cast as a reaction to and attempt to seek protection from activist investors, which are increasingly garnering ISS and institutional investor support. DuPont's success against Trian rested largely on their ability to convince its three largest shareholders—Vanguard Group, BlackRock Inc. and State Street Corp.—which all manage index funds to vote with it (and against ISS recommendations).  The inference here is that DuPont didn't want to roll the dice again and risk losing control in a future contest with Trian or another activist.

Dow Chemicals hasn't been immune to the hedge fund threat. Third Point LLC, Dan Loeb's hedge fund, has a 2% position in Dow and nearly pursued a proxy fight in 2015.  Third Point has been making noise about the continued roll of Andrew Liveris in DowDuPont demonstrating that the hall monitor is still on duty.

The gaining strength of hedge fund campaigns in 2015 and the increasingly alignment of hedge funds and indexed funds has many boards running scared.  The DealBook Deal Professor, Steven Davidoff Solomon, writes of the mega-merger:

The proposed combination of Dow Chemical and DuPont shows that in today’s markets, financial engineering prevails and that only activist shareholders matter....

This plan is one easily understood by a hedge fund activist or investment banker in a cubicle in Manhattan with an Excel spreadsheet. To them, it makes perfect sense to merge a company and then almost immediately split it in three.

Merger and acquisition volume was at a record high (too soon to say peak) in 2015 as companies sought, in part, to achieve paper returns and cost efficiencies in a slow-growth economy.  When large (and voting) shareholders are index and mutual funds with pressures to earn returns for their investors, it can produce corresponding pressure on operating companies for tactics, if not actions to produce those returns.  In the DuPont proxy fight, the large block of retail investors in the old-guard public company was a big barrier to Trian, but in companies with less percentage held by retail investors (e.g., newer companies), the hedge fund agenda can drive the company.

Finally, it is interesting to note the rise and fall of DuPont CEO Ellen Kullman in this story. She successfully warded off a proxy contest and seemed to have fended off hedge fund advances, but ultimately her fate and DuPont's were largely driven by Trian's agenda.  Reading about this merger reminded me of the spate of stories last year about how hedge funds disproportionately target companies with female CEO's. This is an issue that as a female law professor, I am particularly sensitive to, but that bias not withstanding, the story received quite a bit of play in the financial press last year: DealBook, Bloomberg, and here, and here.  

-Anne Tucker

 

January 27, 2016 in Anne Tucker, Corporate Governance, Corporations, Financial Markets, Shareholders | Permalink | Comments (0)

Mindfulness and Legal Drafting for Business Lawyers (A Yoga Analogy)

As many of you know, I teach both traditional doctrinal and experiential learning courses in business law.  I bring experiential learning to the doctrinal courses, and I bring doctrine to the experiential learning courses.  I see the difference between doctrinal and experiential learning courses as a matter of emphasis.  Among other things, this post explores the intersection between traditional classroom-based law teaching and experiential law teaching by analogizing business law drafting to yoga practice principles.  This turned out to be harder than it "felt" when I first started to write it.  So, the post may be wholly or partially unsuccessful.  But I persevere . . . .

I begin by noting that we are, to some extent, in the midst of a critical juncture with respect to experiential learning in legal education.  Some observers, including both legal practitioners and faculty, criticize the lack of experiential learning, noting that legal education is too theoretical and policy-oriented, resulting in the graduation of students who are ill-prepared for legal practice.  Yet, other commentators note that too great an emphasis on experiential learning leaves students without the skills in theory and policy that they need to make useful interpretive judgments and novel arguments for their clients and to participate meaningfully in law reform efforts.  Of course, different law schools have different programs of legal education (something not noted well enough, or at all, in many treatments of legal education).  But even without taking that into account, many in and outside legal education (including, for example, in articles here and here) advise a law school curriculum that merges the two.  I think about and struggle with constructively effectuating this all merger the time.

Now, about the yoga . . . .  Most of you likely do not know that, in addition to teaching law, being a wife and mom, and other stuff, I enjoy an active yoga practice.  As I finished a yoga class on Sunday afternoon, I realized that yoga has something to say about integrating doctrinal and experiential learning, especially when it comes to instruction on legal drafting in the business law area.  Set forth below are the parallels that I observe between yoga and business law drafting.  They are not perfect analogs, but they are, in my view, instructive in a number of ways important to the teaching mission in business law.  The first two bullet points are, as I see it, especially important as expressions of the idea that law teaching is more complete and valuable when it holistically integrates doctrine, policy, theory, and skills.  The rest of the bullets principally offer other insights.

Continue reading

January 27, 2016 in Compliance, Corporate Finance, Joan Heminway, Law School, Securities Regulation, Teaching | Permalink | Comments (0)

Tuesday, January 26, 2016

2016 American Bar Association LLC Institute

At the request of Tom Rutledge, chair of the American Bar Association Section of Business Law's Committee on LLCs, Partnerships and Unincorporated Entities (that sure is a mouthful!),  I am passing on the following:

 

While the dates are still being resolved, this October, 2016, the Committee of LLCs, Partnerships and Unincorporated Entities will again be sponsoring a two-day LLC Institute in Arlington, Virginia. This program brings together more than 100 high-level practitioners and academics to review a variety of issues involving the law of unincorporated business organizations. In recent years presentations have been made by Joan Heminway, Carter Bishop, Dan Kleinberger, Colin Marks, Michelle Harner and Benjamin Means. I think each will vouch for the quality of the program.

We are actively soliciting proposals for panels. If you are working on something, or if there is something you would like to discuss before an audience that I can guarantee will be “hot”, please let me know.

Thanks.


Tom Rutledge
Thomas.rutledge@skofirm.com

 

Indeed, I can vouch for the program, at which I have presented twice.  There typically is an opportunity presented to write a short piece for Business Law Today, if you are interested.  My contribution from the 2015 LLC Institute (a real page-turner--not) can be found here.

January 26, 2016 in Conferences, Joan Heminway, LLCs, Unincorporated Entities | Permalink | Comments (1)

The Stock Market and Oil: What's in a Correlation?

The Wall Street Journal yesterday reported that oil and stocks are working together closer than they have in twenty-six years.

Oil and stock markets have moved in lockstep this year, a rare coupling that highlights fears about global economic growth.

As oil prices tumbled early in 2016, global equities recorded one of their worst-ever starts for a new year. On Monday, oil and stocks were lower again. The S&P 500 index was down 0.7% in midday New York trading, and Brent crude futures, the global benchmark, were down $1.37 a barrel, or 4.3%, to $30.81. That followed a joint rebound on Friday.

The correlation between the price of Brent and the S&P 500 stock index is at levels not seen in the past 26 years. January isn’t over yet, but over the past 20 trading days—an average month—the correlation is 0.97, higher than any calendar month since 1990 . . . .

And today, stocks rebounded with the 3.4% increased in the price of oil to $31.38 a barrel. And yeah, that's still low.   

The correlation may not be a strong as reports indicate, though.  Some reports suggest that the correlation is not nearly as close as it seems. As this analysis explains, "[e]ven if correlations between assets are trending higher that doesn’t mean that the outcomes have to be even remotely similar. While stocks are down around 8% this year, oil has fallen nearly 20%." 

There is some indication that oil and stocks now tend to correlate, even though for a long time, stocks and commodities seemed to operate independently. According to this 2012 study,

The changes in commodity price correlation and volatility have profound implications for a wide range of issues, from commodity producers’ hedging strategies and speculators’ investment strategies to many countries’ energy and food policies. We expect these effects to persist so long as index investment strategies remain popular among investors. 

It's hard to predict what this correlation can mean, or whether one is driving the other.  Certainly a spike in oil supply demand could cause an increase in oil prices, and that demand would like help support the stock market.  But oil prices could stay low, and we could still see the market go up if other indicators make investors happy.  

One correlation that it seems you can always count on: low oil prices means more car and truck sales.  And by that, it usually means SUV and truck sales.  

Sales of trucks and sport utility vehicles are rapidly outpacing sales of all other vehicle types in the U.S. as consumers ditch four-door sedans and flock to a seemingly endless selection of small, midsize and gargantuan SUVs. According to 2015 sales data released by the world’s top automakers on Tuesday, trucks and SUV sales dominated last year.

We'll see how long it lasts. As they say, the cure for low prices is low prices, and the cure for high prices is high prices.  For now oil and gas are low -- the market will fix that one way or another soon enough.   

 

January 26, 2016 in Joshua P. Fershee, Law and Economics | Permalink | Comments (0)

Monday, January 25, 2016

Good Exams and Excellent Exams: Conveying Uncertainty

I was going to blog today about Usha Rodrigues’s article on section 12(g) of the Exchange Act, but my co-blogger Ann Lipton stole my thunder over the weekend. If you’re interested in securities law and you haven’t read Ann’s excellent post on section 12(g), you should. Ann discusses Usha Rodrigues’s article on the history and policy of section 12(g); if you haven’t read it, I strongly recommend it. It’s available here. (Even if you’re not interested in reading about section 12(g), I highly recommend Usha’s scholarship in general. I’ve read several of her articles and blog posts over the last few years; she has become one of the leading commentators on securities and corporate law. She blogs at The Conglomerate.)

Instead of discussing section 12(g), I’m going to talk about exams. I finished grading my fall exams about a month ago and I’ve had time to reflect on them. The main reason students don’t do well on exams is that they don’t know or understand the material. But I’ve been reflecting on the difference between exams that are pretty good and exams that are excellent. Those students all know the material, so that’s not the difference.

One of the major differences between a good exam and an excellent exam is in how well students indicate the level of uncertainty in the law.
Sometimes, the law is clear and the answers to issues are certain. Sometimes, the answer is a little fuzzy, but the available authorities point strongly in a particular direction. Sometimes, the answer is completely unclear.

The best exam answers differentiate among those different possibilities and indicate the certainty of the author’s conclusion as to each issue. Bad answers don’t do that. They provide a definite “yes” or “no” to an issue when an unqualified answer is unwarranted. Or they go through a long list of arguments (“on the one hand, . . . ; on the other hand, . . . ) without reaching a conclusion or even indicating which side has the better argument and why.

I can always tell from reading exams which students I would want to consult as attorneys, and this is one of the clues.

January 25, 2016 in Ann Lipton, C. Steven Bradford, Law School, Securities Regulation | Permalink | Comments (4)

Sunday, January 24, 2016

ICYMI: Tweets From the Week (Jan. 24, 2016)

I usually limit myself to 5-6 tweets in this post, but for some reason I just couldn't bring myself to cut any of the below, so you will need to click "continue reading" at the bottom of this post if you want to see them all.


Continue reading

January 24, 2016 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, January 23, 2016

Uber and Section 12(g)

Back in the heady days of 2011, everyone wanted Facebook shares, but Facebook was not yet publicly traded.   It was close to bumping up against the then-500 shareholder-of-record threshold, however, which would have triggered reporting requirements under Section 12(g) of the Exchange Act. As a result, Goldman Sachs developed a single investment vehicle to allow clients to invest in Facebook indirectly; the vehicle would purchase Facebook shares (and count as a single shareholder), and then Goldman clients would buy shares of the vehicle. Eventually Goldman ultimately was forced to modify its plan due to a different SEC rule, so its legality was never tested.

Fastforward to 2016. The JOBS Act has now upped the shareholder threshold to 2000 shareholders of record (or 500 unaccredited shareholders), and eliminated the rule that tripped up Goldman’s earlier efforts, so Morgan Stanley and Merrill Lynch are playing the game again with Uber shares. Accredited investors will have the opportunity to buy interests in New Riders LP, whose sole assets will be stock in Uber.  

Rsz_new_riders

(okay, different New Riders LP). 

The minimum price tag is $1 million through Merrill, or a paltry $250K through known-populist Morgan Stanley. The 290-page offering materials are heavy on risk disclosures, but fail to include any financial information about Uber; instead, investors are urged to trust Morgan Stanley’s and Merrill’s valuation.

[More under the jump]

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January 23, 2016 in Ann Lipton | Permalink | Comments (5)

Friday, January 22, 2016

Washington and the Market

Washington, D.C. is about to be shut down by snow for a couple of days and the stock market's up 1%. Cause and effect? :)

January 22, 2016 in C. Steven Bradford, Financial Markets | Permalink | Comments (0)

CSR and Small Business-Part 2

Two weeks ago I posted about whether small businesses, start ups, and entrepreneurs should consider corporate social responsibility as part of their business (outside of the benefit corporation context). Definitions of CSR vary but for the purpose of this post, I will adopt the US government’s description as:

entail[ing] conduct consistent with applicable laws and internationally recognised standards. Based on the idea that you can do well while doing no harm … a broad concept that focuses on two aspects of the business-society relationship: 1) the positive contribution businesses can make to economic, environmental, and social progress with a view to achieving sustainable development, and 2) avoiding adverse impacts and addressing them when they do occur.

During my presentation at USASBE, I admitted my cynical thoughts about some aspects of CSR, discussed the halo effect, and pointed out some statistics from various sources about consumer attitudes. For example:

  • Over 66% of people say they will pay more for products from a company with “good values”
  • 66% of survey respondents indicated that their perception of company’s CEO affected their perception of the company
  • 90% of US consumers would switch brands to one associated with a cause, assuming comparable price and quality
  • 26% want more eco-friendly products
  • 10% purchased eco-friendly products
  • 45% are influenced by commitment to the environment
  • 43% are influenced by commitment to social values and community
  • Those with incomes of 20k or less are 5% more willing to pay more than those with incomes of $50k or more
  • Consumers in developed markets are less willing to pay more for sustainable products than those in Latin America, Asia, the Middle East, and Africa. The study’s author opined that those underdeveloped markets see the effects of poor labor and environmental practices first hand
  • 75% of millennial respondents, 72% of generation Z (age 20 and younger) and 51% of Baby Boomers are willing to pay more for sustainable products
  • More than one out of every six dollars under professional management in the United States—$6.57 trillion or more—is invested according to socially-responsible investment strategies.
  • 64% of large companies increased corporate giving from between 2010 and 2013.
  • Among large companies giving at least 10% more since 2010, median revenues increased by 11% while revenues fell 3% for all other companies

From marketing and recruiting perspectives, these are compelling statistics. But from a bottom line perspective, does a company with lean margins have the luxury to implement sustainable business practices? Next week I will post about CSR in larger companies and the role that small suppliers play in global value chains. This leaves some small businesses without a choice but to consider changing their practices. In addition, in some ways, using some CSR concepts factors into enterprise risk management, which companies of all size need to consider.

January 22, 2016 in Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Entrepreneurship, Ethics, Management, Marcia Narine, Nonprofits, Research/Scholarhip, Social Enterprise | Permalink | Comments (1)