Monday, March 2, 2015

Darian Ibrahim on Equity Crowdfunding: A Market for Lemons?

As many of you know, both I and my co-blogger Joan Heminway have written several articles on crowdfunding. My articles are available here and Joan’s are available here. I think that a properly structured crowdfunding exemption (unfortunately, not the exemption Congress authorized in Title III of the JOBS Act) could revolutionize the finance of very small businesses. 

Professor Darian M. Ibrahim, of William & Mary Law School, has posted an interesting and important new paper on crowdfunding, Equity Crowdfunding: A Market for Lemons? It’s available here.

Professor Ibrahim discusses two types of “crowdfunding” approved by the JOBS Act: (1) sales to accredited investors pursuant to SEC Rule 506(c), adopted pursuant to Title II of the JOBS Act; and (2) sales to any investors pursuant to the crowdfunding exemption authorized by Title III of the JOBS Act, but not yet implemented by the SEC. I don’t think the former should be called crowdfunding, but many people call it that, so I’ll excuse Professor Ibrahim.

Title II “Crowdfunding”

Professor Ibrahim points out that traditional investing by venture capitalists and angel investors is characterized by contractual controls and direct personal attention to the business by the investors. This allows the investors to monitor the investment and control misbehavior, and the investors’ participation and advice also provides a benefit to the business.

Ibrahim argues that Title II (506(c)) “crowdfunding” has been successful because it mimics what angel investors have been doing all along. It’s not really revolutionary, just making the existing model of angel investing more efficient by moving it to the Internet.

Title III Crowdfunding

Title III crowdfunding, on the other hand, is revolutionary; it doesn’t resemble anything that currently exists in the United States. If the SEC ever adopts the required rules, issuers will be selling to unaccredited investors who lack the knowledge and sophistication of venture capitalists and angel investors. It’s less obvious how they will judge among the various offerings and protect themselves from misbehavior by the entrepreneur.

Some have argued that the new crowdfunding exemption will appeal only to those companies that are too low quality to obtain traditional VC or angel funding, leaving unaccredited investors with the bottom of the barrel. Ibrahim disagrees, arguing that Title III crowdfunding will appeal to some high-quality entrepreneurs—those who need less cash for their businesses or are unwilling to share control with VCs or angel investors.

But how are we to avoid a “lemons” problem if the unsophisticated investors likely to participate in crowdfunding cannot distinguish good companies from bad? Ibrahim poses two possible answers. The first is the “wisdom of crowds,” the idea that the collective decision-making of a large crowd can approximate or even exceed expert judgments. Possibly, although I’m not completely sure. Collective judgments by non-experts can equal or surpass the judgments of experts, but I'm still unsure that the necessary conditions for that to happen are met on crowdfunding platforms. At best, I think the wisdom of the crowd is only a partial answer.

Ibrahim’s second answer is for the funding portals who host crowdfunding offers to curate the offerings—investigate the quality of the offerings and either provide ratings or limit their sites to higher-quality offerings. I think this is a good idea, but, unfortunately, the SEC’s proposed regulations would prohibit funding portals from doing this. Funding portals required to check for fraud, but that’s all they can do. Any attempt to exclude entrepreneurs for reasons other thanfraud or to provide ratings would go beyond what the proposed regulations allow and subject the portals to regulation under the Investment Advisers Act. Ibrahim has the right solution, but it’s going to require congressional action to get there.

Abstract of the Paper

Here’s the full abstract of Professor Ibrahim’s article:

Angel investors and venture capitalists (VCs) have funded Google, Facebook, and virtually every technological success of the last thirty years. These investors operate in tight geographic networks which mitigates uncertainty, information asymmetry, and agency costs both pre- and post-investment. It follows, then, that a major concern with equity crowdfunding is that the very thing touted about it – the democratization of investing through the Internet – also eliminates the tight knit geographic communities that have made angels and VCs successful.
Despite this foundational concern, entrepreneurial finance’s move to cyberspace is inevitable. This Article examines online investing both descriptively and normatively by tackling Titles II and III of the JOBS Act of 2012 in turn. Title II allows startups to generally solicit accredited investors for the first time; Title III will allow for full-blown equity crowdfunding to unaccredited investors when implemented.

I first show that Title II is proving successful because it more closely resembles traditional angel investing than some new paradigm of entrepreneurial finance. Title II platforms are simply taking advantage of the Internet to reduce the transaction costs of traditional angel operations and add passive angels to their networks at a low cost.

Title III, on the other hand, will represent a true equity crowdfunding situation and thus a paradigm shift in entrepreneurial finance. Despite initial concerns that only low-quality startups and investors will use Title III, I argue that there are good reasons why Title III could attract high-quality participants as well. The key question will be whether high-quality startups can signal themselves as such to avoid the classic “lemons” problem. I contend that harnessing the wisdom of crowds and redefining Title III”s “funding portals” to serve as reputational intermediaries are two ways to avoid the lemons problem.

It’s definitely worth reading.

Andrew Schwartz at the University of Colorado is also working on a paper that addresses the problems of uncertainty, information asymmetry, and agency costs in Title III crowdfunding. I have read the draft and it’s also very good, but it’s not yet publicly available. I will let you know when it is.

March 2, 2015 in C. Steven Bradford, Corporate Finance, Entrepreneurship, Joan Heminway, Securities Regulation | Permalink | Comments (0)

Sunday, March 1, 2015


The following comes to us from J. Scott Colesanti and Mandy Li Weiner:

    To a degree large or moderate, New York shall soon be at the vanguard of Bitcoin regulation. Since last July, observers have been asked to witness the shotgun marriage of the coin of no realm and a daunting state licensing measure; to date, no vows have been taken.

    The initial proposal from the Department of Financial Services was truly bold and far-reaching. Eschewing a classification of Bitcoin itself, the Department took aim at parties doing business with State residents by issuing, buying/selling, converting or storing the notorious cryptocurrency (and other, similar virtual currencies). Such entities and operators would have been required to register for the popularly dubbed "Bitlicense" at an indeterminate cost.

The requirements attending the proposed Bitlicense were rich and varied. Traditional State consumer protection provisions focused on customer complaints and record keeping. More novel provisions seemingly borrowed from securities law authorities on business continuity planning and anti-money laundering programs, and from sister State warnings regarding cryptocurrencies as investments. Consequentially, New York's broad, multi-layered protocol would have closed the door of entry to an appreciable number of businesses and startups, as well as related enterprises.

Not surprisingly, last Fall, there emerged on the Internet (albeit in piecemeal fashion) a consistent chorus of domestic, interstate, and international objections. That commentary, from parties including conversion sites and start-up companies, voiced concerns ranging from infringement of free speech to niche resentment at measures designed for financial intermediaries. Meanwhile, support for the initial proposal in the form of public comment letters was hard to locate. And, among federal authorities, only FinCEN has to date directly addressed the question of regulating the ersatz currency.

    Still a Shotgun Marriage

Complicating matters is the continuing bad press attached to Bitcoin. Another round of mishaps at conversion exchanges in the past year highlighted issues ranging from questionable marketing to cybersecurity. Other States evidence both the carrot and the stick in the inevitable march towards rules governing the persistent cash alternative. California is considering a measure to coronate the online currency with legal status. Conversely, Missouri voiced its concerns via a June 2014 enforcement action that faulted a company for inadequate disclosures about virtual currencies in general. Concurrently, Congress is entertaining Bills that would shield Bitcoin exchangers from State regulation altogether. The one consistent truth is that supporters of the cryptocurrency seem to have established a daily Internet presence. Here, again, New York has seized the opportunity for regulatory arbitrage: In January, a spokesperson from DFS felt compelled to correct the statement by exchanger/storage repository Coinbase that it had been the first licensed Bitcoin exchange in a plethora of states including New York (no licenses have as yet been issued).

Interestingly, DFS Superintendant Lawsky himself has acknowledged that "The [proposed] rules also generally mirror the types of requirements that other banks, financial institutions, and money transmitters have to live by – with some alterations owing to the unique nature of virtual currencies." Yet the tension among interests appears to be growing, and New York officials no doubt find their efforts pausing to balance the State's heightened interest in protecting consumers (and extinguishing untrustworthy companies) while permitting industry creativity and innovation to flourish. Accordingly, the revised DFS regulation continues to grapple with the dual aims of a stringent standard and enough wiggle room to account for dynamic regulatory and entrepreneurial fields.

    The Main Course

Thus, the revised legislation retains many of the original provisions, but it also attempts to appease more parties. For example, Bitlicensees are held to slightly less record-keeping and anti-money laundering protocols.

The price for the Bitlicense has been mercifully capped at $5,000. And the definitional section now makes equally clear that software development and "merchant" payment activities will often be exempt. But the grandest largess takes the form of a 2-year conditional license (granted at the "sole discretion" of the Superintendant), a variation expressly designed for "an applicant that does not satisfy all of the regulatory requirements upon licensing."

Additionally, third parties have benefitted from the revisions: The revised regulations clarify that certain software developers, "miners" (i.e., creators of Bitcoin), those offering customer loyalty programs, rewards (such as airline vouchers) and gift cards are not required to obtain a Bitlicense.

To be sure, the 2015 changes to the 2014 proposal exemplify a newfound DFS responsiveness to the concern of the crossroads of the technology and finance that is virtual currency. However, pure capitalists should note: Even in amended form, the proposal contains substantial costs attending requirements of cash reserves, quarterly reporting, the employ of cybersecurity employees, business continuity planning, transaction records and consumer disclosures. Further, some new obligations have been added – most notably, the requirement that the surety trust account for customers be maintained with a "qualified custodian" (i.e., a banking entity approved by the DFS). The next round of comments should reveal whether the Department's revised approach has achieved meaningful supervision of the industry without concurrently extinguishing some of the characteristics that make virtual currency attractive in the first place.

The revised regulations, which are available at, are presently subject to a 30-day comment period. The union of registration and innovation will likely not be decided until late 2015. By borrowing from expansive notions found in securities law and long arm statutes, the seminal State law with the decidedly federal twist will, of course, garner national attention. With objections to strict regulation ranging from Congress to IT developers, wedding guests from both sides of the aisle are still advised to hold onto their receipts.

Mandy Li Weiner, Hofstra University School of Law Class of 2017, is a Business Law Honors Concentration Fellow.

Professor J. Scott Colesanti, a former industry regulator and arbitrator, has taught Securities Regulation at Hofstra since 2002. His 2014 study of the potential application of the securities laws to Bitcoin exchanges is available on SSRN.

March 1, 2015 | Permalink | Comments (0)

Saturday, February 28, 2015

A Collection of Silly Business News

This seems to have been a great week for business stories with a touch of the absurd.

First up, we have's fantastic catch in Goldman's 10-K.  Apparently, Goldman now has a new risk factor:

[O]ur businesses ultimately rely on human beings as our greatest resource, and from time-to-time, they make mistakes that are not always caught immediately by our technological processes or by our other procedures which are intended to prevent and detect such errors. These can include calculation errors, mistakes in addressing emails, errors in software development or implementation, or simple errors in judgment. We strive to eliminate such human errors through training, supervision, technology and by redundant processes and controls. Human errors, even if promptly discovered and remediated, can result in material losses and liabilities for the firm.

We can only speculate as to what specific, as-yet-undisclosed, human error prompted this disclosure, but if I had to make a bet, my money would be on an email address auto-fill mistake that is now the subject of some behind-the-scenes settlement discussions, the details of which will only come to light if negotiations fail and a public lawsuit is filed.

Next up, we have a Hunger-Games inspired video created by Morgan Stanley for its branch managers' meeting.  The 10-minute long video depicts branch managers forced to compete to the death to maintain their positions.  Apparently, Morgan Stanley shelved the video (which cost $100K to produce) out of concern that it displayed a certain callousness towards the actual real life people who were losing their jobs.  So, now, of course, to demonstrate its sensitivity, Morgan Stanley has launched an internal investigation to discover the identity of the person who leaked the video.

Also, the Supreme Court decided Yates v. United States, concerning whether the disposal of undersized fish counted as the destruction of a tangible object intended to impede a federal investigation, in violation of the Sarbanes-Oxley Act.   The Court held that it did not.  Others have explored the implications of Yates for Obamacare and the case against Dzhokhar Tsarnaev's friends, but I'm far more interested in the headlines the case inspired, including In Overturning Conviction, Supreme Court Says Fish Are Not Always Tangible, Supreme Court: One Fish Two Fish Red Fish Blue Fish (a reference to Justice Kagan's dissent, which cited Dr. Seuss), Fisherman let off the hook in U.S. white-collar crime ruling, High Court SOX Fish Ruling Cuts Hole In Prosecutors’ Net, Supreme Court Throws Prosecutors Overboard in Fisherman Case, Supreme Court tosses ‘fishy’ conviction of Florida fisherman into the drink, and my personal favorite, Cortez case: Small fish, wide net.

Last but not least, the dress may be blue - but it's been nothing but green for the British retailer that sells it. (BuzzFeed didn't do so badly, either; it had to increase its server capacity by 40% to handle dress-related traffic.)

February 28, 2015 in Ann Lipton | Permalink | Comments (0)

Friday, February 27, 2015

Teaching Grit

I've enjoyed getting to know a bit about University of Pennsylvania Psychology Professor Angela Duckworth's work on "grit." Duckworth and her co-authors call grit "perseverance and passion for long-term goals," and they claim that grit can be predictive of certain types of success.  

Can we, as educators, teach grit? If so, how? Duckworth asks, but doesn't fully answer these questions in her popular TED talk. She does, however, think Stanford Psychology Professor Carol Dweck's work on growth mindset, which I wrote about a few months ago, offers the most hope.

Do readers have any thoughts on this subject? Feel free to leave a comment or e-mail me your thoughts.

February 27, 2015 in Business School, Haskell Murray, Law School, Teaching | Permalink | Comments (0)

Thursday, February 26, 2015

Markets and Boycotts Part 2

Last week, I posted about Walmart’s ballyhooed wage hike and asked whether boycotts and activism actually work. Apparently, the President was so impressed that he called the company’s CEO to thank him. Some Walmart workers, however, aren’t as pleased because without more hours, they still can’t make ends meet. Nonetheless, TJX, the parent company of retailers TJ Maxx and Home Goods announced yesterday that its employees would also receive a pay raise. Is this altruism? Have the retail giants caved to pressure?

As some commented on the blog last week and to me privately, it’s more likely that these megaretailers have implemented these “pro-employee” moves to reduce turnover, raise morale, and most important compete in a tightening job market. But one LinkedIn commenter from Australia believes that boycotts in general can work, stating:

My experience with having organised boycotts is that they work, but they take time. They create the conditions for public awareness of corporate activities, and put pressure on the company to change. They are effectively the 'bad cop' of civil society pressure. Consequently, they do not work on their own, requiring also the 'good cop' - civil society organisations and market conditions that allow the subject of the boycott to shift behaviour. Market conditions include a broader 'meta boycott' in which companies needing access to supply chains must change because supply chains have changed, only accepting product that is acceptable to CSOs (the 'good' CSOs, who have certification programmes, and other initiatives for the company to opt for. If you are looking for a case study of these conditions, I suggest you follow the Tasmanian forest industry debate in Australia. Here, an entire industry was worn down after years of boycotts, market campaigns, and demands from purchasers for FSC certified product only. The fascinating addendum to this case study is the state government (and the Federal government, unsuccessfully), are still advocating behaviours that not even the companies want. They want to sign the 'peace deal' and the government(s) are trying to prolong the 'war' - for political, election-related issues. All this indicates that boycotts do not work in isolation, and if they do they are less likely to work. 

Investors too are putting pressure on companies. Just yesterday, a group of 60 investors with four trillion in assets under management called for companies to do more for workers' human rights, including wages. Because I study business and human rights with a special emphasis on labor issues, I will wait to see what happens with all of this pressure. I will also monitor the share price, shareholder proposals, and whether there is any evidence that consumers reward Walmart and TJX for their better treatment of workers.  

February 26, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Entrepreneurship Resources - Startup Stash


Via an Ethan Mollick (Wharton) tweet, I was recently introduced to Startup Stash.

Startup Stash is a beautifully simple set of curated resources for entrepreneurs. The categories of resources range from Naming to Hosting to Market Research to Marketing to Legal to Human Resources to Finance. And more.

As a law professor, I was obviously most curious about the legal resources. The list has the controversial and well-known Legal Zoom, but also has some relatively unknown resources. For example, UpCounsel ("get high-quality legal services from top business attorneys at reasonable rates") was new to me. You can see the full list of legal resources here.

As previously stated, the Startup Stash list is curated, so there are only 10 legal resources, all of which look interesting, if also potentially dangerous for those without legal training. As I tell my business students, an ounce of prevention is worth a pound of cure and consulting with a knowledgeable attorney early in the start-up process can be invaluable. 

February 26, 2015 in Business Associations, Entrepreneurship, Haskell Murray, Web/Tech | Permalink | Comments (0)

Tuesday, February 24, 2015

Proposed Fiduciary Duties for Retirement Investment Advisers and Brokers

On Monday the White House released a report on The Effects of Conflicted Investment Advise on Retirement Savings which highlights the unique constraints of many retirement investors.  The current "suitable" investment advise standard leaves room for financial service provides to channel retirement investors into investments with higher fees paid by the investor but higher commissions earned by the professional.  Higher fees paid on investments can reduce the return on savings an average of 12% over the life of the retirement account.  In other words, paying less in fees could mean that retirement savings could last an average of an additional 5 years.  This has major implications for individual financial stability as well as our national retirement policy, which is increasingly dependent upon self-directed retirement savings in the form of 401(k)s and IRAs.

To reduce the conflict of interest and lessen the likelihood that retirement investors will "select" higher-fee investment vehicles based on the self-interested advise of financial services providers, the White House is asking the Department of Labor to impose a fiduciary duty standard requiring the advise provided to be consistent with the best interests of the investor.  This is such an intuitive position that many investors think that financial advisers and brokers are already subject to this requirement.  The proposal would bring the legal reality and enforceable duty in line with the public perspective.  This is not to say that there won't be significant opposition from financial services providers who argue that the industry is already highly regulated.

The announcement and the focus on both retirement investors and the impact of fees on retirement savings is of particular interest to me.  I have written three law review articles on related topics.  

  • Citizen Shareholders and Modernizing the Agency Paradigm (2012) articulates the ways in which retirement investors (I call them Citizen Shareholders) are different from traditional corporate law shareholders;
  • The Retirement Revolution (2013) describes how the fundamental shift in the retirement landscape imposed additional risks onto the retirement investors; and 
  • The Outside Investor (2014) explores how the intersection of corporate law and ERISA standards leave many retirement investors exposed to additional market risks rather than intuitive guess that these investors would be more protected.

-Anne Tucker

February 24, 2015 in Business Associations, Anne Tucker, Corporations, Financial Markets | Permalink | Comments (0)

Breaking News: Obama Vetoes Keystone XL

President Obama just vetoed the bill approving construction of the Keystone XL pipeline.  The President has said the veto is not about the value of the pipeline, but that it represents the President's view the pipeline should not go around the State Department evaluation process. 

The veto comes at a time when oil transportation is a increasingly an area of concern, especially in light of recent rail accidents in Quebec and West Virginia.  I was recently part of a news story discussing the rail safety concerns in my part of country -- here -- and pipeline transportation tends to be much safer for human safety, though it raises other environmental concerns.

It's not clear whether Keystone XL would be built any time soon, in light of low oil prices, but the veto will certainly keep people talking.  More on this soon.  

February 24, 2015 in Corporations, Current Affairs, Joshua P. Fershee, Law and Economics | Permalink | Comments (0)

SEC Chair's Recusals Due to Lawyer-Husband

The New York Times has an interesting article today about SEC Chair Mary Jo White. Her husband is a partner at Cravath, Swaine, & Moore, so she has to recuse herself from any cases, enforcement actions, or investigations involving the firm's clients. The Times claims that the resulting 2-2 split has given the Republican commissioners a little more control over some settlements than they otherwise would have had.

February 24, 2015 in C. Steven Bradford, Securities Regulation | Permalink | Comments (0)

Berkeley Business Law Fellow Position Listing

This just in from Steven Davidoff Solomon:

Berkeley is looking to fill a one-year (possibly w/renewal) research fellowship position at the Berkeley Center for Law, Business, and the Economy.  Looks like  great opportunity for some of our readers.  Early applications are encouraged, so get right on it!


February 24, 2015 | Permalink | Comments (0)

Monday, February 23, 2015

Collins "C.J." Seitz, Jr. Nominated to the Delaware Supreme Court


The Chancery Daily reports that Governor Markell has nominated Collins "C.J." Seitz, Jr. to the Delaware Supreme Court. The January 31, 2015 retirement of Justice Henry duPont Ridgely created the vacancy.

C.J. Seitz, Jr. has over thirty years of corporate/commercial/IP litigation experience and is a respected, influential member of the Delaware bar. He has also served as mediator, arbitrator, or special master in numerous cases.  He currently serves as a founding partner of Seitz Ross Aronstam & Moritz LLP.

February 23, 2015 in Business Associations, Delaware, Haskell Murray | Permalink | Comments (0)

Benefit Corporations: What am I Missing--Seriously?

I serve on the Tennessee Bar Association Business Entity Study Committee (BESC) and Business Law Section Executive Committee (mouthfuls, but accurately descriptive).  The BESC was originated to vet proposed changes to business entity statutes in Tennessee.  It was initially populated by members of the Business Law Section and the Tax Law Section, although it's evolved to mostly include members of the former with help from the latter.  The Executive Committee of the Business Law Section reviews the work of the BESC before Tennessee Bar Association leadership takes action.

Just about every legislative session of late, these committees of the Tennessee Bar Association have been asked to review proposed legislation on benefit corporations (termed variously depending on the sponsors).  A review request for a bill proposed for adoption for this session recently came in.  Since I serve on both committees, I get to see these proposed bills all the time.  So far, the proposals have pretty much tracked the B Lab model from a substantive perspective, as tailored to Tennessee law.  To date, we have advised the Tennessee Bar Association that we do not favor this proposed legislation.  Set forth below is a summary of the rationale I usually give.

Continue reading

February 23, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (14)

Ernest Hemingway on Legal Writing

I’m a big fan of Ernest Hemingway. I love his writing style. I’m currently rereading all of his novels, and I ran across a quote that I think every lawyer and law professor should read and take to heart.

I don’t think Hemingway was a fan of lawyers. The only lengthy portrayal of a lawyer in his fiction is in To Have and Have Not, and that lawyer is a crooked, double-crossing sleaze. I’m reasonably sure he never wrote or said anything specifically about legal writing. But the following passage from The Garden of Eden captures the essence of good legal writing:

Be careful, he said to himself, it is all very well for you to write simply and the simpler the better. But do not start to think so damned simply. Know how complicated it is and then state it simply.

No legal writing instructor could have said it better than Papa.

February 23, 2015 in Books, C. Steven Bradford | Permalink | Comments (2)

Sunday, February 22, 2015

ICYMI: Tweets From the Week (Feb. 22, 2015)

February 22, 2015 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, February 21, 2015

New Evidence on the Short-Termism Debate?

One of the enduring debates in corporate law concerns whether shareholder empowerment promotes short-termism - i.e., temporary boosts in stock prices that can only be achieved at the expense of longer-term value-building projects, like research and development.  Related to this debate is the argument - championed by, among others, Margaret Blair and Lynn Stout - that directors cannot/should not be solely concerned with shareholder wealth maximization; instead, their role is to mediate among various firm stakeholders.  This is because a firm cannot thrive unless it offers a credible commitment to its employees and other corporate constituents  that they will not be ousted the moment it appears profitable to do so.  In other words, in order to induce employees and other stakeholders to invest valuable human capital in the firm, these actors must believe that the firm is committed to them - that shareholders are barred from, for example, insisting on downsizings or outsourcings or what-have-you the moment it appears that doing so will create a share price bump. 

Martijn Cremers and Simone Sepe weigh in on this debate in a new paper, Whither Delaware? Limited Commitment and the Financial Value of Corporate Law(summarized here), where they conclude that protections for incumbent management - in the form of strong antitakeover statutes - are associated with higher firm values, in firms where long-term commitment is particularly necessary for profitability.  In particular, they classify Delaware as a state where antitakeover protections are not strong, and find that incorporation in Delaware reduces firm value for companies that rely on long-term relationships, as compared to states where antitakeover protections are stronger.  The basic idea here is that when management is insulated from shareholder pressures and the market for corporate control, management can more credibly commit to longer term projects and relationships that may not be immediately profitable.

The findings are, of course, extremely interesting and merit further analysis, but I have some difficulty with the premise that underlies their study, namely, that Delaware's antitakeover protections are weaker than those in the comparator states.  Most obviously, one of the ways that the study classifies a state as "managerial" is if it has a business combination statute that prohibits transactions between an acquirer and target for 5 years.  While it's true that Delaware's antitakeover statute is not quite as draconian - Delaware prohibits combinations for only 3 years as opposed to 5, and can be avoided if the acquirer increases its holdings from under 15% of the target to 85% in a single tender offer - the reality is, as has been documented elsewhere, Delaware's antitakeover law is more than sufficient to block hostile acquisitions. 

Given that, antitakeover statutes that are even more extreme than Delaware's because they include a 5 year limitation instead of a 3 year one are gilding the lily;  it's  not clear why firms incorporated in those states should offer any more of a credible commitment to long-term stakeholders than firms incorporated in Delaware.  And by my count, the study classifies 10 states as "managerial" based solely on this criterion, including New York and New Jersey.*

Additionally, the study is based on an analysis of firm value before and after reincorporation - in and out of Delaware, or in and out of the comparator states.  But most reincorporations are associated with particular transactions that can be expected to affect firm value (a point which has been used to criticize post-reincorporation-value studies in the past, as Cremers and Sepe acknowledge in their paper).  So I have to wonder whether there are some other factors that are driving the reincorporations and the selection of jurisdiction, and those other factors are having the observed effect.


*32 states have business combination statutes along these lines, making it even more unlikely that the 10 states identified as "managerial" according to this criterion (i.e., based on the 5 year rather than 3 year limit) actually offer any special signaling value regarding management's long-term commitments.

February 21, 2015 in Ann Lipton | Permalink | Comments (0)

Friday, February 20, 2015

Bentley University - Full-time Law Lecturer Position


Bentley University in Waltham, MA has recently posted information about an open full-time law lecturer position.

More information about the position is available here.

February 20, 2015 in Business School, Haskell Murray, Jobs | Permalink | Comments (0)

Did Wal-Mart Prove Me Wrong? Do Boycotts Work?

I have just finished a draft of an article arguing that disclosures don’t work because consumers and investors don’t read them, can’t understand them, don't take any real action when they do pay attention to them, and fail to change corporate behavior when they do threaten boycott. I specifically pointed out the relative lack of success of consumer protests over the years. I also noted that Wal-Mart continues to get bad press for how it treats its employees despite the fact the Norwegian Pension Fund divested hundreds of millions of dollars due to the company’s labor practices, prompting other governments and cities to follow. My thesis—it takes a lot more than divestment and threats of boycott to change company behavior. But perhaps I’m wrong. Yesterday, Wal-Mart CEO Doug McMillon announced a significant wage increase declaring:

We’re strengthening investments in our people to engage and inspire them to deliver superior customer experiences… We will earn the trust of all Walmart stakeholders by operating great retail businesses, ensuring world-class compliance, and doing good in the world through social and environmental programs in our communities.

The letter to Wal-Mart associates is here. I don’t know which was more striking, the $1 billion dollar move to $9 and then eventually $10 per hour or the fact that he used the word “stakeholders.” Wal-Mart also announced changes that would affect health insurance and shift scheduling, but the main headline concerned the wage hike. Main Street may be happy but Wall Street was not, and the stock price fell after the announcement. Others pointed out that the pay raise is still not enough to pull workers out of poverty.

Does this move mean that boycotts and advocacy really do work and that we will see more of them? Do I have to edit my article or will this be an anomaly? Will other big retailers or fast food chains follow? Will socially responsible investors reinvest in Wal-Mart? Is Wal-Mart trying to pre-empt government regulation on the minimum wage? Is Wal-Mart signaling to regulators in foreign countries that it cares about workers so should be allowed to operate there more freely? 

I will be teaching a course in transnational business and international human rights in the Fall and Wal-Mart will be a case study. A few years ago, I used the company’s CSR report in my corporate governance, compliance, and social responsibility seminar.  I asked the students to consider why Wal-Mart’s report looked and felt so different from Target’s, which essentially has many of the same labor issues. I wanted them to think about the marketing behind CSR from a reputational and regulatory perspective. I posited that Wal-Mart’s CSR report was written for regulators. Two weeks later, the company announced its massive and still ongoing bribery investigation. I’m happy for the workers but a bit curious as to what caused the company to make this announcement now. In the meantime, I will be watching the reaction from advocates, the markets, and other companies closely.  

February 20, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, International Business, Marcia Narine, Teaching | Permalink | Comments (3)

Moultrie on Legal Employment

Joan Heminway and I must be thinking similar thoughts because before I even saw her helpful post on business law jobs, I asked my former research assistant Samuel Moultrie to share his thoughts and advice on finding legal employment in this economic environment.

Sam is one of the hardest workers I know and took his job search seriously. He also took a big risk by going beyond the typical employers we had recruiting on campus when we were at Regent Law – mostly non-profits, government agencies, and a few VA and NC law firms. Sam wanted to practice in the state that has the greatest influence on U.S. corporate law and has made it happen. His journey was not and is not easy, but I thought his story might be inspiring. Recently, Sam was also selected as a 2015 Leadership Delaware Fellow. Sam’s thoughts on finding legal employment are reproduced below. 


By: Samuel L. Moultrie

The job market for recent law school graduates is, without a doubt, miserable.  While the statistics seem to vary, I think it is safe to say that the supply of new law school graduates exceeds the number of legal job openings.  Nevertheless, graduates should not lose all hope.  Any law school graduate can find a job, if they are motivated, willing to work hard, and take steps to distinguish themselves. 

[More after the break]

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February 20, 2015 in Business Associations, Delaware, Haskell Murray, Jobs | Permalink | Comments (0)

Wednesday, February 18, 2015

Updated Social Enterprise Map

My colleague at Georgia State, Cass Brewer, posted on SOCENT (social enterprise) Law, an update to his incredibly useful social enterprise map.  On this blog and in other fora, I have discussed with many of you teaching BA whether you cover social enterprises and, if so, to what extent.  This is a great resource if you do anything in the area.  

How cool is this?


-Anne Tucker

February 18, 2015 in Business Associations, Anne Tucker, Social Enterprise | Permalink | Comments (0)

GSU Low Income Taxpayer Clinic Faculty Recruitment

Georgia State University College of Law located in Atlanta, Georgia is recruiting for a new faculty member to join the Phillip C. Cook Low Income Taxpayer Clinic.    As leadership in the clinic are looking to transition the new hire will likely serve as the Director of the clinic given the experience level of the candidate.  The clinic is funded by the IRS, private donors and the university so it is a secure job line.  We are posting this announcement out of cycle and the position will remain open until filled which means that recruitment may likely extend through next fall. The Committee is interested in lateral applicants, those pursuing training in clinical education and individuals with significant tax practice experience who may be new to clinical teaching.  The job posting is available here

-Anne Tucker

February 18, 2015 | Permalink | Comments (0)