Monday, October 5, 2015
The authors of the business associations casebook I use have, in their latest edition, reprinted some of the relevant statutes in the casebook. One section of the Revised Uniform Partnership Act even appears twice within a span of only eight pages. (I don't mean citations to statutes; I mean the full language of the statute.)
The authors of the book I use (which shall remain nameless) are not alone. I’ve also seen this practice in other casebooks.
I just don’t get it.
I can understand putting a few statutes or regulations in a casebook if the students are only going to look at a couple of sections in the course. It eliminates the need for students to purchase a separate statutory supplement.
But it makes no sense in courses like Business Associations or Securities Regulation, where students will be looking at dozens, even hundreds, of pages of statutory and regulatory material. The students in those courses will still have to buy a statute book; including some of the same statutory material in the casebook just increases the size (and cost) of the casebook.
Including statutory material can also accelerate the casebook’s obsolescence. Some of the sections included come from uniform and model acts, which aren’t likely to change rapidly. But the book includes a number of selections from Delaware and other states. We all know that Delaware almost never changes its business associations statutes. (Stifled chuckle here.) What am I supposed to do next year if the statute changes? Tell my students to cross out the material?
My apologies for the rant, but this is one of a number of things these authors have done in their latest edition that really bug me. I may soon be accepting my co-blogger Joan Heminway’s invitation to try the B.A. book she co-authors. (I hope you don’t reproduce any statutory material, Joan.)
If I'm wrong, and there's a legitimate justification for this, I'd be happy to eat my words, but I just don't see the point.
Sunday, October 4, 2015
"The Case Against The Roberts Court: A Decade of Justice Undone" http://t.co/nWJ1k0LBEv— Stefan Padfield (@ProfPadfield) September 28, 2015
"two trends which are politically induced and reinforce income inequality" https://t.co/jt6Mmzh76m— Stefan Padfield (@ProfPadfield) October 1, 2015
Saturday, October 3, 2015
Yesterday, the Delaware Supreme Court held that plaintiffs had pled demand excusal under Aronson v. Lewis due in part to a director's "close friendship of over half a century with the interested party," in combination with that director's business relationship with the interested party.
Del. County Emples. Ret. Fund v. Sanchez involves a public company that is 16% owned by the Sanchez family. The plaintiffs challenged a transaction in which the company paid $78 million to a privately-held entity owned by the Sanchezes, ostensibly to purchase certain properties and fund a joint venture. The question, then, was whether plaintiffs could show that a majority of the Board was not independent, and because the Sanchezes themselves occupied 2 of the 5 seats, all eyes were on one additional Board member, Alan Jackson.
Alan Jackson, it turned out, had been close friends with the Senior Sanchez for "more than five decades," and the Delaware Supreme Court deemed this fact worthy of of judicial notice. Thus, in a heartwarming passage, the Court noted that though it had previously held in Beam v. Stewart, 845 A.2d 1040 (Del. 2004), that a "thin social-circle friendship" is not sufficient to excuse demand, "we did not suggest that deeper human friendships could not exist that would have the effect of compromising a director's independence....Close friendships [that last half a century] are likely considered precious by many people, and are rare. People drift apart for many reasons, and when a close relationship endures for that long, a pleading stage inference arises that it is important to the parties."
Lest it be accused of being too emotional, however, the Court was careful not to end its analysis there. Instead, it also noted that Jackson and his brother worked for another company over which the Senior Sanchez had substantial influence, and which counted the Sanchez entities as important clients.
With its tender recognition of the value of "human relationships" thus bolstered by the realer concerns of economics, the Court concluded that the plaintiffs had raised a reasonable doubt that Jackson was independent of the Sanchezes, and excused demand.
I realize it's only a baby step, but has the Snow Queen's heart begun to thaw?
In all seriousness, I do find this significant to the extent it suggests that Delaware may be trying to find some room in its caselaw for recognizing what we all know to be true, namely, that personal ties among directors may substantially influence their decisionmaking. I mean, I don't expect any radical new recognition of structural bias, but this decision could herald a more realistic approach to evaluating the impact of informal personal relationships. Or it could just be a one-off due to the extraordinary facts - we'll have to see what future cases bring.
I do note, however, that one of the more interesting aspects of the opinion is the Court's observation that a Section 220 demand is unlikely to yield results for plaintiffs who allege that personal, rather than professional, ties compromise a director's judgment. I expect that's going to get some play in plaintiffs' briefing for a while.
Friday, October 2, 2015
Unfortunately, touting a business as socially-consious does not seem to lessen the chance of scandal.
Some companies known for their commitment to social causes have been in the news for all the wrong reasons. A few are noted below:
- BP's Deepwater Horizon oil spill
- Plum Organics (a Delaware Public Benefit Corp.) baby food recall
- Whole Food's pricing scandal involving mislabeling weights of food and the company's layoffs
- Volkswagen's emission scandal
Predictably, the media latches onto these stories and claims of hypocrisy fly. See, e.g., Here's The Joke Of A Sustainability Report That VW Put Out Last Year and Whole Foods Sales Sour After Price Scandal and BP's Hypocrisy Problems.
No business is perfect, so what should social businesses do to limit the impact of these scandals? First, before a scandal hits, I think social businesses need to be candid about the fact that they are not perfect. Second, after the scandal, the social business needs to take responsibility and take significant corrective action beyond what is legally required.
Patagonia's founder does a really nice job of admitting the imperfection of his company and the struggles they face in his book The Responsible Company. Whole Foods supposedly offered somewhat above-market severance packages to laid off employees and took some corrective action in the price scandal, but I wonder if they went far enough, especially given the lofty praise for the company's social initiatives by the Whole Food's co-CEO in his book Conscious Capitalism. Whole Foods quickly admitted mistakes in the pricing scandal, but then lost points in my mind when they backtracked and claimed they were a victim of the media.
Even if social businesses take the appropriate steps, I think scandals probably hit them harder than the average business because social businesses have more customer goodwill at risk. I would love to see some empirical work on impact of scandal on social business as compared to those that do not market themselves as such; please pass any such studies my way.
Today I will present on a panel with colleagues that spent a week with me this summer in Guatemala meeting with indigenous peoples, village elders, NGOs, union leaders, the local arm of the Chamber of Commerce, a major law firm, government officials, human rights defenders, and those who had been victimized by mining companies. My talk concerns the role of corporate social responsibility in Guatemala, but I will also discuss the complex symbiotic relationship between state and non-state actors in weak states that are rich in resources but poor in governance. I plan to use two companies as case studies.
The first corporate citizen, REPSA (part of the Olmeca firm), is a Guatemalan company that produces African palm oil. This oil is used in health and beauty products, ice cream, and biofuels, and because it causes massive deforestation and displacement of indigenous peoples it is also itself the subject of labeling legislation in the EU. REPSA is a signatory of the UN Global Compact, the world's largest CSR initiative. Despite its CSR credentials, some have linked REPSA with the assassination last month of a professor and activist who had publicly protested against the company's alleged pollution of rivers with pesticides. The "ecocide," that spread for hundreds of kilometers, caused 23 species of fish and 21 species of animals to die suddenly and made the water unsafe to drink. REPSA has denied all wrongdoing and has pledged full cooperation with authorities in the murder investigation. The murder occurred outside of a local court the day after the court ordered the closing of a REPSA factory. On the same day of the murder other human rights defenders were also allegedly kidnaped by REPSA operatives although they were later released. Guatemala's government is reportedly one of the most corrupt in the world-- the President resigned a few weeks ago and went to jail amidst a corruption scandal-- and thus it is no surprise that the government has allegedly done little to investigate either the ecocide or the murder.
The other case study concerns Tahoe, a Canadian mining company with a US subsidiary that used private security forces who shot seven protestors. Tahoe is facing trial in a Canadian court, a case that is being watched worldwide by the NGO community. Interestingly, the company's corporate social responsibility and the board's implementation are indirectly at issue in the case. Tahoe feels so strongly about CSR that it has a CSR blog and quarterly report online touting its implementation of international CSR standards, including its compliance with the UN Guiding Principles on Business and Human Rights, the Voluntary Principles on Security and Human Rights, the Equator Principles (related to risk management for project finance in social risk projects), the IFC Performance Standards and a host of other initiatives related to grievance mechanisms for those seeking an access to remedy for human rights abuses. Tahoe is in fact a member of the CSR Committee of the International Bar Association. Nonetheless, despite these laudable achievements, none of the families that my colleagues and I met with in the mining town mentioned any of this nor talked about the "Cup of Coffee With the Mine" program promoted in the CSR report. Of course, it's possible that Tahoe has made significant reforms since the 2013 shootings and if so, then it should be applauded, but the families we met in June did not appear to give the company much credit. Instead they talked about the birth defects that their children have and the fact that they and their crops often go for days without water. They may not know the statistic, but some of the mining processes use the same amount of water in one hour that a family of four would use in 20 years.
Of note, the Guatemalan government only requires a 1% royalty for the minerals mined in the country rather than the 30% that other countries require, although legislation is pending to change this. Guatemala also provides its police and military as guards for the mines to protect the Canadian company from its own citizens. Guatemala probably helps shore up security because even though 98% of the local citizens voted against the mine, the mine commenced operations anyway despite both international and Guatemalan human rights law that requires free, prior, and informed consent (see here).
Given this turmoil, perhaps it was actually the more risky climate of mining in Guatemala that caused Goldcorp to sell a 26% stake in Tahoe earlier this year rather than the stated goal of focusing on core assets. Norway's pension fund had already divested in January due to Tahoe's human rights record in Guatemala. Maybe these investors hadn't read the impressive Tahoe CSR report. With the background provided above, my abstract for my book chapter and today's talk is below. I welcome your thoughts in the comment section or by email at firstname.lastname@example.org.
North Americans and Europeans have come to expect even small and medium sized enterprises to engage in some sort of corporate social responsibility (“CSR”). Large companies regularly market their CSR programs in advertising and recruitment efforts, and indeed over twenty countries require companies to publicly report on their environmental, social and governance (“ESG”) efforts. Definitions differ, but some examples may be instructive for this Chapter. For example, the Danish government, which mandates ESG reporting, defines CSR as “considerations for human rights, societal, environmental and climate conditions as well as combatting corruption in … business strategy and corporate activities.” The United States government, which focuses on responsible business conduct, has explained, “CSR entails conduct consistent with applicable laws and internationally recognised standards. Based on the idea that you can do well while doing no harm, RBC is 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.”
Business must not only have a legal license to operate in a country, they must also have a social license. In other words, the community members, employees, government officials, and those affected by the corporate activities—the stakeholders—must believe that the business is legitimate. It is no longer enough to merely be legally allowed to conduct business. Corporate social responsibility activities can thus often add a veneer of “legitimacy.”
With this in mind, what role does business play in society in general and in a country as complex as Guatemala in particular? Guatemalan citizens, including over two dozen different indigenous groups, have gone from fighting a bloody 36-year civil war to fighting corrupt leadership that often appears to put the interests of local and multinational businesses above that of the people. For example, although the Canadian Trade Commission has an office with resources related to CSR in Guatemala, some of the most egregious allegations of human rights abuses relate to mining companies from that country. Similarly, many of the multinationals that proudly publish CSR reports and even use the buzzwords “social license” in slick videos on their websites are the same corporations accused in lawsuits by human rights and environmental defenders. How do these multinationals reconcile these acts? How and when will consumers and socially-responsible investors hold corporations accountable for these acts? Is the Guatemalan government abdicating its responsibility to its own people or is the government in fact complicit with the multinationals? And finally, do foreign governments bear any responsibility for the acts of multinationals acting abroad? This chapter will explore this continuum from corporate social responsibility to corporate accountability using the case study of Guatemala in general and the extractive and palm oil industries in particular.
October 2, 2015 in Commercial Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Litigation, Marcia Narine | Permalink | Comments (0)
Thursday, October 1, 2015
The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference - Chicago, IL - April 2016
Currently, I am planning to attend the MALSB Annual Conference in Chicago this coming April. The conference is described by the organizers below. While ALSB regional meetings like this one are usually attended mostly by legal studies professors in business schools, I am told that the conference is open to all.
The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference is held in conjunction with the MBAA International Conference, long billed as “The Best Conference Value in America.”
The MBAA International Conference draws hundreds of academics and practitioners from business-related fields such as accounting, business/society/government, economics, entrepreneurship, finance, health administration, information systems, international business, management, and marketing. Although the MALSB will have its own program track on legal studies, attendees will be able to take advantage of the multidisciplinary nature of this international conference and attend sessions held by the other program tracks.
[More details are available under the break.]
Last night, I took my husband (part of his birthday present) to see The Illusionists, a touring Broadway production featuring seven masters of illusion doing a three-night run in Knoxville this week. I admit to a fascination for magic shows and the like, an interest my husband shares. I really enjoyed the production and recommend it to those with similar interests.
At the show last night, however, something unusual happened. I ended up in the show. I made an egg reappear and had my watch pilfered by one of the illusionists. It was pretty cool. After the show, I got kudos for my performance in the ladies room, on the street, and in the local gelato place.
But I admit that as I thought about the way I had been tricked--by sleight of hand--into performing for the audience and allowing my watch to be taken, I realized that these illusionists have something in common with Ponzi schemers and the like--each finds a patsy who can believe and suckers that person into parting with something of value based on that belief. That's precisely what I wanted to blog about today anyway--scammers. Life has a funny way of making these kinds of connections . . . .
So, I am briefly posting today about a type of affinity fraud that really troubles me--affinity fraud in which a lawyer defrauds a client. Most of us who teach business law have had to teach, in Business Associations or a course on professional responsibility, cases involving lawyers who, e.g., abscond with client funds or deceive clients out of money or property. I always find that these cases provide important, if difficult, teaching moments: I want the students to understand the applicable law of the case, but I also want them to understand the gravity of the situation when a lawyer breaches that all-important bond of trust with a client.
Wednesday, September 30, 2015
I recently learned, via e-mail, that Albany Law School has a number of open positions that may interest our readers. The positions, and links to the postings, are provided below:
- Associate Dean for Strategic Initiatives and Information Systems
- Tenure-Track Position in Commercial Law
- Tenure-Track Position in Tax and Transactions Clinic
- Visiting or Contract Faculty Position-Business Transactions and Entrepreneurship
- Visiting or Contract Faculty Position-Patents/Technology Transfer, Innovation and Entrepreneurship
In prior BLPB posts (here and here), I have written about the proposed Department of Labor fiduciary rules changing the ERISA fiduciary definition to cover anyone who provides investment advice for a fee. Under the current framework only registered Investment Advisers are fiduciaries, not broker-dealers. This bifurcated legal standards and payment systems has led to confusion among the public and there is evidence that it has also cost retirement savings as a result of conflicted advice. The proposed rules were released in April 2015 and the comment period was extended through September 2015. The DOL received over 2800 comments and held 4 days of public hearing (transcripts available here) on the proposed changes. Earlier this month, the House held 2 committee hearings on H.R. 1090, the Retail Investor Protection Act, introduced by Rep. Ann Wagner (R-Mo) last February which would require the DOL to postpone its rule making until after the SEC issued it own standards on fiduciary duties-- something the SEC is unlikely to do. The House Financial Services Committee hearing transcript on the continued debate is available here.
The University of Kentucky College of Law recently posted an announcement of their professor opening in the commercial and business law areas.
My updated list of law schools hiring in the business law area is here.
My updated list of non-law schools (mostly business schools) hiring law professors is here.
Tuesday, September 29, 2015
The ABA has recommend amendment of 28 U.S.C. § 1332 through Resolution 103B, which
urges Congress to amend 28 U.S.C. § 1332, to provide that any unincorporated business entity shall, for diversity jurisdiction purposes, be deemed a citizen of its state of organization and the state where the entity maintains its principal places of business.
I'm on record as saying a legislative fix is how this should happen because I don't think courts should read "incorporated" in the act to include any entities other than corporations. I still believe that. However, I have come up with an argument that supports the idea in a way I had not thought of. I still disagree with the idea of a court adding entities other than corporations to 1332 absent legislative action, so I disagree with what follows, but I thought of an interesting argument that I almost find compelling , so I am putting it out there anyway.
In Hobby Lobby decision, Justice Alito stated:
No known understanding of the term "person" includes some but not all corporations. The term "person" sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations.
The decision continues:
Under the Dictionary Act, "the wor[d] 'person' . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals."
Section 1332 provides district courts jurisdiction over "citizens of different States," and citizens are people. Now, citizen is likely intended to mean natural persons, but 1332 says "a corporation shall be deemed to be a citizen of every State." So entities can be citizens. And citizens are people. And the Dictionary Act says LLCs are people, so one could argue that 1332's corporations clause is intended to include like entities.
I still think that's wrong, but I admit it is a better argument than some I have heard.
Monday, September 28, 2015
I detest bad legal writing. (I detest bad writing of all kinds, but this is a law blog, so I’ll limit my rant to legal writing.) I don’t like to read it and I hate it when I (sometimes?) write it. I’m not a great writer, but I appreciate lawyers and legal scholars who can write clear, concise prose. Unfortunately, although writing is an essential element of legal practice, many lawyers do not write well.
If you care about legal writing, and you should, the Scribes Journal of Legal Writing recently published a short piece you might want to read: Legal-Writing Myths, by Judge Gerald Lebovits.
I knew after reading the first paragraph that I was going to like Judge Lebovits’s article. His first sentence rejects the prohibition on beginning a sentence with a conjunction. His second sentence rejects the prohibition on ending a sentence with a preposition. And [remember his first sentence?] his third sentence rejects the prohibition on splitting infinitives.
I was not disappointed as I read the rest of the article. In just a few pages, Judge Lebovits artfully rebuts ten myths of legal writing.
My favorite myths:
- “Writing a lengthy brief is harder and takes more time than writing a short one.”
- “Good legal writers rarely need time to edit between drafts.”
Check it out. It’s definitely worth reading. Judge Lebovits has written a number of other interesting articles on legal writing. You can find many of them here.
Sunday, September 27, 2015
"Piketty argues that the internal dynamics of capitalism ensure that wealth will concentrate" https://t.co/jsBdxRwVTy— Stefan Padfield (@ProfPadfield) September 21, 2015
"Trade groups representing pharmaceutical and biotech companies oppose letting Americans buy drugs overseas" http://t.co/AdD1RP3Cbc— Stefan Padfield (@ProfPadfield) September 22, 2015
ICYMI: "Bar Exam Scores Drop to Their Lowest Point in Decades" http://t.co/sMq4sygiCB— Stefan Padfield (@ProfPadfield) September 22, 2015
Has "our veneration of...'free market'...masked the power of moneyed interests to tilt the market to their benefit"? http://t.co/i354ib2c3o— Stefan Padfield (@ProfPadfield) September 27, 2015
Saturday, September 26, 2015
I've been thinking a lot about the way technology can influence the path of the law - in terms of both judging and scholarship.
For example, the introduction of electronic legal databases like Westlaw has almost certainly changed how judges function. They may be more reliant on clerks today than they used to be, because the sheer accessibility of so much relevant case information requires assistance to sift through. I also wonder if precedent - rather than inductive or explicitly policy-based reasoning - has become more important (or is at least given greater emphasis) because of the ease with which earlier caselaw can be located.
Over at Prawfs, they're discussing Judge Posner and the ethics of independent judicial factual research - something that technology has made far easier for judges to do.
Here at BizLawProf, we've talked about the relevance of law reviews in a world where SSRN can make articles immediately available (not to mention a world where law professors can, you know, umm, blog).
A number of law professors post articles to SSRN that aren't articles so much as they are a form of advocacy - legal briefs, after a fashion, intended to sway a deliberations on a particular issue under judicial or political consideration, in situations where an amicus brief may not be procedurally appropriate or possible. (And sometimes professors just post straight-up legal briefs). Such postings could herald a shift in the law professors' role - or at least a shift in emphasis - by allowing professors to influence policy outside of traditional channels.
But there's another aspect of SSRN's technology that I think may turn out to be critically influential in the long run.
Every morning I have email delivered to my inbox that tells me about new postings in a variety of areas related to corporate and securities regulation. And of those articles, about half come from law professors - and the other half come from business professors. High theory articles are presented to me side by side with in-the-weeds empirical analysis of how slight changes in, say, CEO compensation packages result in slight changes in shareholder returns or discretionary accruals.
This mode of presentation, I think, is necessarily destined to influence legal scholarship - notwithstanding the laments of those who think the academy has gone too far in the direction of "law and." The architecture of SSRN - and its method of categorizing articles by general subject and without regard for field, method, or source - represents a nonneutral argument about what scholars should be thinking about, should be considering, when they conduct their research. And it will be interesting to see where that ultimately takes us.
Friday, September 25, 2015
The 2015 American Bar Association LLC Institute will be held November 12-13 in Arlington, Virginia. I’m speaking this year (on LLC dissolution with Carter Bishop and Doug Moll and on a panel hashing out issues at the intersection of LLC [operating] agreements and contract law), and have attended/spoken at several earlier Institutes. The complete program is available on Tom Rutledge’s blog.
If you would like to attend this year and need information on how to get registered, you can reach out to Tom (Thomas.email@example.com) and he will get you whatever you need. Tom is very user-friendly and an amazing colleague, if you haven't yet met him. He is particularly adept (among his many talents) at bringing the law academy and the law practice community together in productive ways. The LLC Institute is a great example.
Also, if you are working on issues relating to LLC law or are considering wading into those waters, be thinking about program ideas for future Institutes. Planning for the 2016 LLC Institute already is underway. Many of the sessions at the Institute focus or are based on the scholarship of law academics on LLCs and other unincorporated business associations. For example, at the 2014 LLC Institute, programs centered on articles written by our business law colleagues Benjamin Means and Colin Marks. The LLC Institute is a great environment (comprising academics and high-level, focused practitioners) in which to exchange ideas. I highly recommend it.
Regular readers of this blog know that I have chastised the SEC on several occasions for its lengthy delay in adopting rules to implement the exemption for crowdfunded securities offerings. (It has now been 1,268 days since the President signed the bill, 998 days past the statutory rulemaking deadline, and 702 days since the SEC proposed the rules.)
The long wait may soon be over. According to BNA, SEC Chair Mary Jo White said yesterday that the SEC will finish adopt its crowdfunding rules in the "very near term."
I don't know exactly what "very near term" means to a government official. Given my luck, it probably means immediately prior to the two crowdfunding presentations I'm scheduled to give in October. Nothing like a little last-minute juggling to keep me on my toes.
Stephen Choi (NYU), Jill Fisch (Penn), Marcel Kahan (NYU), and Ed Rock (Penn) have posted an interesting new paper entitled Does Majority Voting Improve Board Accountability?
The authors report the dramatic increase in majority voting provisions. In 2006, only 16% of the S&P 500 companies used majority voting, but by January of 2014, over 90% of the S&P 500 companies had adopted some form of majority voting. (pg. 6). As of 2012, 52% of mid-cap companies and 19% of small-cap companies had adopted majority voting provisions. (pg. 7)
For the most part, the spread of majority voting has not led to significant reduction in election of nominated directors. In over 24,000 director nominations from 2007 to 2013, at companies with majority voting provisions, "only eight (0.033%) [nominees] failed to receive a majority of 'for' votes." (pg.4)
The authors claim that their "most dramatic finding is":
a substantial difference between early and later adopters of majority voting. The early adopters of majority voting appear to be more shareholder-responsive than other firms. These firms seem to have adopted majority voting voluntarily, and the adoption of majority voting has made little difference in shareholder-responsiveness going forward. By contrast, later adopters, as a group, seem to have adopted majority voting only semi-voluntarily. Among this group, majority voting seems to have led to more shareholder-responsive behavior. (pg. 2)
As the authors suggest, their article "highlights the importance of segregating early and later adopters of the [corporate governance] innovations, because the reasons for and the effects of adoption may differ systematically between these groups." (pg. 44)
Thursday, September 24, 2015
Last week I blogged about the Yates Memorandum, in which the DOJ announced that any company that expected leniency in corporate deals would need to sacrfice a corporate executive for prosecution. VW has been unusually public in its mea culpas apologizing for its wrongdoing in its emission scandal this week. VW’s German CEO has resigned, the US CEO is expected to resign tomorrow, and other executives are expected to follow.
It will be interesting to see whether any VW executives will serve as the first test case under the new less kind, less gentle DOJ. Selfishly, I’m hoping for a juicy shareholder derivatives suit by the time I get to that chapter to share with my business associations students. That may not be too far fetched given the number of suits the company already faces.
This comes to us courtesy of Rachel Ezrol at Emory Law:
A Vulnerability and the Human Condition Initiative & Feminism and Legal Theory Workshop Project
A Workshop on Vulnerability at the Intersection of the Changing Firm and the Changing Family
When: October 16-17, 2015
Where: Emory University School of Law
Registration is FREE for Emory students, faculty, and staff.
From the Call for Papers:
Theories of dependency situate the limitations that attend the caregiving role in the construction of the relationship between work and family. The “worker,” defined without reference to family responsibilities, becomes capable of autonomy, self-sufficiency, and responsibility through stable, full-time employment. The privatized family, created by the union of spouses, is celebrated in terms of a self-sufficient ideal that addresses dependency within its own ranks, often through the gendered assumptions regarding responsibility for caretaking. The feminist project has long critiqued these arrangements as they enshrine the inequality that follows as natural and inevitable and cloak the burdens of caretaking from examination or critique. The interpenetrations of the family and the firm have thus been understood as both multiple and wide-ranging. Both this system and the feminist critique of it, however, are associated with the construction of wage labor that arose with industrialization. This workshop will apply the lens of vulnerability to consider the implications that arise from large scale changes in the structure of employment - changes that place this prior ideal of stable self-sufficiency beyond the reach of much of the population.
Issues For Discussion May Include:
This workshop will use vulnerability theory to explore the implications of the changing structure of employment and business organizations in the information age. In considering these changes, we ask in particular:
- How does the changing relationship between employment and the family, and particularly the disappearance of the breadwinner capable of earning a stable “family wage,” affect our understanding of the family and its association with care and dependency?
- How does the changing structure of employment and business organization affect possibilities for reform? What should be the role of a responsive state in directing these shifting flows of capital and care?
- How might a conception of the vulnerable subject help our analysis of the changing nature of the firm? What relationships does it bring into relief?
- What kind of legal subject is the business organization? Are there relevant distinctions among business and corporate forms in regard to understanding both vulnerability and the need for resilience?
- How are business organizations vulnerable? The family? Have these vulnerabilities shifted over time, and what forms of resilience are available for both institutions to respond to new economic realities?
- What, if any, should be the role of international and transnational organizations in a neoliberal era? What is their role in building both human and institutional resilience?
- Is corporate philanthropy an adequate response to the retraction of state regulation? What forms of resilience should be regulated and which should be left to the ‘free market’?
- How does the Supreme Court's willingness to assign rights to corporate persons (Citizen's United, Hobby Lobby), affect workers, customers and communities? The relationship between public and private arenas?
Program Coordinator | Emory University School of Law
1301 Clifton Road | Atlanta, GA 30322 | Room G500 Gambrell Hall
404-712-2420 (t) | 404-727-1973 (f)
Vulnerability and the Human Condition Initiative
Feminism and Legal Theory Project
Wednesday, September 23, 2015
Yesterday (September 22, 2015) the SEC announced proposed rules regarding mutual funds and ETFs aimed at regulating liquidity and redemption risks as well as enhancing disclosures. Included in the 400+ pages of proposed rules and analysis, the SEC focused on swing pricing, a practice to mitigate the impact of forward pricing required under Rule 22c-1 of the Investment Company Act. Before this feels too in the weeds of securities law, let’s discuss what this means. Funds are required to redeem shareholders’ interests at NAV (net asset value pricing), when faced with redemption requests by shareholders wanting to exit the fund. The fund then sells assets to pay the NAV to the departing shareholder or keeps a certain pool of assets liquid to meet such requests. The costs of these trades or lost investment cost of the liquid assets are born by the shareholders who remain in the funds. Additionally, shareholders who purchase new shares of the fund, do so at the daily NAV, which doesn’t reflect the liquidity cost imposed by the departing shareholders. Similarly, when the fund receives the investment of new shareholders, the fund invests that money, but the purchase price NAV does not reflect the trading cost of when the fund purchases new portfolio assets. Consider these helpful examples from the proposed rules:
If a fund has valued portfolio asset X at $10 at the beginning of day 1, and market activity on day 1 (including the fund’s sale of portfolio asset X) decreases the market value of portfolio asset X to $9 at the end of day 1, the fund’s remaining holdings of portfolio asset X at the end of day 1 would be valued at $9 to reflect the asset’s market value on that day. However, staff outreach has shown that it is common industry practice, as permitted by rule 2a-4, for the fund’s current NAV to not reflect the actual price at which the fund has sold the portfolio assets until the next business day following the sale. In the example above, if the fund selling portfolio asset X sold the asset during the day at $8 on day 1, the price that the fund received for these asset sales would not be reflected in the fund’s NAV until day 2. Thus, redeeming shareholders would have received an exit price that would reflect portfolio asset X being valued at the close of the market at $9 on day 1, whereas remaining shareholders would hold shares on day 2 whose value reflects portfolio asset X being sold at $8 (the actual price that the fund received when it sold the asset on day one).
Similarly, as noted above, the price that a purchasing shareholder pays for fund shares normally does not take into account trading and market impact costs that arise when the fund buys portfolio assets to invest the proceeds received from shareholder purchases. ….. the fund’s NAV on day 1 (and the purchase price an incoming shareholder were to receive on day 1) reflects portfolio asset X being valued at $10, but the fund were to purchase additional shares of portfolio asset X on day 2 at $11, the price that a purchasing shareholder pays on day 1 would not reflect the costs of investing the proceeds of the shareholder’s purchases of fund shares. These costs instead would be reflected in the fund’s NAV on days following the shareholder’s purchase, and thus would be borne by all of the investors in the fund, not only the shareholders who purchased on day 1. p.186-187
Shareholders who exit mutual funds pay for none of these transaction costs and entering shareholders only pay a fraction of them. Who foots the long-term bill? The existing fund shareholders do. I wrote about this feature of mutual fund investment here on BLPB last December when I was thinking about the impact of mutual fund investment features on long-term shareholders like retirement and 529 College Plan investors—investors I refer to as Citizen Shareholders in my scholarship.
To address these transaction costs the SEC proposed rule 22c-1(a)(3) to allow for partial swing pricing (not mandating it) when redemptions and purchases exceed a certain threshold. In addition to enhancing the NAV’s reflection of the true value of the fund, swing pricing may deter first mover advantage incentives to redeem shares early in negative liquidity stress. To understand more about liquidity and redemption risks, you can also read the accompanying White Paper from the Division of Economic and Risk Analysis: Liquidity and Flows of U.S. Mutual Funds.
The Commission is seeking comments on the proposed partial swing pricing (and other rule amendment). These changes are proposed in conjunction with other liquidity management tools and disclosure enhancements, features that I hope to highlight here on BLPB in future posts.
For those of you interested in securities laws, this post requires no further explanation or introduction. For readers more concerned with traditional corporate governance, the proposed rules should be of interest to you as well. These rules signal an increased focus by the SEC on mutual funds and ETFs regarding pricing, risk management, and disclosure. Institutional investors wield tremendous voting power and financial clout in public companies-- pressures imposed on these investors will be felt secondarily by the operating companies whose stock is held by these funds. If there was ever a meaningful distinction between corporate governance and securities, those boundary lines are under increasing pressure in light of institutional investor ownership trends.
Finally, let me just say that after a long hiatus from blogging....it is good to be back.