Saturday, March 8, 2014
On Wednesday, the Supreme Court heard oral arguments in Halliburton Co. v. Erica P. John Fund, Inc., 13-317 (Halliburton II), where it was being urged to overturn, or curtail, the fraud on the market presumption approved in Basic, Inc. v. Levinson (1988). Judging by the transcript, and as numerous reports indicated, it seems as though the Justices were attracted to the idea of tweaking Basic to require that plaintiffs prove the “market impact” of a particular false statement. Most surprisingly, although this was the fallback position urged by the defendants, it was also endorsed by Malcolm Stewart of the Solicitor General’s office, who was nominally arguing on the plaintiff’s side. Though one can never tell what will happen in the end, it does seem like this may be the direction in which the Court is headed – and if so, it could have significant implications for fraud-on-the-market cases in the future.
[More under the cut]
Friday, March 7, 2014
Most professors I know are asked some version of the title question by their students on a relatively regular basis.
- Will this be on the exam?
- Will this in-class exercise be graded?
- Will we get extra credit for this outside event you recommended?
When I was a student I may have asked some of these same questions, and as a professor, I gladly answer these questions. For some reason, however, I have a silent, negative visceral reaction to these questions, and I know many other professors who feel similarly.
This week, with my family on spring break in North Carolina, I have been pondering why I have such a negative reaction. I think my reaction is not because there is anything inherently wrong with the questions, but because I desperately want my students to understand that, ultimately, our classes are (or should be) about something much more important than just a grade. A grade should approximate the level of mastery and the components of the grade should be as clear as possible, but many of the things that students should be developing -- critical thinking, intellectual curiosity, compassion, perseverance, professionalism, ethics, etc. -- are difficult to fully capture in a grade.
As I pondered my reaction to the student questions, I realized that many professors ask a similar question:
- Does it count for promotion and tenure?
Better for us to ask if our teaching, research and service is positively affecting our students, our colleagues, and society in general.
Directors and officers of public corporations also tend to ask a similar question:
- How does it affect earnings per share?
Better for directors and officers to ask if the corporation is contributing to human flourishing. See Professor Scott Pryor’s recent post (and the embedded links, especially this one) for some additional thoughts on corporate purpose. For the record, my post from earlier today was meant to be a descriptive, not normative.
We all know, I think, that there are bigger, deeper, more important questions that we should ask, but the bullet-pointed questions above capture a large percentage of our attention. At least part of the reason these items often attract myopic focus is because the subject matter is relatively easy to quantify. Something in us loves to measure and compare accomplishments.
Recently, I nominated a mentor of mine for a lifetime achievement award. She has spent over 35 years of her life as a professor, and she is one of the people who helped me break into this academic world that I love. In my nomination letter I wrote that she is the type of professor who gives of her time “even when she has no reason to expect recognition or another line on her resume.”
Like my mentor does, I hope that my students and I will focus our attention on the most important issues, even if we cannot fully capture the results of our efforts on a report card, resume, or spreadsheet.
Are the directors of Hobby Lobby and Conestoga Wood breaching their fiduciary duties by challenging the contraceptive mandate, seemingly without serious regard to the financial consequences?
Mark Underberg says “perhaps”.
Stephen Bainbridge says “no”.
Professor Bainbridge focuses on the facts that both Hobby Lobby and Conestoga Woods are family-owned, closely-held corporations, and that Conestoga Woods is incorporated under Pennsylvania law, which has a nonshareholder constituency statute. I am not going to jump into their disagreement directly, but, instead, will use a story I saw about Apple to extend the conversation.
Unlike Hobby Lobby and Conestoga Woods, Apple is a publicly-traded, California corporation. California does not have a constituency statute. Recently, Apple CEO and director, Tim Cook, discussed the company’s commitment to the environment, the blind, and making the world a better place. Cook supposedly told investors:
If you want me to do things only for ROI reasons, you should get out of this stock.
More forcefully, Cook said:
When we work on making our devices accessible by the blind, I don’t consider the bloody ROI.
In Cook’s first statement, he seems to be saying that ROI is one of the reasons (just not the only reason) Apple makes decisions. This appears to be a perfectly acceptable statement for a director in the day-to-day decision-making process to make. Could, however, Apple’s board of directors properly completely disregard ROI, as Cook’s second statement suggests?
While Apple is a California corporation, many states take their cues from Delaware on issues of corporate law. Two-former Delaware Chancellors, one of whom is the new Chief Justice of the Delaware Supreme Court, have reiterated the importance of considering shareholder value, at least for directors of Delaware corporations.
In eBay v. Newmark, former-Chancellor William Chandler stated that:
Having chosen a for-profit corporate form, the Craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.
In a similar vein, Chief Justice Leo Strine has written that:
[A]s a matter of corporate law, the object of the corporation is to produce profits for the stockholders…. the social beliefs of the managers, no more than their own financial interests, cannot be their end in managing the corporation.
(I note that a number of academics think the former-Chancellors' focus on shareholders is misplaced).
How much leeway does corporate law provide directors in focusing on non-shareholder interests? One might convincingly argue that even directors of public, Delaware-corporations are likely to avoid liability if they can make an argument that the decision could (possibly) lead to long-term value for the shareholders. Making such an argument would be relatively easy for Apple – likeminded customers, shareholders, and employees may become more committed to Apple following Apple's society-focused decisions. These likeminded shareholders may buy more shares and sue less frequently. Customers may buy more Apple products and goodwill may increase. Employee turnover may be reduced. All of this may increase profitability in the long-term. While a court is unlikely to challenge such an argument from Apple’s directors, is the argument an honest one? Are Apple's directors really making those decisions with a focus on profitability?
Could Apple’s directors argue, without fear of liability, that they made the society-focused decisions simply because it was the right thing to do, and openly admit that they knew that shareholders were going to suffer in both the short and long-term? I am not sure they could, and I believe that it is that uncertainty in traditional corporate law that benefit corporation statutes attempt to address. (Granted, I admit that the current benefit corporation statutes are far from perfect.)
Update: Professor Bainbridge posted a reply. Thanks to him for the detailed response, and I agree with much of what he writes. To clarify, my point was not about the likelihood of a breach, but rather the possibility of a breach. Also, while I appreciate the protection of the business judgment rule and the Shlensky v. Wrigley case, I think my hypthetical is different than Shelensky. In my hypothetical, the directors openly admit that nonshareholders were the focus of the decision and that shareholders would be hurt in the short and long run. While the court in Shlensky generously provided reasons for why not adding stadium lights might help the Cubs in the long run, I don't remember any direct statements by the defendants about shareholders being purposefully ignored.
Granted, my hypothetical might be a bit far-fetched. Any director with good attorneys may be able to just keep silent or mention the possible long-term benefits of their decisions. That said, in both Dodge v. Ford and eBay v. Newmark, the defendants seemed to insist on telling the court that they were not focused on the shareholders. Some egos may have been involved. I know some professors (such as Professor Gordon Smith) think the rules in those two cases are regulated to closely-held corporations, and while I am not convinced that the general rules are so limited, I do note that the chance of a majority of a public company board openly admiting that shareholder interests were ignored is extremely close to zero.
In the end, I agree with Professor Bainbridge that a breach is highly unlikely, but that Cook "would have been wise to be more temperate in his remarks." Where Professor Bainbridge and I may part company is that I maintain that there is a possibility of a breach if the directors (of a corporation incorporated in a state without a constituency statute) openly admit completely disregarding shareholder interests.
I previously mentioned a conference on crowdfunding being held at the University of Cincinnati on March 28, and promised to provide a link to the conference announcement when it became available. It’s here.
This should be an interesting conference; some of the leading experts on securities crowdfunding are going to be speaking. And it's not just academics; the list of speakers includes practitioners, regulators, and people from the crowdfunding industry. (I’m speaking, but you can take a coffee break to avoid that.)
If you can't make it to Cincinnati, the conference will also be webcast. Of course, you'll miss out on that weird chili and spaghetti concoction that people in Cincinnati eat.
Thursday, March 6, 2014
This week in Lawson v. FMR, LLC the Supreme Court extended the reach of Sarbanes-Oxley to potentially millions more employers when it ruled that SOX's whistleblower protection applies to employees of private employers that contract with publicly-traded companies. In 2002, Congress enacted SOX with whistleblower protection provisions containing civil and criminal penalties. The law clearly protects whistleblowers who work for publicly-held companies, and courts have generally ruled against employees who work for privately-held firms. But the Department of Labor’s Administrative Review Board has ruled that contractors at public companies enjoy whistleblower protection as well. The Supreme Court agreed with that assessment, with Justice Ginsburg writing for the majority. The dissent, written by Justice Sotomayor, noted the "stunning reach" based on the majority's interpretation and opined that the extension was not what Congress intended. The plaintiffs in Lawson did not work for Fidelity, but were contracted to provide advice to Fidelity Mutual Fund customers. Plaintiffs voiced concerns to management regarding problems with cost-accounting methodologies and the alleged improper retention of millions of dollars in fees. Because Fidelity has no employees of its own, it was not a party to the suit.
This development will likely be among the many that the Whistleblower Protection Advisory Committee will discuss at our meeting next week. I sit on a 12-person committee comprised of management, labor and the public for a two-year term, and we are reviewing two dozen laws that OSHA enforces to protect employees. SOX is just one of the financial laws covered by OSHA for whistleblower purposes. Although the comment/question period for the committee meeting is officially closed, those who want to submit comments or questions can still do so through http://www.regulations.gov. The meeting is open to the public on March 11th from 9 a.m. - 5 p.m. in Room N-3437 A-C, U.S. Department of Labor, 200 Constitution Ave., NW, Washington, DC 20210
Some law professors may remember when Justices Roberts and Kennedy opined on the value legal scholarship. Justice Roberts indicated in an interview that law professors spend too much time writing long law review articles about “obscure” topics. Justice Kennedy discussed the value he derives from reading blog posts by professors who write about certs granted and opinions issued. I have no doubt that most law students don’t look at law review articles unless they absolutely have to and I know that when I was a practicing lawyer both as outside counsel and as in house counsel, I almost never relied upon them. If I was dealing with a cutting-edge issue, I looked to bar journals, blog posts and case law unless I had to review legislative history.
As a new academic, I enjoy reading law review articles regularly and I read blog posts all the time. I know that outside counsel read blogs too, in part because now they’re also blogging and because sometimes counsel will email me to ask about a blog post. I encourage my students to follow bloggers and to learn the skill because one day they may need to blog for their own firms or for their employers.
Blogging provides a number of benefits for me. First, I can get ideas out in minutes rather than months via the student-edited law review process. This allows me to get feedback on works/ideas in progress. Second, it forces me to read other people’s scholarship or musings on topics that are outside of my research areas. Third, reading blogs often provides me with current and sophisticated material for my business associations and civil procedure courses. At times I assign posts from bloggers that are debating a hot topic (Hobby Lobby for example). When we discuss the Basic v. Levinson case I can look to the many blog posts discussing the Halliburton case to provide current perspective.
But as I quickly learned, not everyone in the academy is a fan of blogging. Most schools do not count it as scholarship, although some consider it service. Anyone who considers blogging should understand her school’s culture. For me the benefits outweigh the detriment. Like Justice Kennedy, I’m a fan of professors who blog. In no particular order, here are the mostly non-law firm blogs I check somewhat regularly (apologies in advance if I left some out):
http://www.theconglomerate.org/ (thanks again for giving me first opportunity to blog a few months into my academic career!)
http://law.wvu.edu/the_business_of_human_rights (currently on a short hiatus)
I would welcome any suggestions of must-reads.
March 6, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Marcia L. Narine, Merger & Acquisitions, Securities Regulation, Social Enterprise, Teaching, Unincorporated Entities, Weblogs | Permalink | Comments (2)
Wednesday, March 5, 2014
St. Thomas Symposium: Beyond Crisis Driven Regulation, Initiatives for Sustainable Financial Regulation
The University of St. Thomas Law Journal hosts its spring symposium on April 11, 2014 on the issue of Sustainable Financial Regulation. Registration is available here, and the the list of speakers is top-notch including Roberta Romano, Steven Schwarcz, Eric Gerding, Richard Painter, Claire Hill and Jennifer Taub. Kudos to Wulf Kaal, a fellow corporate law professor at St. Thomas, for putting together a very promising panel on experts.
Tuesday, March 4, 2014
West Virginia University has a new LLM program in Energy & Sustainable Development Law. At the moment, the program is open only to those with a U.S. law degree. The degree program capitalizes on a wide and deep range of expertise at WVU Law in a one of the nation's most energy-rich states. (Full bias disclosure: I direct the program.)
All students in the program are required to take both the Energy Law Survey and the Environmental Protection Law course. This is because we firmly believe that all lawyers connected to the energy sector need to have a firm grasp on both energy law issues and envirnonmental law issues. Both courses touch on each other's area, but having both courses as a base will lead to better prepared professionals, whether the graduate wants to work for industry, an NGO, or a regulator.
We also require some form of experiential learning, a portfolio of written work, and a Research Paper or Field-Work Project. Full details of the program are here. For this venue, and in my area of interest, I will note our business offerings. I teach my Energy Business: Law & Strategy course, details here, in addition to my Business Organizations course and the Energy Law Survey. We also have great variety of courses in energy law, environmental law, and sustainable development law.
In addition, we have a fellowship opportunity in the Land Use and Sustainable Development Clinic. This fellowship is a part-time (at least twenty hours per week), two-year position from August 2014 through July 2016. The Fellow will receive an annual stipend of $20,000 and tuition remission for the LL.M. program. The Fellow would take 6-7 credits per semester allowing time for part-time work at the Clinic. Details available here.
In a world where the Future of Business is the Future of Energy, this program is one option to consider.
Professor Greenfield argues that corporations can have a conscious, but that corporations should not use religion to avoid regulations -- and thus gain a competitive advantage -- "claims of religious conscience could liberate companies to become bad actors in the economy and society at large. Instead of sacrifice, corporate conscience could devolve to sacrilege."
In last week's post, I took a similar position in my post on Hobby Lobby, "More or Less?".
Monday, March 3, 2014
Business law has a broad overlap with tax, accounting, and finance. Just how much belongs in a law school course is often a challenge to determine. We all have different comfort levels and views on the issue, but incorporating some level of financial literacy is essential. Fortunately, a more detailed discussion of what to include and how to include it is forthcoming. Here's the call:
Call For Papers
AALS Section on Agency, Partnerships LLCs, and Unincorporated Associations
Bringing Numbers into Basic and Advanced Business Associations Courses: How and Why to Teach Accounting, Finance, and Tax
2015 AALS Annual Meeting Washington, DC
Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law. Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play. In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation. Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections. While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.
The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic of effectively incorporating accounting, tax, and finance into courses in the law of business associations. In addition to featuring several invited speakers, we seek speakers (and papers) to address this subject. Within the broad topic, we seek papers dealing with any aspect of incorporating accounting, tax, and finance into the pedagogy of basic or advanced business law courses.
Any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1 or 2-page proposal by May 1, 2014 (preferably by April 15, 2014). The Executive Committee will review all submissions and select two papers by May 15, 2014. A very polished draft must be submitted by November 1, 2014. The Executive Committee is exploring publication possibilities, but no commitment on that has been made. All submissions and inquiries should be directed to Jeff Lipshaw, Chair.
Jeffrey M. Lipshaw
Suffolk University Law School
Click here for contact info
What happens if short sellers of stock are unable to cover because no one has any shares to sell? That’s one of the many interesting issues in the new book, Harriman vs. Hill: Wall Street’s Great Railroad War, by Larry Haeg (University of Minnesota Press 2013). Haeg details the fight between Edward Henry Harriman, supported by Jacob Schiff of the Kuhn, Loeb firm, and James J. Hill, supported by J.P. Morgan (no biographical detail needed), for control of the Northern Pacific railroad. Harriman controlled the Union Pacific railroad and Hill controlled the Great Northern and Northern Pacific railroads. When Hill and Harriman both became interested in the Burlington Northern system and Burlington Northern refused to deal with Harriman, Harriman raised the stakes a level by pursuing control of Hill’s own Northern Pacific.
I’m embarrassed to admit that I wasn’t aware of either the Northern Pacific affair or the stock market panic it caused. I had heard of the Northern Securities antitrust case that grew out of the affair; I undoubtedly encountered it in my antitrust class in law school. (Everything the late, great antitrust scholar Phil Areeda said in that class is still burned into my brain.)
I’m happy I stumbled across this book, and I think you would enjoy it as well. Harriman vs. Hill has everything needed to interest a Business Law Prof reader: short selling; insider trading; securities fraud; a stock market panic; a hostile takeover; a historical antitrust case; and, of course, J. P. Morgan. This was a hostile takeover before hostile takeovers were cool (and before tender offers even existed, so the fight was pursued solely through market and off-market purchases).
The book does have a couple of shortcomings. One is a polemic at the end of the book against the antitrust prosecution. The antitrust case was clearly a political play by Theodore Roosevelt, and Haeg may be right that the railroads’ actions were economically defensible, but his discussion is a little too one-sided for my taste. Haeg also has a tendency to put thoughts into the characters’ minds (Hill might have been thinking . . .), but he only uses the device to add factual background, so it isn’t terribly offensive. Finally, Haeg occasionally gets the legal terminology wrong. For example, he refers to the railroad holding company “that the U.S. Supreme Court narrowly declared unconstitutional,” when what he means is that the court upheld the law outlawing the holding company. He only makes legal misstatements like that a couple of times, but those errors are very grating on a lawyer reading the book.
Still, in spite of those minor flaws, this is a very good book and I highly recommend it.
Sunday, March 2, 2014
A while back @FrankPasquale tweeted a link to a blog post by Eric Schwitzgebel that begins with the lines, "A central question of moral epistemology is, or should be: Am I a jerk? Until you figure that one out, you probably ought to be cautious in morally assessing others."
This post has kept popping into my mind since then, and so I thought I'd pass it on to BLPB readers. Personally, I believe part of living a healthy, balanced life includes trying to minimize the extent to which I am a jerk, and I have found the remainder of Schwitzgebel's post to be helpful in advancing that goal. Here's a bit more (but you should really go read the whole thing):
But how to know if you're a jerk? It's not obvious. Some jerks seem aware of their jerkitude, but most seem to lack self-knowledge. So can you rule out the possibility that you're one of those self-ignorant jerks? Maybe a general theory of jerks will help!
I'm inclined to think of the jerk as someone who fails to appropriately respect the individual perspectives of the people around him, treating them as tools or objects to be manipulated, or idiots to be dealt with, rather than as moral and epistemic peers with a variety of potentially valuable perspectives. The characteristic phenomenology of the jerk is "I'm important, and I'm surrounded by idiots!" However, the jerk needn't explicitly think that way, as long as his behavior and reactions fit the mold. Also, the jerk might regard other high-status people as important and regard people with manifestly superior knowledge as non-idiots.
To the jerk, the line of people in the post office is a mass of unimportant fools; it's a felt injustice that he must wait while they bumble around with their requests. To the jerk, the flight attendant is not an individual doing her best in a difficult job, but the most available face of the corporation he berates for trying to force him to hang up his phone. To the jerk, the people waiting to board the train are not a latticework of equals with interesting lives and valuable projects but rather stupid schmoes to be nudged and edged out and cut off. Students and employees are lazy complainers. Low-level staff are people who failed to achieve meaningful careers through their own incompetence who ought to take the scut work and clean up the messes. (If he is in a low-level position, it's a just a rung on the way up or a result of crimes against him.)
Inconveniencing others tends not to register in the jerk's mind....
Saturday, March 1, 2014
On Wednesday, the Supreme Court decided 7-2 that the victims of Allen Stanford’s Ponzi scheme could pursue state law class action claims against those who allegedly aided and abetted him (.pdf) – most notably, the law firms of Chadbourne & Park and Proskauer Rose. But the opinion still leaves several questions unanswered, and it’s impossible not to read Troice without trying to tea leaf the Justices’ inclinations in Halliburton.
[Read more after the jump]
Friday, February 28, 2014
Nowhere explodes with new life and color in the spring like the Pacific Northwest.This refreshment and inspiration is always matched by the supportive and fun atmosphere of the Pacific Northwest ALSB regional conference.
This year’s conference will be held on April 24-26, 2014 in Vancouver BC [pictured below]. We will start with a reception on Thursday evening, April 24th and end shortly after lunch on Saturday, April 26th. We promise the same low cost and friendly high value in what has deservedly become a favorite among ALSB regional academic meetings.
If you have any questions, please contact our program chair, Gail Lasprogata of Seattle University at firstname.lastname@example.org. Registration forms should be requested from, and submitted to, Gail.
We hope you will join us!
The previous posts for two other 2014 regional ALSB conferences:
The previous post for the 2014 national ALSB conference:
These conferences are the top regional and national conferences for legal studies professors in business schools, but I believe most are open to others as well.
Law Professor Jobs in Business Schools: Georgia Tech, University of Louisiana (Lafayette), and Indiana University (South Bend)
The business schools of Georgia Institute of Technology, University of Louisiana (Lafayette), and Indiana University (South Bend) have posted openings for legal studies positions.
I have ties to two of the schools. Wade Chumney (Georgia Tech) was in my position at Belmont University before I arrived and he provided me with great advice. Wade seems like he would be a wonderful legal studies colleague. University of Louisiana (Lafayette) was one of the (very few) schools to make me a tenure track offer when I was first on the market. The faculty at UL-L were wonderfully hospitable, and I was a big fan of the Cajun food, music, and culture. Plus, how many schools have a lake/swamp with (small) alligators in the middle of campus? Proximity to family was the deciding factor in my decision, and I highly recommend the school.
I don’t have any personal information about Indiana University (South Bend), but I think there is a lot of be said for the public education system.
All three of these positions are solid opportunities that our readers on the market may be interested in pursuing. Given the well-publicized challenges facing many law schools, it would not be surprising if many current law professors were among those looking at legal studies positions in business schools.
The information on these positions is after the break. Business school legal studies positions tend to be more poorly publicized than law school professor positions, and while I will try to post good positions to this website, if you are interested in teaching law in a business school, it might be worth the $30 (new member price) to join the Academy of Legal Studies in Business, view their job postings, and receive the e-mails.
Previously, I wrote about some of the differences I see in teaching at a business school and teaching at a law school.
[Position Details After the Break]
Thursday, February 27, 2014
Harvard Law School's Petrie-Flom Center: Research Positon for New Project with NFL Players Association
In connection with our work on a sponsored research project with the National Football League Players Association, the Petrie-Flom Center seeks to hire a Senior Law and Ethics Associate immediately. (Please note that this is a distinct position from the one we recently advertised working with Harvard Catalyst on clinical and translational research.)
We are seeking a full-time doctoral-level hire (J.D., M.D., Ph.D., etc. in law, ethics, public health, social science, or other relevant discipline) with extensive knowledge of and interest in legal and ethical issues related to the health and welfare of professional athletes. The position will be funded for at least two years, with renewal likely for an additional year or more.
View the full job description and apply here.
For questions, contact email@example.com or 617-496-4662.
Wednesday, February 26, 2014
As previously noted on this blog, 44 law professors filed an amicus brief in Sebelius v. Hobby Lobby Stores, Inc., outlining several corporate law issues in the arts-and-craft store chain’s request for a religious exemption from complying with contraceptive requirements in the Affordable Care Act. That brief prompted several responses and sparked a corporate law debate, which is being recapped and weighed in on at Business Law Prof Blog (see earlier thoughtful posts: here, here, and here by Stefan Padfield and Haskell Murray).
So what is at stake in this case? Religious exemptions for corporations. The role of benefit corporations and other hybrid, triple bottom line entities. The classic entity theory vs. aggregate theory debate of how do we treat the legal fiction of individuals acting through businesses and businesses acting, in part, on behalf of people. The role and future of Corporate Social Responsibility generally. Corporate personhood. Corporate constitutional rights. And existential questions like can corporations pray? You know, easy stuff.
CSR. Our laws set the floor; they establish the minimum that social actors must do and that other members in our society can expect to receive. Corporate social responsibility asks companies to do more than their minimum legal obligations and to do so for a host of reasons, some of which may be religious. The owners of Hobby Lobby can elect a corporate board that will authorize the company to donate to religious charities, to reimburse employees for religious expenses, to provide paid leave for mission trip, or to not operate on Sundays. (Who here hasn’t craved a chicken biscuit on a road trip only to realize that Chick-Fil-A is closed on Sunday? Just us in the south?). Under what I will call the standard state corporate law regime, corporations can take actions like increasing their use of renewable energy sources, implementing diversity programs for women and minorities, refusing to support tobacco products and other actions that are in line with CSR. Whether for religious or environmental or other conscience-driven reasons, a corporation may take these actions and the directors of the corporation (under whose governance the acts took place) are protected by the business judgment rule in the event that any shareholder challenges the program or expenditure as a form of waste or conflict of interest.
Benefit Corporations & Hybrid Entities. For companies incorporated in states with benefit corporate statutes or laws that recognize hybrid entities interested in seeking (but not always maximizing) profits and other goals, there is even greater protection. These entities contain provisions in their charters identifying their “other” purpose, the shareholders are on notice of the dual pursuit and the corporate actions are protected by statutes recognizing this charter-based exception to profit maximization. In the event a shareholder sues for waste or conflicts of interest, not only is the business judgment rule available to protect the corporate actors, but the validity of the corporate action is strengthened by the special legislation. [This in no way captures the full scope of benefit corporation and hybrid entity legislation, but this post is about religious exemptions for corporations, so please excuse the over simplification here.]
Hobby Lobby. The owners of Hobby Lobby are not asking to do more, rather they are asking to do less. Hobby Lobby want to provide less than the standards established in the Affordable Care Act, and less than their competitors will be required to provide. Who would complain if Hobby Lobby failed to comply with the ACA? The employees without access to contraceptive medicine, and the federal government. This isn’t about the business judgment rule and whether owners, acting through boards of directors, can run companies in line with their view of religious or social or environmental consciousness. This case asks can the religious beliefs of owners of a corporation entitle that corporation to do less under the law and as compared to their competitors. On these grounds, deciding against a religious based exemption for Hobby Lobby does no harm to CSR or benefit corporations.
The Hypothetical. If the privately held religious belief of owners can change legal obligations for corporate actors, this could pose a threat to the stability, reliability and uniformity of the floor that the law sets. Poking a hole in the floor for religious exemptions based upon the owners’ religious beliefs may seem like a small concession in the Hobby Lobby case. If religion is a means to opt-out of regulations and requirements, and if doing so could lower costs, shortcut compliance obligations and otherwise provide a competitive edge there will be robust incentives for businesses to claim such an exception in a likely wide array of issues.
The Horrible. The sacred ground of religion has long been an unhappy refuge for arguments in support of racial, gender, religious and sexual-orientation discrimination. Every major social movement that I can think of has met resistance shrouded in religious beliefs. The right for women to vote (and the continuing progress towards equality), desegregating schools, the Civil Rights Acts, and our most modern example: gay rights. Consider the law that the Arizona Legislature passed last week that would exempt businesses refusing to serve same-sex couples from civil liability on the grounds of a religious exemption. Substantially similar legislation is pending in Georgia.
Religion, if we have it, should call us to do more and to be better. As individuals, we may disagree about what “more” and “better” means. I have no doubt that the owners of Hobby Lobby believe that their stance on birth control is consistent with their view of “more” and “better”. As individuals, they can express that value in many ways. As owners of a corporation they can express those values by electing directors that will govern the company and possibly pursue corporate donations to abstinence charities, promote natural family planning among employees via posters in the break room, and other avenues. The individual values of the owners should not be used to excuse the corporation from compliance with the legal standard. Individual religious views should not lower the minimum standards for corporate actions in this context, or others.
Tuesday, February 25, 2014
Yesterday, Carl Icahn sent a letter to eBay shareholders, which starts like this:
Dear Fellow eBay Stockholders,
We have recently accumulated a significant position in eBay’s common stock because we believe there is great long-term value in the business. However, after diligently researching this company we have discovered multiple lapses in corporate governance. These include certain material conflicts of interest, which we believe could put the future of our company in peril. We have found ourselves in many troubling situations over the years, but the complete disregard for accountability at eBay is the most blatant we have ever seen. Indeed, for the first time in our long history, we have encountered a situation where we believe we should not even have to run a proxy fight to change the board composition. Rather, we believe that in any sane business environment these directors would simply resign immediately from the eBay Board, either out of pure decency or sheer embarrassment at the public exposure of the extent of their self-serving activities.
Wow. You could almost drop the mic there. Icahn does not, though. He goes on to outline a series of transactions from board members and the CEO that raise reasonable questions about the independence of certain board members. (click below for more)
Monday, February 24, 2014
I have been working on a project involving liability for securities fraud under the Securities Act and the Securities Exchange Act. I’m addressing the possible liability of one particular defendant in one limited context--selling securities pursuant to the crowdfunding exemption in section 4(a)(6) of the Securities Act.
A defendant in that context faces possible civil liability under at least five different antifraud provisions—sections 4(a)(6), 12(a)(2), and 17(a) of the Exchange Act; Rule 10b-5; and section 9 of the Exchange Act. You could actually count that as seven if you counted scheme liability under Rule 10b-5 and section 17(a) separately. And that’s not counting the aiding and abetting provision in section 20(e) of the Exchange Act or possible state law liability.
Those antifraud provisions differ in many ways: the standard of care; the burden of proof; reliance requirements; who may sue; who’s liable as a defendant. Does it really make sense to have a potpourri of antifraud rules applicable to a single defendant in a single transaction?
I can understand why we might want to apply different rules when the SEC is a plaintiff than when a private party is the plaintiff. And I can understand why we might want to apply different liability rules to different types of defendants or different types of transactions. Policy considerations vary from defendant to defendant and from transaction to transaction. We might want to apply stronger liability rules to brokers, for instance, or in registered public offerings.
What I don’t understand is why a multitude of antifraud rules should apply to a single type of defendant in a single type of transaction. Wouldn’t it make more sense to decide what the requirements for liability should be for fraud in that type of transaction and, based on those policy choices, choose one liability rule to apply exclusively to that type of transaction? If a plaintiff didn't meet the requirements of the applicable rule, the plaintiff couldn't turn to any other liability provision for that transaction.
This would require Congressional action, and that's never going to happen, of course. Absent a political tsunami of some sort, Congress could never pass a coherent set of securities liability rules. But I can dream, can't I?
The abstract is posted below:
The Patient Protection and Affordable Care Act (ACA) effected numerous changes in the legal regime governing health care and health insurance. Among the ACA’s more controversial provisions is the so-called contraceptive mandate, which requires employer-provided health care insurance plans to provide coverage of all FDA approved contraceptive methods.
On March 25, 2014, the Supreme Court will hear oral argument in the Hobby Lobby and Conestoga Wood cases, in which the shareholders of two for-profit family-owned corporations argue that requiring them to comply with the contraception mandate violates the Religious Freedom Restoration Act.
Forty-four law corporate law professors filed an amicus brief in these cases, arguing that the essence of a corporation is its “separateness” from its shareholders and that, on the facts of these cases, there is no reason to disregard the separateness between shareholders and the corporations they control. The Brief is replete with errors, overstated claims, or red herrings, and misdirection.
Contrary to the Brief’s arguments, basic corporate law principles strongly support the position of Hobby Lobby and Conestoga Wood. In particular, the doctrine known as reverse veil piercing provides a clear and practical vehicle for disregarding the legal separateness of those corporations from their shareholders and thus granting those shareholders standing to assert their free exercise rights.