June 19, 2010
Reporting Back From the Institute for Law Teaching and Learning Conference
I am looking forward to the Midwest Corporate Law Scholars Conference. Eric Chaffee will be presenting his idea, "A Modest Proposal for a Global Securities and Exchange Commission," in the afternoon--and I'm certainly looking forward to that, as well as all the other presentations. But first I'd like to praise the Institute for Law Teaching and Learning for putting on its own great conference, which I also recently attended. If you are interested in the art of teaching and couldn't make the conference, I suggest you take a few minutes to review the Session Workshops listed at the website. Just reading the proposals might spur you on to try something new in the classroom that can have a positive effect on the learning experience of your students.
June 18, 2010
Millon on Corporate Social Responsibility
David Millon has posted Enlightened Shareholder Value, Social Responsibility, and the Redefinition of Corporate Purpose Without Law on SSRN with the following abstract:
Enlightened shareholder value (ESV) is the idea that corporations should pursue shareholder wealth with a long-run orientation that seeks sustainable growth and profits based on responsible attention to the full range of relevant stakeholder interests. This approach to management contrasts with a short-term focus on current share price even when that objective entails immediate or longer-term negative effects on nonshareholders. The combination of a long-run, sustainable conception of value coupled with acknowledgement of the importance of stakeholder considerations for achievement of that goal resonates with notions of corporate social responsibility (CSR). In this paper I consider whether market pressures might generate a version of ESV that could have the effect of shifting US transnational corporations away from narrowly focused shareholder primacy. The model I explore here is based on corporate risk management practices. Activities – such as labor and environmental policies – that reduce operating expenses in the short-term may present litigation and reputational risks because of the threat of public exposure, especially by non-governmental organizations (NGOs) and the media. The result may be significant litigation and settlements costs, as well as negative reputational effects in product, labor, and capital markets. Extra-legal pressures rather than new legal mandates could thereby redefine management responsibility and corporate purpose, and, because concerned private actors apply the pressure, public opinion about socially acceptable behavior drives management's rethinking of its role. The result may be a richer, more socially-oriented notion of the corporate objective, shaped by public opinion rather than legal intervention. Having presented this model, I then suggest that some caveats are in order. It is highly doubtful that private actors alone can generate the amount of information needed to hold transnational corporations fully accountable for their behavior. And, even when misdeeds are exposed and pressure brought to bear, it is not clear that corporations necessarily deal fully with the problems they have created. Public relations and reputational recovery may be the real objective. Finally, and most importantly, this approach to CSR is driven by bottom-line considerations. ESV is still about shareholder value after all, and this objective imposes a limit on how far corporations are likely to be willing to go. To the extent this is true, critics of transnational corporations should not expect that a commitment to shareholder value – even if enlightened – will necessarily generate the measure of socially responsible behavior that they believe to be appropriate. There may still be a role for law.
Rep. Barton Got One Thing RIght: Pressure on BP Not the Same As Bailout Pressure
It is fascinating that President Obama’s “arm-twisting” tactics with BP have rekindled the debate about the role of government in business. Sure, the request was for a lot of money ($20 billion to be exact) and BP is a business. Plus, everything related to BP right now is hot news, so I suppose it makes some sense.
I just see the Obama-BP discussions as separate from the larger “role of government in business” debate some are making it out to be. Some, like David E. Sanger at the New York Times, have tried to link this to a trend that started with
General Motors, whose chief executive was summarily dismissed by the White House shortly before the government became the company’s majority shareholder. Chrysler was forced into a merger. At the banks that received government bailouts, executive pay was curbed; at insurance companies seeking to jack up premiums, scathing criticism led to rollbacks.
I’m not sure I see the link. In all of the prior cases, the government put up a significant amount of money and either became a significant shareholder or creditor. The government in those cases was acting like a traditional private large shareholder or creditor, who, whether controlling or not, often make their views known and get the result they want (e.g., Carl Icahn, Warren Buffet). The bailout cases, without question, raise legitimate debate about whether the government should be in that position at all, and if so, how they should act once they take that role.
Obama’s role in the BP case. though, is more like the FDA or CPSC working with companies to get them to conduct a voluntary recall. This is the government taking a position, making that position clear, and asking a company to take a specific action to minimize actual or potential harm. That, to me, is a legitimate role of government. That is not to say that questioning the President’s tactics with BP is not legitimate. Instead, I am simply saying that the President’s actions are different here than in the bailout-related circumstances.
In one sense, I guess I am saying that when Rep. Joe Barton apologized to BP executives yesterday for the $20 billion “shakedown,” he actually got the debate issue correct: the President’s actions were, as he put it, “political pressure.” That is different than actually taking a financial position with regard to a company and then exercising financial pressure that is traditionally reserved for the market. (I suspect, though, that Rep. Barton disagrees with the use of executive power in both circumstances.)
So Rep. Barton got the debate right. He was just on the wrong side of it.
June 17, 2010
Rethinking My BP Boycott
The Wall Street Journal reports that boycotting BP gas stations does little to hurt BP, but potentially does great harm to the independent dealers that operate those stations. Does that mean I should start enjoying my 5% cashback BP credit card again?
More Revolving Doors
Mike Koehler, who covers Foreign Corrupt Practices Act issues over at the "FCPA Professor", sent me an email in response to my previous post on the revolving door between the public and private sector. He noted that "[t]here is a huge DOJ-private practice revolving door when it comes to the FCPA," and provided me with links to some of his posts on the issue here and here. He and co-author Ethan Burger are also currently shopping an article in which they argue that:
Congress should prohibit all government enforcement attorneys from appearing, in a representative capacity, before their former employees for a five year period after government service to alleviate this problem. Further, when a government enforcement attorney is exclusively tasked with enforcing a niche law (such as the FCPA Official), for this limited category of government enforcement attorneys, a five-year prohibition on providing defense- related legal services related to that law.
Interested law review editors should contact Prof. Koehler quickly, before the piece is snapped up.
Relatedly, the Wall Street Journal reported yesterday that "SEC 'Revolving Door' Under Review".
June 16, 2010
First Annual Midwest Corporate Scholars Conference
Barbara Black (Cincinnati), Steven Davidoff (Connecticut / Ohio State), and I will host the first annual Midwest Corporate Scholars Conference on June 22 at University of Cincinnati College of Law. For the inaugural conference, we chose to focus on corporate law scholars from Ohio with a view toward expanding the event in the future.
We have a limited amount of extra room at the table and on the agenda, and we would like to extend an invitation to all corporate law scholars who would like to attend or participate at the event. If anyone is interested, please send me an email (email@example.com), and I will confirm your seat at the table.
As a special bonus, you will have the good fortune of seeing my friend and co-blogger, Stefan Padfield, present as part of the program. He plans to share some of his thoughts on Citizens United.
The Ever-Increasing BP Liability Landscape
Law.com provides a helpful opinion piece from Brian B. O'Neill, a Minneapolis-based attorney who represented plaintiffs in the Exxon Valdez tanker spill. He provides further gloss on the oft-touted, under-explained $75 million cap for offshore oil drilling damages under the Oil Pollution Act of 1990 (OPA 90).
The possible exceptions to the cap have been discussed in numerous places, including here, here, and here. One area that I think has been under appreciated (at least by me) is the remaining capless state options for lawsuits. O'Neill explains:
Most importantly, OPA 90 preserves lawsuits under state law. Alabama, Florida, Mississippi and Texas either have no damages cap in their oil spill statutes or allow state law claims that are not subject to damages caps. So wise plaintiffs — states or fishermen — can avoid damage caps if they bring state law claims in Alabama, Florida, Mississippi and Texas. Louisiana's oil spill laws follow OPA 90 and cap damages at $75 million, but, again, there are exceptions for gross negligence or violations of federal safety laws.
As hard as it will be to determine all of BP's potential liabilities, it is apparently not as hard as determining how to stop the flow of oil into the Gulf or, for that matter, even estimating how much oil is actually spewing into the Gulf. This just keeps getting worse and worse for everyone involved.
June 15, 2010
Ponzi schemes and misleading promissory notes...
...seem to go together. At least in SEC complaints.
Q: How would the SEC apply its famed Rule 10b-5 to investment vehicles not included in the broad definitional sections of the securities laws?
The question is moot in the latest Complaint alleging a Ponzi scheme, one of roughly two dozen Commission enforcement actions against alleged Ponzi schemes since the news of Madoff's fraud broke in December 2008. Read it at http://www.sec.gov/litigation/complaints/2010/comp21552.pdf.
June 14, 2010
The Politics of Dividends...
The New York Times ran a piece today that referenced the opposition of President Obama and others to BP's next dividend:
The company’s $10.5 billion annual dividend has become a point of contention, as President Obama and a host of critics in the United States said that BP should not be paying out profits to stockholders when huge cleanup costs still loom and when fishermen, oil workers and small-business owners are saying they are having trouble getting compensation from the company.
The topic of dividends is counter-intuitive, to say the least. The student of corporate law learns that these payments - which are voted by Boards - are not mandatory. Nonetheless, the news that one is being slashed can be material (see In re Cady Roberts, 40 SEC 907 (1961), the seminal case on insider trading). For a period of our corporate history, dividend payments were feared by debt holders, who routinely bargained for covenants restricting their payment to rival equity holders. See Choper/Coffee/Gilson, Cases and Materials on Corporations ("Dividend and Stock Purchase Covenants," pp. 225-228). At some companies, the payments may become so routine as to resemble consideration; at others, in times of corporate drought, the payments may appear to disappear altogether.
But what to make of a nation's chief executive attempting to influence the business judgment of a corporate Board on the matter? Particularly when the corporation is foreign? And will not the same rationale for a suspension of payment exist next quarter/year?
It would seem that there may be ramifications beyond adherence to a policy of fairness in the wake of a disaster.
The link to the Times article by Helene Cooper and Jackie Calmes appears below:
Video Games: The Grown Up Industry has Grown Up Legal Problems
In (what seems like) another life, I worked for a trade association that represented video game & computer game software publishers. The association owned and operated the Electronic Entertainment Expo or E3, the industry’s trade show, which provided companies the opportunity to showcase all their great new products (and some not so great). The show was (and is) quite a spectacle and remains a clear indicator just how big the video game industry has grown.
Even fifteen years ago when I started with the trade association, the industry was much larger, and much more mature (the Grand Theft Auto series notwithstanding), than most people appreciated. Today, that’s even more true.
The industry is now globally a $45-billion industry, and the industry players have the same problems as other major content industries like movies and, particularly, music. It’s just that often times, in the video game world the talent is hard to recognize.
Take, for example, Activision, the company that owns the Guitar Hero franchise, among other things. If you haven't been paying attention to the industry, check out this LA Times piece on Bobby Kotick, CEO of Activision, and the company’s current legal battle. The company has a market value of $13.5 billion, and is known to act like it, and the company has many game developers, and gamers, fit to be tied. Activision's legal issues provide some great teaching examples because the industry, and the personalities, offer a good story to accompany the legal issues.
And if you just want to know what’s new in the video game would, check out IGN’s coverage of E3 here. I went to five E3s (three with the trade association and two as a PR professional for two companies), but none since the 2000 show. I can't help but wonder just how much the show and the industry have (or haven't) changed.