Business Law Prof Blog

Thanks!

Thanks so much to my hosts here at Business Law Prof Blog for inviting me to guest blog this month. It was fun and I'll continue in my regular role as a reader with a lot of appreciation for folks who keep up the blogging that I enjoy so much.

Until next time!

--Elizabeth Pollman

Email: For Lawyers, It's Legal Writing; For Educators, It's An Opportunity

The Maryland Law Review Endnotes has posted The New Legal Writing: The Importance of Teaching Law Students How to Use E-Mail Professionally, by Kendra Huard Fershee.  Before you read any further, I want to be clear of my potential biases: Kendra is my wife (and, lest there be any doubt, I think she's great). And while students should be taught proper use of email in the legal world, it's not just students. If you read legal blogs, such as Above the Law, which has an email scandals section of the blog, you know that the proper use of mail is a lesson that needs to be learned by students in and outside of courses (see, e.g., here and here), law professors, and by lawyers everywhere.

Here's an excerpt rom the article:

The benefits of e-mail to lawyers are vast and cannot be easily quantified, but lawyers who are not careful can also suffer greatly through the misuse of e-mail. Problems with tone can inadvertently and counterproductively anger a client, opposing counsel, or the court.  . . . [A] lawyer can build credibility by evincing intelligence in her writing, and being articulate is one way to do that. It is, however, unfortunately much easier to lose credibility by sending inarticulate communications, particularly those that can be easily shared with others. E-mail mistakenly forwarded to the wrong person can create embarrassing consequences—even professional ethics repercussions—for the person forwarding the information.  And including sensitive client information in e-mail can create discovery problems that can adversely affect clients who are under investigation or engaged in litigation.

While electronic communication has a few potential downsides, the good news is that lawyers and law students can be trained to use e-mail properly. In fact, lawyers and law students must be trained to use e-mail properly to help them avoid making mistakes that electronic communication can invite. Obviously, there is no way to avoid every mistake that can be made in e-mail, but with careful instruction, those mistakes can be limited to the good old fashioned kind that lawyers have made on paper since the beginning of the legal profession. The combination of common use among lawyers and the potential for dangerous errors in e-mail make it imperative that legal writing professors include instruction about how to write e-mail as part of their curriculum. Failing to teach students how to use e-mail professionally could be likened to failing to teach students how to write a legal memorandum (setting aside, for the moment, the burgeoning debate about whether the legal memo is dead with the advent of the shorter, more direct legal analysis e-mail lawyers commonly use now).

There is empirical evidence that e-mail is the most commonly used form of legal communication, meaning it is a part of practice with significant risk and high potential rewards. To take this a step further, in my view, it's not just legal writing faculty who need to be teaching about the use of email; it's all faculty. If we are to prepare students for practice, they need to know that poor quality emails reflect poorly on their abilities as lawyers.  We need to provide feedback when email is used sloppily or inappropriately, and we need to provide opportunities for students to use email in professional or semi-professional settings. And this can be minor or major part of a course.  As a small example, when I require a paper in a course, I require students to turn in a hard copy and send me a soft copy via email.  I can use that opportunity to reinforce what I expect, individually and/or as a group. (The article has some useful tips for teaching in this context (e.g., "Remember Your Audience and Avoid Finger-Wagging"). 

Email is a major part of what most of us do, and we need to respect it as part of the educational process. It's one of many ways law schools can help demonstrate, on day one, that their graudates are in fact ready for the professional world, because most of them are. We should make sure they know how to demonstrate that in all settings, or we've come up short. 

--JPF

Welcome Guest Blogger Hanna Chung

We here at the BLPB are excited to welcome Hanna Chung for a month of guest-blogging.  Hanna currently clerks for the Honorable Deborah L. Cook of the Sixth Circuit Court of Appeals, and clerked the previous year for the Honorable Sidney A. Fitzwater, Chief Judge of the Northern District of Texas. Prior to guest-blogging here, she covered the scholarship presented in the University of Chicago Law School's biweekly Law and Economics Workshop as a student blogger for the University of Chicago Law School blog (for a sample, go here).

SJP

Two things you might not have expected together: Ayn Rand and yoga pants

Stretchy pants-retailer and public company, Lululemon, is grabbing some attention this week with its new shopping bags.   

If you’ve ever purchased something at this pricey athletic clothing store, you know that it comes in a reusable bag that is typically red and white, emblazoned with motivational text in a cheerful design.  They usually have a picture of a woman in a yoga pose and the patchwork of text says things like: “Breathe deeply,” “Friends are more important than money,” and “Do one thing a day that scares you.” If you look on the Lululemon website, you'll notice it calls this patchwork of text its “manifesto.”

The past few weeks, Lululemon shoppers haven’t received the usual upbeat and slightly preachy red bag, but instead a black bag that says only “Who is JOHN GALT?” in white lettering – a phrase from Ayn Rand’s Atlas Shrugged.

At this point, if you’re wondering “what the what?” you’re in good company. 

The company hasn’t offered an official explanation, but many people have gone to a blog post on the company’s website to figure out what these new bags are about.  The post, written by a staff member, explains that the company’s founder, Chip Wilson, read Atlas Shrugged when he was 18 and felt inspired to “elevate the world from mediocrity to greatness.”  The post further states: 

“Our bags are visual reminders for ourselves to live a life we love and conquer the epidemic of mediocrity. We all have a John Galt inside of us, cheering us on. How are we going to live lives we love?”

The comments section to the blog post is officially on fire.

Comments are ranging from the simple (“Just clothes. Stopping mixing in politics.”) to the more emphatic support or opposition (“This is the lamest thing ever. Package Republican propaganda in a $100 pair of pants and call it yoga.”).  Here’s one of the more elaborate comments:

“Lululemon, in reading the comments of some of your customers, I was reminded of a similar reaction to the Wall St. Journal’s op-ed by John Mackey CEO of Whole Foods in 2009 in which he attacked ObamaCare and proposed a free market solution to our health care crisis. It turned out that he, too, was an admirer of Ayn Rand.

Many of Whole Food’s customers were also outraged, as some of yours apparently are. But they went a step further and organized a boycott.

It was a total failure. As a matter of fact, Whole Food’s stock just reported record profits and their stock recently made all time highs.

I wish you similar success.”

Some customers have declared they won’t buy Lululemon clothes again and are retiring their logo-emblazoned gear to the back of the closet rather than showing it off in tree pose.  Many have expressed the sentiment that Rand’s philosophy is contrary to the teachings of yoga.

The media world is also abuzz with this story – everything from a mention on last night’s Colbert Report to the NY Times (see, e.g., here, here, here, here). (And an interesting Slate piece argues that yoga circa 2011 isn't such an odd fit with Rand’s ideology as yoga practice in America has become “hyper modern and individualist, a lifestyle devoted to realizing one’s own potential in the tightest, most space-age fabric possible.”) 

The aspect of this story that I find most interesting is how to interpret these new bags – are they just a new angle on the company’s marketing? Like when a perfume company or fashion designer uses suggestive ad campaigns or ads to raise awareness of social issues? Does the management think this will sell more yoga pants? Or is this political speech? And if so, what does this example illustrate about who is speaking when a corporation speaks?

--Elizabeth Pollman

 

Chaffee and Rapp on Peer-to-Peer Lending

Geoff Rapp and I have posted Regulating On-Line Peer-to-Peer Lending in the Aftermath of Dodd-Frank: In Search of an Evolving Regulatory Regime for an Evolving Industry on SSRN with the following abstract:

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act called for a government study of the regulatory options for on-line Peer-to-Peer lending. On-line P2P sites, most notably for-profit sites Prosper.com and LendingClub.com, offer individual “investors” the chance to lend funds to individual “borrowers.” The sites promise lower interest rates for borrowers and high rates of return for investors. In addition to the media attention such sites have generated, they also raise significant regulatory concerns on both the state and federal level. The Government Accountability Office report produced in response to the Dodd-Frank Act failed to make a strong recommendation between two primary regulatory options – a multi-faceted regulatory approach in which different federal and state agencies would exercise authority over different aspects of on-line P2P lending, or a single-regulator approach, in which a single agency (most likely the new Consumer Financial Protection Bureau) would be given total regulatory control over on-line P2P lending. After discussing the origins of on-line P2P lending, its particular risks, and its place in the broader context of non-commercial lending, this paper argues in favor of a multi-agency regulatory approach for on-line P2P that mirrors the approach used to regulate traditional lending.

-- Eric C. Chaffee

Secunda on Labor Law

Paul M. Secunda has posted The Perceptible Disconnect between the Global Economic Crisis and the Wisconsin Public Sector Labor Dispute of 2011 on SSRN with the following abstract:

The enactment in June 2011 of Wisconsin Act 10, legislation that eliminated most collective bargaining rights for most public employees in Wisconsin, did not necessarily follow from the economic conditions surrounding the global recession. The argument here is that it was a blatant power grab with political, social, and economic implications. Governor Walker’s claim that Act 10’s anti-collective bargaining approach was required to balance Wisconsin’s budget is belied by two unassailable facts. First, there were a number of provisions in the law, including an annual union recertification requirement and an anti-dues checkoff provision, which had absolutely nothing to do with cost savings. Perhaps even more tellingly, when Act 10 was finally enacted by the State legislature, Walker and his allies in the legislature employed a legislative procedure which could only be utilized if Act 10 did not have any impact on state fiscal policy. In short, Governor Walker used the global economic crisis, and Wisconsin’s budget situation more specifically, as a ruse to enact a punitive bill against public sector unions.

Although unions and their allies have drafted, and continue to draft, procedural and substantive legal challenges to Act 10 based on state open meeting laws and constitutionally-based freedom of association and equal protections provisions, these legal challenges have so far been unsuccessful. If such efforts continue to be unsuccessful, it indeed may be a long time before any real public sector collective bargaining will be permitted in Wisconsin. The subsequent loss of workplace rights not only adversely impacts public sector workers, but also the citizens of Wisconsin who will be that much poorer for having to live in a society where internationally-recognized rights of association and collective bargaining are not taken seriously.

This piece discusses this historic moment in Wisconsin public sector labor law in three parts. The first section describes the story of the enactment of Wisconsin Act 10 in chronological order. The second section then considers whether the global recession in fact lead inevitably to the enactment of Act 10. Finally, the third section concludes by normatively arguing for robust public sector bargaining rights in Wisconsin and throughout the United States.

-- Eric C. Chaffee

Learning About Teaching and Memory

Now that I am done teaching for the semester, I'm turning to a few other items that need be completed, including an article that needs finishing, an exam that still needs one more essay to be written, and reassessing how I will teach some of next semester's materials.  On this last front, I came across an interesting article in The Chronicle: Teaching and Human Memory, Part I.  The article discusses the fact that many of us teach without knowing much about how students learn.  I am certainly one of those people, even though I have been putting forth effort to learn more about how people learn.  The article explains:

Michelle Miller is a professor and chair of the psychology department at Northern Arizona University. A researcher and teacher in the fields of language, memory, and cognitive psychology, she has devoted much of her career to thinking about the relationship between her research areas and her classes. She has worked on a course-redesign project on her campus to help improve retention and performance rates in large classes.

Miller's article in College Teaching opens with an explanation of why so few of us may count ourselves as even amateur enthusiasts for cognitive theory: The field remains a relatively young one and has evolved rapidly over the past several decades. If you did happen to pick up some ideas 10 or 15 years ago about learning and cognition in a how-to-teach seminar in graduate school, what you learned there might have been superseded or even overturned since then by new information and theories.

Equally troublesome, research findings at the edge of the field don't always translate easily into pedagogical practice. As Miller describes the dilemma, "a working understanding of memory processes is clearly useful for instructors, who work very hard to promote long-term retention of course material, and fortunately, there is no shortage of theoretical research detailing the inner workings of memory. On the other hand, when this theoretical research is translated into specific suggestions for pedagogical practice, it is too often misinterpreted, oversimplified, or substantially out of date."

The materials I have been reading certainly support his point.  The information about how best to teach students varies widely and often conflicts.  Certainly some of this is because different researchers have different views on what is important, but it can be hard to tell what is state of the art, what is a good (or lucky) guess, and what will work in a law school setting.  Regardless, just thinking about these issues has value.  It can help us consider our true goals and whether what we are doing in the classroom is toward that end.  

For me, I have been focusing on the idea that I'm not only trying to teach information -- I'm trying to teach people to find information, then interpret it, understand it, and apply it where they need it.  This is why I can't always just give the answer, even though I know that has some appeal.  The point is not only knowing the rule -- it's knowing why the rule exists.  It's knowing how the rule came about.  It's knowing how to find a rule for another issue. That's what it means to be a lawyer.  It's not just knowing the business judgment rule or that FERC has jurisdication over wholesale sales of electricity.  It's knowing what that means for a client and how you can help your client avoid or mitigate trouble or pull together a deal.  

I certainly haven't figured it all out, but thinking about it is making me better at what I do.  I look forward to Part II of the article.  

--JPF

Facebook about to go public?

Rumor has it that Facebook may soon file to go public (see here and here). A lot of curious eyes will be on its S-1 and valuation. 

It will be interesting to compare the valuation for the IPO with recent prices in the secondary markets. The SharesPost ticker currently has Facebook at $31/sh ($73 billion implied value) and the social media giant's stock is listed at the top of the "most active" list.

--Elizabeth Pollman

Occupy Climate Change

Democracy Now recently published transcribed portions of "Occupy Everywhere," a panel hosted by The Nation magazine, "On the New Politics and Possibilities of the Movement Against Corporate Power" (here).  Naomi Klein was quoted as drawing a connection between the movement and the climate change debate, saying the following:

[T]here has been an ecological consciousness woven into these occupations from the start…. So, what I find exciting is the idea that the solutions to the ecological crisis can be the solutions to the economic crisis, and that we stop seeing these as two problems to be pitted against each other by savvy politicians, but that we see them as a ... single crisis, born of a single root, which is unrestrained corporate greed that can never have enough, and that ... trashes people and that trashes the planet, and that would shatter the bedrock of the continent to get out .. the last drops of fuel and natural gas. It’s the same mentality that would shatter the bedrock of societies to maximize profits. And that’s what’s being protested.... [T]he reason why the right is denying climate change now in record numbers— … 80 percent….. [is] because they have looked at what science demands, they’ve looked at the level of emissions cuts that science demands, 80 percent or more by 2050, and they have said, "You can’t do that within our current economic model. This is a socialist plot." [T]heir entire ideology, which is laissez-faire government, attacks on the public sphere, privatization, cuts to social spending, all of that, none of it can survive actually reckoning with the climate science, because once your reckon with the climate science, you obviously have to do something. You have to intervene strongly in the economy.

For more on this you can read her article "Capitalism vs. the Climate."

SJP

Enjoyable reading

Over the holidays or when I’m traveling, I often like to read books related to business law, but that aren’t narrowly tailored to my current projects.  That is, books that feel like reading for enjoyment, but are still perhaps sowing the seeds for news ideas or adding some breadth to my day-to-day reading.

Here are a few of my recent picks:

American Property: A History of How, Why, and What We Own by Stuart Banner 

Recently, I’ve been thinking I should delve a bit more into property theory and the history of property law as I’ve suspected it might be helpful for corporate theory.

Stuart Banner’s new book is an interesting history of American property law that is especially notable for its contextual approach and nuanced view of property conceptions. Banner shows that our conceptions of property have changed over time and have always been contested. 

Banner doesn’t tackle head on issues of property held in the corporate form or the rise of corporations. But there are some parts that corporate law scholars might nonetheless find particularly interesting. For instance, his discussion of the changes to property law in the early nineteenth century that brought about greater liquidity or commoditization of land (e.g., getting rid of English rules of primogeniture and the fee tail), and the idea that Americans in the early nineteenth century expected forms of recognized property to change over time.  Corporate law scholars might note that this was a time when more property started to flow toward the corporate form and this window into property law of the time adds some depth to thinking about the history of corporations.

Folks pondering the viability of the “concession theory” of corporations might find interesting Banner’s discussion of police power, the line between constitutional government regulation and takings, and the notion that property is a form of delegated governmental power.

Confidence Men: Wall Street, Washington, and the Education of a President by Ron Suskind

This book made a splash when it came out earlier this Fall. It tells a story of Barack Obama from the campaign trail to the presidency, with a focus on the financial crisis which the author portrays as a crisis of confidence.  

I can’t say that I wholeheartedly recommend it, but I can report that lots of interesting details and some attention-getting material (tales of insubordination in the Obama administration, concerns about sexism, behind the scenes maneuvering…) kept me reading through this hefty hardback. I don’t read a lot of books with this style of political journalism – the novelistic inside narrator tone often made me wonder how the heck the author knew that was what happened. (Suskind says it’s based on hundreds of hours of interviews with over 200 people; there was quite a bit of controversy when the book came out – many people quoted in the book recanted or challenged descriptions.)

Cultivating Conscience: How Good Laws Make Good People by Lynn Stout

This is a fun and very interesting read.  It came out several months ago now, and if you haven’t had a chance to read it yet this is a good season for it. We could use some optimism about human nature.

In a nutshell, the book explores the idea of acting with a conscience (or “prosocial behavior”), arguing that the focus on the “homo economicus” model of human behavior in law and policy discussions has neglected the important role of conscience. Stout takes the reader through social science evidence about people engaging in unselfish, ethical behavior and argues that law and policy should take account and encourage this kind of behavior in politics, business, and other areas. 

Next on my reading list will be Daniel Kahneman’s Thinking, Fast and Slow.  Feel free to add ideas from your holiday reading lists in the Comments section!

--Elizabeth Pollman

 

Pizza is a vegetable. Really?

By now you've probably heard about Pizzagate--what some have described as: "Congress puts the food lobby above child nutrition." Here's Kermit's take (30-second ad up front):

 

SJP

Happy Thanksgiving

Happy Thanksgiving to all our U.S. readers. May you and your loved ones have a wonderful holiday weekend.

Holidays like this remind us of what’s really important in life. Business law can wait until tomorrow (except for those practicing lawyers stuck with something that can’t wait until Friday, who have my sympathies).

-Steve Bradford

Jordan on Business Roundtable v. SEC

My colleague Bill Jordan has written a review of the Business Roundtable v. SEC decision (striking down the SEC's proxy access rule) for his "News from the Circuits" column in the forthcoming 37 Administrative and Regulatory Law News 1.  Here's an excerpt:

The court criticized the agency’s rejection of studies favoring the management position in favor of “two relatively unpersuasive studies” purportedly showing the value of the inclusion of dissident directors on corporate boards.

The court’s dismissive treatment of the SEC’s response to these studies contrasts sharply with the longstanding principle of judicial, deference to agency assessment of complex technical and scientific studies.... Note that the court considered itself qualified to determine that the studies relied upon by the SEC were “relatively unpersuasive.” This is not the language of arbitrary and capricious review or even of hard look review.  This is the language of substantive judgment, even political judgment.

The contrast is particularly striking because this case essentially involved judgments about the value of democracy. In assessing electoral democracy, surely we assume that elections improve outcomes because they hold politicians accountable for their actions. It seems reasonable for the SEC to incorporate this fundamental principle of democratic institutions into the arena of shareholder democracy. At least a court should review such agency judgments – made by the politically accountable electoral branch of government rather than the unaccountable judiciary – with considerable deference. The D.C. Circuit’s review in this case was precisely the opposite. On one particular issue, the court characterized the agency’s explanation as “utterly mindless.”

It is difficult to determine the long-term significance of this decision. It suggests, among other things, that the D.C. Circuit (at least these three judges) consider themselves well qualified to second-guess agency decisions about issues of corporate structure and costs even if they should defer to agency decisions about scientific and technical issues.

SJP

The Underground Economy: Stealth of Nations

I just finished an interesting book on the shadow, or informal economy—the merchants and service providers who operate outside government regulation and licensing requirements. The book is Robert Neuwirth’s Stealth of Nations: The Global Rise of the Informal Economy.

Neuwirth is at his best when he’s describing the various markets throughout the world. His particular geographical areas of focus, not surprisingly, are Nigeria, China, and parts of South America. The book is less valuable when he ventures into theory and proposes policies to deal with the underground economy. For example, he sees the growth of these markets as inconsistent with neoclassical economic theory. In my view, these markets are exactly what neoclassical theory would predict as a way to avoid the cost of government regulation. I also think his attempts to prescribe government policies to strengthen these markets are often off-base. Government is unlikely to be able to do much to help the participants in markets whose very existence is an attempt to avoid government.

For all its flaws, the book is still worth reading, if only to appreciate how much the entrepreneurial spirit is still alive in today’s world. It also provides reminders of how people push back against government regulation and how regulation can have unintended consequences.

If you haven’t read Hernando deSoto’s masterpiece, The Other Path: The Invisible Revolution in the Third World, I would suggest you read it first.Then read Neuwirth’s book for an update.

-Steve Bradford

Lawyers, Ignorance, and the Dominance of Delaware Corporate Law

I'm a little late getting to this, but Bill Carney, George Shepherd, and Joanna Shepherd Bailey have posted an interesting draft on SSRN: Lawyers, Ignorance, and the Dominance of Delaware Corporate Law. Here's the abstract:

Why does Delaware continue to dominate the market for incorporations even though recent research has shown that the quality of Delaware corporate law has declined substantially? We focus on the rational ignorance of lawyers and investors. Using the results of our survey of lawyers involved in initial public offerings (IPOs) as well as our analysis of companies involved in IPOs, we conclude that lawyers recommend Delaware because they are ignorant about other states’ law. Because Delaware is so
dominant, law schools focus on Delaware corporate law, and a lawyer rationally learns the corporate law only of Delaware and her home state. Regardless of the quality of the law of other states, lawyers will not recommend it because they are unfamiliar with it. Likewise, lawyers recommend only Delaware law because they believe that investors are ignorant of other states’ law.

-Steve Bradford

Super Committee Failure a Super Short?

It appears that the Super Committee is giving up and going home. Apparently the idea of compromise and actually being accountable for budget cuts is more appalling than the idea of asking Congress to bailout the Super Committee for their ineffectiveness.  As CNN/Money explains:

The "automatic" budget cuts that were supposed to deter super-committee members from punting won't actually kick in until 2013. And that gives Congress more than 13 months to modify the law.

There will be tremendous pressure to do so.

Athough the market implication of failure to reach a compromise are not clear (at least to some), the early feedback is that the market doesn't like it, as this morning's headline, Dow Sinks 300 Points, explains.

So I got to thinking, does anyone benefit from not reaching a deal?  Certainly anyone who thought a failure to reach a deal would send the market lower could short the market. I think a lot of people expected that such a failure would drive the market lower.  What about people who knew a deal would fail?  Like members of the Super Committee and their staffs?  

Professor Bainbridge has been sharing his and others' views on congressional insider trading recently, see, e.g., here and here, so maybe that's why it's on my mind.  I can't help but wonder, did anyone of those key people take a short position on the market last week before news of the likely failure started to leak out? And does it matter?  

If so, it's not at all clear it would be illegal to do. It is pretty clear to me, though,  at a minimum, it would be very scummy.  

--JPF

Why haven't the Occupy coders used Facebook?

There's an interesting short piece at The Atlantic about the web developers coding the online presence of the Occupy movement and how their choices have reflected the organizational structure and ethos of the movement.  Check it out here.

It captures an interesting aspect of the movement and group speech.

--Elizabeth Pollman

Connectivity Issues

I'm facing internet connectivity issues today.  Rather than continue to try and craft my assigned Sunday post, which might result in my ultimately throwing my desktop out the window, I just thought I'd tell you all what the problem was.  Somehow, I imagine everyone will be able to empathize in at least some way.

SJP

The question that won't go away: Are boards simply not up to the task?

It often strikes me as somewhat of an emperor-has-no-clothes moment when I explain to my students that, in this era of too-big-to-fail, we continue to entrust oversight of institutions that have the potential to cripple the entire global economic system to folks who are doing so on very much of a part-time basis, and with some minor distractions to boot (like running their own TBTF enterprise as CEO).  I was reminded of this when I read Steven Davidoff's post, A Board Complicit in MF Global’s Bets, and Its Demise.  After pointing out that the failure of oversight in this case was not due to lack of expertise or knowledge, Davidoff suggests that perhaps "boards are inherently unable to do the job we want of them: to oversee the company and counteract the influence of its chief executive."  As a possible solution, Davidoff suggests that "[i]f the board members were to be penalized for their failures through forfeiture of their own compensation, perhaps directors would [be more] focused on creating a stronger risk management culture."  I have my doubts that we could ever implement any such system that wouldn't be left as anything other than a shell after Delaware got done with it.  Perhaps the answer lies in part in doing more of what some have suggested we do in the area of Securities Regulation--that is, stop pretending we have more oversight than we actually do and let the capital market discounting begin.

SJP

New Report on the S&P 500's Corporate Governance of Political Expenditures

Back in August, ten law professors, as the "Committee on Disclosure of Corporate Political Spending," submitted a petition to the SEC asking “that the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.” 

The group includes Lucian Bebchuk, Bernard Black, John Coffee Jr., James Cox, Jeffrey Gordon, Ronald Gilson, Henry Hansmann, Robert Jackson Jr., Donald Langevoort, and Hillary Sale.  The petition explains:  “We differ in our views on the extent to which corporate political spending is beneficial for, or detrimental to, shareholder interests. We all share, however, the view that information about corporate spending on politics is important to shareholders—and that the Commission’s rules should require this information to be disclosed.”

I’ve been following with interest the comments to this petition. They’ve included statements from scholars like Ciara Torres-Spelliscy who has written extensively about corporate political spending, and this week the IRRC Institute has submitted a report on the S&P 500's corporate governance of political expenditures. In its submission cover letter, the IRRC Institute explains: “The report is the first to examine the governance policies of the full S&P 500; the first to report on spending of the full S&P 500; and the first to be part of a benchmarking time series, enabling trends to be examined robustly.”

Earlier this month, I posted about a recent report on the governance practices of the S&P 100, which the Center for Political Accountability and Wharton’s Zicklin Center for Business Ethics released.

I’m still digesting the new IRRC Institute report and may post more soon, but note for those interested in this area that it is well worth reading as it takes a broad and detailed approach, including information on topics such as governance about lobbying and whether companies provide public justifications for why they spend money on politics.

A few tidbits from the fascinating report:

On companies with “no spending” policies:  “The overall number of companies that assert they do not spend money in politics has grown to 57, up from 40 a year ago. But a comparison of spending records and policy prohibitions shows that only 23 companies with ‘no spending’ policies actually did not give any money to political committees, parties or candidates in 2010 (though they may still lobby). Only 17 of these firms avoided all forms of political spending, including lobbying. (Another 57 companies have no policies about spending but also do not seem to spend.)”

On transparency:  “Voluntary company disclosure of political spending remains limited and only 20 percent of S&P 500 companies report on how they spent shareowners’ money. Two‐thirds of the companies that appear to spend from their treasuries do not report to investors on this spending. The least transparent are Telecommunications and Financials firms; by contrast over 40 percent of Health Care companies explain where the money goes.”

On independent expenditures: “There has been a significant increase in the number of companies that discuss independent expenditures, which following Citizens United are allowed at the federal level for the first time in 100 years. Comparing companies in the index in both years (468 firms) shows that 19 more companies now say they will not fund campaign advertisements for or against candidates, generally will not do so, or are reviewing their policies—up from 58 last year. But only five companies now acknowledge in their policies that they make independent expenditures, even though careful scrutiny of voluntary spending reports adds a few firms to this tally.”

On the increasing adoption of indirect spending policies: “The proportion of companies that have adopted policies on indirect political spending through their trade associations has grown from 14 percent in 2010 to 24 percent. Half of the 100 biggest companies now disclose their policies on indirect spending through trade groups and other politically active non‐profit groups, but this commitment evaporates at smaller companies.”

On big companies spending big: “The top two revenue quintile companies were responsible for the vast majority of both federal lobbying and treasury contributions to national political committees and state political entities, with $915 million (93 percent) of the S&P 500’s total.”

On board oversight: “The 151 companies with board oversight of their spending disburse on average 30 percent more than their peers that do not have such oversight, when the latter comparison is controlled for revenue size. This may give some comfort to investors and others concerned about accountability and transparency, but not to those who think that corporate governance could be used as a lever to reduce spending.”

The report is also terrifically direct about information that is unknown, such as how much companies give indirectly through trade associations and other non-profit groups that spend in elections and on lobbying.

--Elizabeth Pollman