Friday, April 17, 2015
At the end of next week, I will be at the University of Connecticut School of Business and the Thomas J. Dodd Research Center for their Social Enterprise and Entrepreneurship Conference.
Further information about the conference is available here, a portion of which is reproduced below:
In October 2014, Connecticut joined a growing number of states that empower for-profit corporations to expand their core missions to expressly include human rights, environmental sustainability, and other social objectives. As a new legal class of businesses, these benefit corporations join a growing range of social entrepreneurship and enterprise models that have the potential to have positive social impacts on communities in Connecticut and around the world. Designed to evaluate and enhance this potential, SE2 will feature a critical examination of the various aspects of social entrepreneurship, as well as practical guidance on the challenges and opportunities presented by the newly adopted Connecticut Benefit Corporation Act and other forms of social enterprise.
Presenters at the academic symposium on April 23 are:
- Mystica Alexander, Bentley University
- Norman Bishara, University of Michigan
- Kate Cooney, Yale University
- Lucien Dhooge, Georgia Institute of Technology
- Gwendolyn Gordon, University of Pennsylvania
- Gil Lan, Ryerson University
- Diana Leyden, University of Connecticut
- Haskell Murray, Belmont University
- Inara Scott, Oregon State University
Presenters at the practitioner conference on April 24 are:
- Gregg Haddad, State Representative, Connecticut General Assembly (D-Mansfield)
- Spencer Curry & Kieran Foran, FRESH Farm Aquaponics
- Sophie Faris, Community Development, B-Lab
- James W. McLaughlin, Associate, Murtha Cullina LLP
- Michelle Cote, Managing Director, Connecticut Center for Entrepreneurship and Innovation
- Mike Brady, CEO, Greyston Bakery
- Jeff Brown, Executive Vice President, Newman’s Own Foundation
- Justin Nash, President, Veterans Construction Services, and Founder, Til Duty is Done
- Vishal Patel, CEO & Founder, Happy Life Coffee
- Anselm Doering, President & CEO, EcoLogic Solutions
- Dafna Alsheh, Production Operations Director, Ice Stone
- Tamara Brown, Director of Sustainable Development and Community Engagement, Praxair
On April 3, Delaware Governor Jack Markell signed the Delaware Rapid Arbitration Act (DRAA) into law. The DRAA becomes effective on May 4, 2015. The DRAA is a different take on the attempted Chancery Arbitration that the Third Circuit ruled unconstitutional in 2013.
Under the DRAA, all parties in the dispute must agree to the arbitration. The DRAA does not use sitting judges to arbitrate, as the Chancery Arbitration attempted to do, but the Delaware Court of Chancery will be “facilitating” the process under the DRAA. Among other things, the Delaware Court of Chancery can assist in appointing an arbitrator for the process, enter final judgments, and determine an arbitrator’s fees. The Delaware Supreme Court can hear appeals of awards.
The DRAA appears to be encouraging a relatively fast and cost effective dispute resolution process. The process is limited to 180 days – final award to be issued within 120 days of the arbitrator’s appointment and allowable extensions up to an additional 60 days.
Given the privacy and the apparent time and cost-savings, this may be an attractive alternative dispute resolution process for various businesses.
For more analysis see:
Wednesday, April 15, 2015
"Laws, like sausages, cease to inspire respect in proportion as we know how they are made." -- John Godfrey Saxe
This is a brief legislative update on the progress of Tennessee's current bills, introduced in the house (HB0767) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee. The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.
As you may know from my prior posts (including here and here), I am a benefit corporation skeptic. Please read those posts for details. And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone. We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA. This year was no different. We opposed the benefit corporation bills that were introduced in Tennessee this year, too.
What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked. But we ultimately were afforded two weeks to attempt to write an amended bill--one that better reflected Tennessee law and norms.
Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises. Heck. We couldn't even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks! [It seems hardest to find a plaintiff's bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).] Our requests for more time to work on the proposed legislation were, however, rejected.
So, we set out to make a better sausage . . . .
Thursday, April 9, 2015
It’s that time of year again where I have my business associations students pretend to be shareholders and draft proposals. I blogged about this topic last semester here. Most of this semester’s proposals related to environmental, social and governance factors. In the real world, a record 433 ESG proposals have been filed this year, and the breakdown as of mid-February was as follows according to As You Sow:
Environment/Climate Change- 27%
Political Activity- 26%
Summaries of some of the student proposals are below (my apologies if my truncated descriptions make their proposals less clear):
1) Netflix-follow the UN Guiding Principles on Business and Human Rights and the core standards of the International Labour Organization
2) Luxottica- separate Chair and CEO
3) DineEquity- issue quarterly reports on efforts to combat childhood obesity and the links to financial risks to the company
4) Starbucks- provide additional disclosure of risks related to declines in consumer spending and decreases in wages
5) Chipotle- issue executive compensation/pay disparity report
6) Citrix Systems-add board diversity
7) Dunkin Donuts- eliminate the use of Styrofoam cups
8) Campbell Soup- issue sustainability report
9) Shake Shack- issue sustainability report
10) Starbucks- separate Chair and CEO
11) Hyatt Hotels- institute a tobacco-free workplace
12) Burger King- eliminate GMO in food
13) McDonalds- provide more transparency on menu changes
14) Google-disclose more on political expenditures
15) WWE- institute funding cap
One proposal that generated some discussion in class today related to a consumer products company. As I skimmed the first two lines of the proposal to end animal testing last night, I realized that one of my friends was in-house counsel at the company. I immediately reached out to her telling her that my students noted that the company used to be ”cruelty-free,” but now tested on animals in China. She responded that the Chinese government required animal testing on these products, and thus they were complying with applicable regulations. My students, however, believed that the company should, like their competitors, work with the Chinese government to change the law or should pull out of China. Are my students naïve? Do companies actually have the kind of leverage to cause the Chinese government to change their laws? Or would companies fail their shareholders by pulling out of a market with a billion potential customers? This led to a robust debate, which unfortunately we could not finish.
I look forward to Tuesday’s class when we will continue these discussions and I will show them the sobering statistics of how often these proposals tend to fail. Hopefully we can also touch on the Third Circuit decision, which may be out on the Wal-Mart/Trinity Church shareholder proposal issue.These are certainly exciting times to be teaching about business associations and corporate governance.
April 9, 2015 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (1)
Wednesday, April 8, 2015
For thirty years, I have had a pet peeve about the media's routine reporting on mergers and acquisitions. I have kept this to myself, for the most part, other than scattered comments to law practice colleagues and law students over the years. Today, I go public with this veritable thorn in my side.
From many press reports (which commonly characterize business combinations as mergers), you would think that every business combination is structured as a merger. I know I am being picky here (since there are both legal and non-legal common parlance definitions of the verb "merge"). But a merger, to a business lawyer, is a particular form of business combination, to be distinguished from a stock purchase, asset purchase, consolidation, or statutory share exchange transaction.
The distinction is meaningful to business lawyers for whom the implications of deal type are well known. However, imho, it also can be meaningful to others with an interest in the transaction, assuming the implications of the deal structure are understood by the journalist and conveyed accurately to readers. For instance, the existence (or lack) of shareholder approval requirements and appraisal rights, the need for contractual consents, permit or license transfers or applications, or regulatory approvals, the tax treatment, etc. may differ based on the transaction structure.
Monday, April 6, 2015
Recently, I received the following conference announcement via e-mail:
Understanding the Modern Company
Organised by the Department of Law, Queen Mary University of London,
in cooperation with University College London
Saturday 9 May 2015, 09.00 to 17.00
Centre for Commercial Law Studies
Queen Mary University of London
67-69 Lincoln’s Inn Fields
London WC2A 3JB
From their origin in medieval times to their modern incarnation as transnational bodies that traverse nations, the company remains an important, yet highly misunderstood entity. It is perhaps not surprising then that understanding what a company is and to whom it is accountable remains a persistent and enduring debate across the globe.
Today, the company is viewed in a variety, and often contradictory, ways. Some see it as a public body; others view it as a system of private ordering, while still others see it as a hybrid between these two views. Companies have also been characterized as the property of their shareholders, a network, a team, and even akin to a natural person. Yet the precise nature of the company and its role in society remain a modern mystery.
This conference brings together a wealth of scholars from around the world to explore the nature and function of companies. By drawing from different backgrounds and perspectives, the aim of this conference is to develop a normative approach to understanding the modern company.
Professor William Bratton, University of Pennsylvania
Professor Christopher Bruner, Washington & Lee University
Professor Karin Buhmann, Roskilde University
Dr Barnali Choudhury, Queen Mary University of London
Professor Janet Dine, Queen Mary University of London
Professor Luca Enriques, University of Oxford
Professor Brandon Garrett, University of Virginia
Professor Martin Gelter, Fordham Law School
Professor Paddy Ireland, University of Bristol
Dr Dionysia Katelouzou, King’s College London
Professor Andrew Keay, University of Leeds
Professor Ian Lee, University of Toronto
Dr Marc Moore, University of Cambridge
Dr Martin Petrin, University College London
Professor Beate Sjåfjell, University of Oslo
Professor Lynn Stout, Cornell University
To register, please visit: www.bit.ly/QM-Modern-Company
Friday, April 3, 2015
Amanda Rose (Vanderbilt) was one of the many distinguished speakers at the law and business conference I attended last week. She spoke about her forthcoming article in the Northwestern University Law Review, which focuses on the SEC’s new whistleblower program in relation to Fraud- on-the-Market class action lawsuits. I have added her article to my reading list and the abstract is reproduced below for interested readers.
The SEC’s new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits — rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the bounty program, the Article shows how amending it to include a qui tam provision for Rule 10b-5 violations would offer several advantages over retaining FOTM class actions. Either way, the bounty program has important and previously unrecognized implications that policymakers should not ignore.
Thursday, April 2, 2015
In connection with the current legislative debate on benefit corporations in Tennessee (which has been gathering momentum since I last wrote on the topic), I have repeatedly asked about the impetus for the bill. Of course, there is the obvious "push" for benefit corporation legislation by the B Lab folks, who have gotten the ear of folks at the Chamber, convincing them that the legislation is needed in Tennessee to protect social enterprise entities from the application of a narrow version of the shareholder wealth maximization norm (a conclusion that I dispute in my earlier post). But what else? What real parties in interest in Tennessee, if any, have expressed a desire that Tennessee adopt this form of business entity?
There is anecdotal information from one venture attorney that some Tennessee entrepreneurs have indicated a preference for the benefit corporation form and have specifically requested that their business be organized as a Delaware benefit corporation. Leaving aside the Delaware versus Tennessee question, why are these entrepreneurs looking to organize their businesses as benefit corporations? Where does this idea come from?
Earlier this week I went to a really useful workshop conducted by the Venture Law Project and David Salmon entitled "Key Legal Docs Every Entrepreneur Needs." I decided to attend because I wanted to make sure that I’m on target with what I am teaching in Business Associations, and because I am on the pro bono list to assist small businesses. I am sure that the entrepreneurs learned quite a bit because I surely did, especially from the questions that the audience members asked. My best moment, though was when a speaker asked who knew the term "right of first refusal" and the only two people who raised their hands were yours truly and my former law student, who turned to me and gave me the thumbs up.
Their list of the “key” documents is below:
1) Operating Agreement (for an LLC)- the checklist included identity, economics, capital structure, management, transfer restrictions, consent for approval of amendments, and miscellaneous.
2) NDA- Salmon advised that asking for an NDA was often considered a “rookie mistake” and that venture capitalists will often refuse to sign them. I have heard this from a number of legal advisors over the past few years, and Ycombinator specifically says they won't sign one.
3) Term Sheets- the seminar used an example for a Series AA Preferred Stock Financing, which addressed capitalization, proposed private placement, etc.
4) Independent Contractor Agreement- the seminar creators also provided an IRS checklist.
6) Employment Agreement- as a former employment lawyer, I would likely make a lot of tweaks to the document, and vey few people have employment contracts in any event. But it did have good information about equity grants.
7) Convertible Promissory Note Purchase Agreement- here's where the audience members probably all said, "I need an attorney" and can't do this from some online form generator or service like Legal Zoom or Rocket Lawyer.
8) Stock Purchase Agreement- the sample dealt with Series AA preferred stock.
9) IRS 83(b) form- for those who worry that they may have to pay taxes on "phantom income" if the value of their stock rises.
10) A detailed checklist dealing with basic incorporation, personnel/employee matters, intellectual property, and tax/finance/administration with a list of whether the responsible party should be the founders, attorney, officers, insurance agent, accountant, or other outside personnel.
What’s missing in your view? The speakers warned repeatedly that business people should not cut and paste from these forms, but we know that many will. So my final question- how do we train future lawyers so that these form generators and workshops don't make attorneys obsolete to potential business clients?
Tuesday, March 31, 2015
In a later footnote, he noted that he was not sure what I meant by my statement: "I believe that public companies should be able to plan like private companies . . . ." I thought I'd try to explain.
My intent there was to address my perception that there is a prevailing view that private companies and public companies must be run differently. Although there are different disclosure laws and other regulations for such entities that can impact operations, I'm speaking here about the relationship between shareholders and directors when I'm referencing how public and private companies plan.
Public companies generally have far more shareholders than private companies, so the goals and expectations of those shareholders will likely be more diverse than in a private entity. Therefore, a public entity may need to keep multiple constituencies happy in a way many private companies do not. However, that is still about shareholder wishes, and not the public or private nature of the entity itself. A private company with twenty shareholders could crate similar tensions for a board of directors.
As an example, consider Investopedia's description of Advantages of Privatization in an article called "Why Public Companies Go Private" (emphasis added):
Private-equity firms have varying exit time lines for their investments depending on what they have conveyed to their investors, but holding periods are typically between four and eight years. This horizon frees up management's prioritization on meeting quarterly earnings expectations and allows them to focus on activities that can create and build long-term shareholder wealth. Management typically lays out its business plan to the prospective shareholders and agrees on a go-forward plan.
This is often a practical reality, but I disagree (or at least believe it should not be the case) that a company must be private to "free up management's prioritization on meeting quarterly earnings expectations and allows them to focus on activities that can create and build long-term shareholder wealth."
This, I think, connects with Prof. Bainbridge's point in his footnote annotation 4, where he says, "I think too many hedge funds are pressing too many boards to pursue short-term gains at the expense of sustainable long-run shareholder wealth maximization and, accordingly, that boards need more insulation from shareholder pressure." I agree completely with his point there, and that's the kind of issue facing public companies that I was intending to address in my assertion.
Ultimately, director primacy means ensuring a large measure of director autonomy (or insulation). This works in both directions, whether it relates to short- versus long-term planning or providing workplace benefits (or not). Ensuring a robust business judgment rule as an abstention doctrine preserves director primacy, and in the long run, will benefit corporate governance and shareholder choice.
Friday, March 27, 2015
Plenty of valuable information was shared today at Vanderbilt's 17th annual law & business conference, including remarks from Elisse Walter (former-SEC Chairman), Jim Cox (Duke), Bob Thompson (Georgetown), Amanda Rose (Vanderbilt), and others.
The most immediately useful information, however, might be the fact that SEC Commissioner Dan Gallagher, our luncheon speaker, is on Twitter. In academic and other circles, Commissioner Gallagher garnered a great deal of attention due to his controversial article co-authored with Joseph Grundfest (Stanford) entitled "Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors."
Below is a recent Tweet from Commissioner Gallagher for those who would like to follow him.
My statement from this a.m.'s open mtg re Reg A+. I'm very excited about what this rule will do for small biz. http://t.co/C51EGq9oRR— Dan Gallagher SEC (@DanGallagherSEC) March 25, 2015
After teaching my early morning classes, I will spend the rest of the day at Vanderbilt Law School for their Developing Areas of Capital Market and Federal Securities Regulation Conference.
This is Vanderbilt's 17th Annual Law and Business Conference and they have quite the impressive lineup, including Commissioner Daniel Gallagher, Jr. of the U.S. Securities and Exchange Commission.
I am grateful to the Vanderbilt faculty members who invited me to this event and others like it. Vanderbilt is only about 1 mile from Belmont and I have truly enjoyed getting to know some of the Vanderbilt faculty members and their guest speakers.
Thursday, March 26, 2015
Below is a call for papers and description of a weeklong project on business and human rights. If you are interested, please contact one of the organizers below. I plan to participate and may also be able to answer some questions.
Lat Crit Study Space Project in Guatemala
Corporations, the State, and the Rule of Law
We are excited to invite you to participate in an exciting Study Space Project in Guatemala. Study Space, a LatCrit, Inc. initiative, is a series of intensive workshops, held at diverse locations around the world. This 2015 Study Space project involves a 7 working day field visit to Guatemala between Saturday June 27 (arrival date) and Saturday July 4, 2015 (departure date). We are reaching out to you because we believe that your interests, scholarship, and service record align well with the proposed focus of our trip.
This call for papers proposes a trip to Guatemala to study more closely the phenomena of failed nations viewed from the perspective of the relationship of the state of Guatemala with corporations. With the recent surge of Central American unaccompanied minors and children fleeing with their mothers, the United States has had to confront the human face of children and women whose claim to asylum or other immigration relief is rooted in the dire reality that the countries from which they flee cannot or will not protect them. Largely, these fleeing migrants are escaping violence perpetuated by private actors, at times gang members or even their own parents or spouses. Their stories of flight cannot be disengaged from the broader context in which the violence occurs. Theirs is also the story of failed nations, characterized by ineptitude, weakness, and even worse, indifference or at times even complicity.
This story of failed nations applies beyond the reign of private “rogues” whom everyone agrees are bad actors (i.e., gangs, drug traffickers, violent criminals). The other side of the coin, invisible in this new wave of Central American refugees, is a more nuanced story about the failing role of some of these Central American nations in regulating the acts of corporations, whether owned by the oligarchy or operated by transnational actors. Corporations are entities with great potential to promote and further the public good, such as through job creation and economic development. Corporations, however, can also be the cause of social ills, particularly when left unregulated or at times even supported by the state to pursue private interests that conflict with the public good. In Guatemala, examples of deeply problematic unregulated arenas abound-- from the lack of antitrust legislation to the absence of meaningful environmental protections to protect even the most precious of natural resources, such as water. There is also the misuse of public institutions and laws to shield corporations from their public and fiscal responsibility or to aid them in capitalizing on public goods, including minerals or land. Ironically, here, the state apparatus functions quite effectively to exert its authority in the execution of laws. The failure, however, rests in the illegitimacy of law, not in its execution.
Guatemala is a nation that is experiencing tremendous social upheaval from the acts of corporations on issues that include mining, water uses, deforestation, genetically modified seeds, free-trade zones, and maquiladoras, to name a few. Caught between the state and corporations are the communities most deeply affected by both the absence and the presence of law in ways that appear to conflict with the public interest. The questions that arise include how law can and should restore the balance between the promotion of investment and economic development with the protection of the public interest and the preservation of the public good. These inquiries also involve issues related to the protection of rights, whether of individuals or communities in the collective, including the right to self-determination, the right to food and water, or the right to dignified work.
The purpose of this trip is not to single out Guatemala for scrutiny. The reality is that the bilateral and multilateral relations that Guatemala is forced to sustain with other more powerful nations aggravate many of its pressing problems. Questions about Guatemala’s regulation of corporations must also address the relationship between the powerful transnational forces of globalization and the domestic laws of Guatemala, including those related to trade liberalization and intellectual property. This inquiry must also acknowledge how the absence of accountability of transnational corporations operating in Guatemala in the corporation’s own nation-state – including the power these corporations have to influence law-making-- should lead us to a discussion of shared responsibility and a proposal for solutions that are transnational and international in character.
Should you decide to participate, you would be encouraged and welcomed to suggest specific topics (and field visits) you would like to be included as part of this project. While we are still working on a precise itinerary (which you can help us shape), our projected goals right now are to visit with government officials, non-profits, community groups and the private sector with a special focus on labor and environment. The trip would include time in Guatemala City but also time in key rural sectors. For example, we are planning to visit a transnational mining site and the free-trade zone where maquiladoras are concentrated in Guatemala. As part of the trip, we will include orientations and debriefings with the group so we can share knowledge, impressions, and insights as the trip progresses.
The cost of your participation (excluding flight) is $1,900. This fee will cover housing, food, in-country transportation, conference space, and other fees that we will pay such as to translators, community groups assisting with logistics, and a modest fee to Luis Mogollón (a Guatemalan lawyer with significant law school academic program development experience in Guatemala) who will spend countless hours making this trip safe and enjoyable for all of us. The flight to Guatemala from the United States should range between $600 to $800.
Our aim is to publish essays from this project as a book in Spanish and English. We hope to have between 15-20 contributions. While ideally participants will speak Spanish, we can accommodate non-Spanish speakers (or those who only speak “un poquito”) and will hire interpreters to work with you during the trip to Guatemala. Keep in mind that you may need to conduct some research in Spanish (at least for primary sources) depending on the focus on your project. We also hope to present papers about this project at several conferences upon the completion of our project, including at LatCrit, Inc. and ideally in Guatemala.
The organizing Committee is comprised of Raquel Aldana, Associate Dean for Faculty Scholarship at Pacific McGeorge School of Law; Steven Bender, Associate Dean for Research and Faculty Development at Seattle University School of Law; José R. Juárez, Professor of Law and Director of the Spanish for Lawyers Program at the University of Denver, Sturm College of Law; Beth Lyon, Director of the Farmworker Legal Aid Clinic and Professor of Law at Villanova University School of Law; Mario Mancilla, Technical Assistant of the Secretariat of Environmental Matters, CAFTA-DR; Luis Mogollón, Adjunct Professor and Consultant of the Inter-American Program from Pacific McGeorge; Rachael Salcido, Professor of Law at Pacific McGeorge School of Law; and Enrique Sánchez-Usera, Chair of the Inter-Disciplinary Studies at the University of Rafael Landívar Law School.
Please do not hesitate to contact any of us with questions. We do hope you decide to join us in this great project.
March 26, 2015 in Business Associations, Call for Papers, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Law Reviews, Marcia Narine, Travel | Permalink | Comments (0)
Wednesday, March 25, 2015
Over at the Faculty Lounge, Kim Krawiec (Duke) is hosting an interesting mini-symposium on board diversity entitled “What’s The Return On Equality?”
The posts to date are linked to at the bottom of this recent post.
Friday, March 20, 2015
Last week, I wrote sports and the problems that could arise from a myopic focus on winning.
I promised to attempt to tie that post to business this week, but because I am running to a lunch meeting and then to the Belmont v. Virginia NCAA tournament basketball game viewing party, I am going to keep this short.
(Also, please indulge a little more bragging about my school. Before the game even begins, I am already incredibly proud of our basketball team. Belmont won the academic bracket for the NCAA tournament teams this year, which is based on academic measures like Academic Progress Rate (APR) and Graduation Success Rate (GSR)).
Anyway, I think there are a number of parallels between sports and business. Sports, done the right way, can teach many valuable lessons, such as the importance of teamwork, diligence, unselfishness, strategy, preparation, etc. In fact, team sport participation was one of the things I looked for when interviewing for law students when I was in practice and it is something I look for now when interviewing research assistants.
As mentioned in last week's post, sports can lead participants off-track if there is a myopic focus on winning that trumps certain overriding principles. Similarly, a myopic focus on profits in business, without adherence to certain legal rules and ethical principles, can lead individuals and companies astray. What the overriding principles should be, and the appropriate level of focus on profits, are two difficult questions that all businesses should attempt to address.
The biggest recent news in the social enterprise world is that certified B corporation Etsy is going public.
Despite confusing press releases, Etsy is not legally formed as a benefit corporation, they are only certified by B Lab. (In one of the coolest comments I have received blogging, an Etsy representative admitted that they confused the "benefit corporation" and "certified B corporation" terms and corrected their public statements). If you are new to social enterprise, the differences between a "certified B corporation" and a "benefit corporation" are explained here.
Etsy, however, will face a dilemma as noted in this article sent to me by Alicia Plerhoples (Georgetown). The B Lab terms for certified B corporations require Etsy to convert to a public benefit corporation (Delaware's version of the benefit corporation) within four years of the Delaware law becoming effective. Delaware's public benefit corporation law went effective August 1, 2013.
So, unless B Lab changes its terms, Etsy will lose its certified B corporation status if it does not convert to a public benefit corporation on or before August 1, 2017.
Given that converting to a public benefit corporation while publicly-traded would be extremely difficult--obtaining the necessary vote, paying dissenters' rights, etc.--I imagine Etsy will need to make this decision before it goes public. Perhaps, Etsy will postpone the decision, and hope that they can just quietly lose their certification in 2017 or that B Lab will make an exception for them. Etsy's CEO is on record promising social responsibility, but we will see whether that promise includes maintaining B Lab certification and making a legal entity change.
Many interesting issues would stem from a publicly-traded benefit corporation; I have added a number of items to my article ideas list this morning.
This Etsy story is one I hope to follow, so stay tuned.
Thursday, March 19, 2015
Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. This is reflected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the latter goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.
Prof. Bainbridge is with Delaware Chief Justice Strine in that profit maximization is the only role (or at least only filter) for board members. As he asserts, “The relationship between the shareholder wealth maximization norm and the business judgment rule, . . . explains why the business judgment rule is consistent with the director's "legal obligation to maximise profits for their shareholders."
CJ Strine has noted that the eBay decision, which I have written about a lot, says that if “you remain incorporated in Delaware, your stockholders will be able to hold you accountable for putting their interests first.” I think this is right, but I remain convinced that absent self-dealing or a “pet project,” directors get to decide that what is in the shareholders best interests.
I have been criticized in some sectors for being too pro-business for my views on corporate governance, veil piercing law, and energy policy. In contrast, I have also been said to be a “leftist commentator,” in some contexts, and I have been cited by none other than Chief Justice Strine as supporting a “liberal” view of corporate norms for my views on the freedom of director choice.
When it comes to the Business Judgment Rule, I think it might be just that I believe in a more hands-off view of director primacy more than many of both my “liberal” and “conservative” colleagues. Frankly, I don’t get too exercised by many of the corporate decisions that seem to agitate one side or the other. I thought I’d try to reconcile my views on this in a short statement. I decided to use the model from This I Believe, based on the 1950s Edward R. Murrow radio show. (Using the Crash Davis model I started with was a lot less family friendly.) Here’s what I came up with [Author's note, I have since fixed a typo that was noted by Prof. Bainbridge]:
I believe in the theory of Director Primacy. I believe in the Business Judgment Rule as an abstention doctrine, and I believe that Corporate Social Responsibility is choice, not a mandate. I believe in long-term planning over short-term profits, but I believe that directors get to choose either one to be the focus of their companies. I believe that directors can choose to pursue profit through corporate philanthropy and good works in the community or through mergers and acquisitions with a plan to slash worker benefits and sell-off a business in pieces. I believe that a corporation can make religious-based decisions—such as closing on Sundays—and that a corporation can make worker-based decisions—such as providing top-quality health care and parental leave—but I believe both such bases for decisions must be rooted in the directors’ judgment such decisions will maximize the value of the business for shareholders for the decision to get the benefit of business judgment rule protection. I believe that directors, and not shareholders or judges, should make decisions about how a company should pursue profit and stability. I believe that public companies should be able to plan like private companies, and I believe the decision to expand or change a business model is the decision of the directors and only the directors. I believe that respect for directors’ business judgment allows for coexistence of companies of multiple views—from CVS Caremark and craigslist to Wal-Mart and Hobby Lobby—without necessarily violating any shareholder wealth maximization norms. Finally, I believe that the exercise of business judgment should not be run through a liberal or conservative filter because liberal and conservative business leaders have both been responsible for massive long-term wealth creation. This, I believe.
Friday, March 13, 2015
One of my pet peeves when I was in practice was working with junior lawyers or student interns who refused to take a position on anything when I asked for research. Perhaps because of the way law schools teach students, they tended to answer almost every question with “on the one hand but on the other hand.” This particularly frustrated me during my in house counsel years when I was juggling demands from internal clients in over a dozen countries and just wanted to know an answer, or at least a recommendation. Over at Legal Skills Prof Blog and PrawfsBlawg, they lay part of the blame on issue spotting exams. I use issue spotting essay exams, so perhaps I am perpetuating the problem, but I find that students have a love-hate relationship with ambiguity. They like to be ambiguous in essays but hate ambiguity in multiple choice questions.
I just finished administering multiple choice exams to my civil procedure and business associations students. Typically, I use essays for midterms and a combination of testing techniques for the final exam. I’m not a fan of multiple choice because I believe that students can get lucky. On my final exams I use some standard multiple choice but I also use a hybrid style where students have to pick the correct answer and then write one sentence about why each other choice was wrong. It's a pain to grade, but I get an idea as to how much they really understand. But with a combined 130 exams for midterms, I decided to go with the straight multiple choice. In addition to making life easier for me with grading, it will help prepare the students for the bar exam.
I chose to ask particularly complex multiple choice questions. The civil procedure students didn’t just have to answer about personal jurisdiction. Most answers combined at least two other topics or federal rules, in some instances with at least one part that could be incorrect. The BA exam was similar. After both exams a number of students complained that the questions were too ambiguous and they would have preferred essays. Ironically, many of the students who were most concerned about the nature of the questions did very well on the exam, which leads me to believe that some of them lack the confidence in their own analytical abilities.
I think students prefer essays because of the freedom to do the “this/that” or “throw everything on the wall and see what sticks” type of "analysis." With the multiple choice questions that I used, the students had to do a much deeper level of analysis to choose the right answer- or to determine that none of the answers fit- which they hate. Often the concepts were restated in a way that probably wasn’t in their notes or the book. Those who memorized suffered the most.
Yesterday, I reminded my students that the law is ambiguous. Lawyers must think on multiple levels very quickly to answer what may seem like a simple question. In the alternative, often students overthink issues when the answer is more obvious.
If you have any thoughts on how to get students more comfortable with deeper levels of analysis and navigating through ambiguity, please post comments below or email me at firstname.lastname@example.org.
Wednesday, March 11, 2015
As someone who likes to write from time to time on women on corporate boards, I sometimes feel like I am writing about last year's "news." In other words, not much seems to sound new. So, I am always in search of a novel problem to explore or a different vantage point through which fresh insights can be obtained.
My most recent contribution in this regard is a symposium piece that looks at women on boards through the lens of the literature on crowds--whether they be mad or wise. Boards can be crowds (albeit small ones), based on prevailing definitions. Moreover, crowd behaviors can be gendered. So, it seemed like a reasonable idea.
The fruit of this labor is my most recent article, Women in the Crowd of Corporate Directors: Following, Walking Alone, and Meaningfully Contributing. The substantive portion of the abstract is as follows:
With the thought that new perspectives often can be helpful in addressing long-standing unresolved questions, this article approaches an analysis of women’s roles on corporate boards of directors from the standpoint of crowd theory. Crowd theory — in reality, a group of theories — explains the behavior of people in crowds. Specifically, this article describes theories of the crowd from social psychology and applies them to the literature on female corporate directors, looking at the effects on both women as crowd members and boards as decision-making crowds.
Unfortunately, while the crowd theory perspective provides some insights, they are not altogether conclusive. Specifically, while women may bring distinct ideas and experience to boards of directors when they become board members, crowd theory does not provide a clear picture of the nature or extent of those differences or how they may contribute to productive, efficient board decision making. More work still is needed in this area. However, existing research does indicate that women encourage productive board development activities — activities that may include, for example, introducing the board to structures and policies that may promote board wisdom. This is a useful insight that should be further explored.
This is, as the abstract indicates, a preliminary exploratory piece. But it does at least represent a change from the current literature in the field, which focuses on (among other things) the search for an alternative to gender quotas (see, e.g., here and here).
I had the opportunity to present the paper at William & Mary a few weeks ago. Unfortunately, the school was closed that morning as a result of a snow storm the day before. Since I was already in Williamsburg (but could not stay to present the paper later in the day), current and incoming editors of the William & Mary Journal of Women and the Law invited me to deliver the paper to them over breakfast in a local restaurant. The impromptu forum turned out to be a lovely way to discuss the paper with the students--a number of whom had read the piece carefully and had interesting questions and observations. I hope that some of you enjoy the article as much as those students did!
Monday, March 9, 2015
Western Carolina University has posted an opening for an assistant professor of legal studies. More information is available here. The position is fixed-term and non-tenure-track, though it comes with the title "assistant professor."
Last year, I greatly enjoyed my time presenting at Western Carolina University. WCU is in a beautiful part of the country, about an hour from Ashville, NC. WCU has a strong group of legal studies professors and has one of the nation's few Business Administration and Law degrees at the undergraduate level.
I've updated my list of legal studies professor positions in business schools. Many of the positions have now been filled, but I placed the newer postings in bold font.