Monday, July 27, 2015
As the summer progresses, I have been slowly catching up on all the giant electronic reading pile I slowly built up during the school year. I recently read a very interesting article on personal jurisdiction, of all things. It’s Tanya J. Monestier, Registration Statutes, General Jurisdiction, and the Fallacy of Consent, 36 Cardozo L. Rev. 1343 (2015), available on SSRN here. It's definitely worth reading, whether you're a corporate litigator or just interested in corporate law.
Here’s the abstract, which explains the article much better than I could:
In early 2014, the Supreme Court issued a game-changing decision that will likely put corporate registration as a basis for personal jurisdiction center stage in the years to come. In Daimler AG v. Bauman, the Court dramatically reined in general jurisdiction for corporations. The Court in Daimler held that a corporation is subject to general jurisdiction only in situations where it has continuous and systematic general business contacts with the forum such that it is “at home” there. Except in rare circumstances, a corporation is “at home” only in its state of incorporation and the state of its principal place of business. Plaintiffs who are foreclosed by Daimler from arguing continuous and systematic contacts with the forum as a basis for jurisdiction will now look to registration statutes to provide the relevant hook to ground personal jurisdiction over corporations.
Each of the fifty states has a registration statute that requires a corporation doing business in the state to register with the state and appoint an agent for service of process. A considerable number of states interpret their registration statutes as conferring general, or all-purpose, jurisdiction over any corporation that has registered to do business under the state statute. Those states that regard registration as permitting the exercise of general jurisdiction usually justify the assertion of jurisdiction on the basis of consent. That is, by knowingly and voluntarily registering to do business in a state, a corporation has consented to the exercise of all-purpose jurisdiction over it.
Registration to do business as a basis for general jurisdiction, however, rests on dubious constitutional footing. Commentators have approached the analysis from a variety of perspectives over the years. The analysis tends to focus on how courts have misread historical precedent and failed to account for the modernization of jurisdictional theory post-International Shoe Co. v. Washington. Largely unexplored, however, is the premise underlying registration-based general jurisdiction: that registration equals consent. In this Article, I argue that general jurisdiction based on registration to do business violates the Due Process Clause because such registration does not actually amount to “consent” as that term is understood in personal jurisdiction jurisprudence. I comprehensively explore why it is that registration cannot fairly be regarded as express (or even implied) consent to personal jurisdiction. First, I look at other forms of consent in the jurisdictional context — forum selection clauses and submission — and analyze the salient differences between these and registration. Second, I examine the nature of the consent that is said to form the basis for general jurisdiction and argue that it is essentially coercive or extorted. Coerced consent, an oxymoron, cannot legitimately form the basis for the assertion of general jurisdiction over a corporation. From there, I situate registration statutes in a larger conversation about general jurisdiction. I maintain that registration-based jurisdiction does not fit well into the landscape of general jurisdiction: it could eliminate the need for minimum contacts altogether; it results in universal and exorbitant jurisdiction; it is conceptually misaligned with doing business as a ground for jurisdiction; and it promotes forum shopping.
The subject is not one that I would be naturally attracted to. I don’t teach civil procedure and I don’t spend a lot of my professional time focusing on litigation issues. But I found Professor Monestier’s article very interesting and enjoyable. Even if you, like me, aren't a civil procedure junkie, it's worth checking out.
Wednesday, July 22, 2015
For a number of years now, I have been using group (3-person teams) oral midterm examinations in my Business Associations course. I have found these examinations to be an effective and rewarding assessment tool based on my teaching and learning objectives for this course. At the invitation of the Saint Louis University Law Journal, as part of a featured edition of the journal on teaching business associations law, I prepared a short article giving folks the "why, how, and what" of my experience in taking this approach to midterm assessment. The article was recently published, and I have posted it to SSRN. The abstract reads as follows:
I focus in this Article on a particular way to assess student learning in a Business Associations course. Those of us involved in legal education for the past few years know that “assessment” has been a buzzword . . . or a bugaboo . . . or both. The American Bar Association (ABA) has focused law schools on assessment (institutional and pedagogical), and that focus is not, in my view, misplaced. Until relatively recently, much of student assessment in law school doctrinal courses was rote behavior, seemingly driven by heuristics and resulting in something constituting (or at least resembling) information cascades or other herding behaviors.
In the fall of 2011, I began offering an oral midterm examination to students in my Business Associations course as an additional assessment tool. This Article explains why I started (and have continued) down that path, how I designed that examination, and what I have learned by using this assessment method for three years. Although some (probably most) will not want to do in their Business Associations courses exactly what I have done in mine (as to the midterm examination or any other aspects of the course described in this Article), I am providing this information to give readers ideas for, or courage to make positive changes in, their own teaching (for a course on business associations or anything else).
You may think I am crazy (even--or especially--after reading this article). Regardless, I do hope the article sparks something positive in you regarding your teaching in Business Associations or some other course. Since I am working on finishing a long-overdue book on teaching business associations for Aspen this summer, I would welcome your honest reactions to the article and your additional thoughts on assessment or other aspects of teaching Business Associations.
Wednesday, July 15, 2015
Scott Killingsworth, a corporate attorney at Bryan Cave who specializes in compliance and technology matters and is a prolific writer (especially for one who still has billable hour constraints!) recently wrote a short and thought-provoking article: How Framing Shapes Our Conduct. The article focuses the link between framing business issues and our ethical choices and motivations noting the harm in thinking of hard choices as merely "business" decisions, viewing governing rules and regulations as a "game" or viewing business as "war." Consider these poignant excerpts:
We know, for example, that merely framing an issue as a “business matter” can invoke narrow rules of decision that shove non-business considerations, including ethical concerns, out of the picture. Tragic examples of this 'strictly business' framing include Ford’s cost/benefit-driven decision to pay damages rather than recall explosion-prone Pintos, and the ill-fated launch of space shuttle Challenger after engineers’ safety objections were overruled with a simple 'We have to make a management decision.' (emphasis added)
Framing business as a game belittles the legitimacy of the rules, the gravity of the stakes, and the effect of violations on the lives of others. By minimizing these factors, the game metaphor takes the myopic “strictly business” framing a step further, into a domain of bendable rules, acceptable transgressions, and limited accountability. (emphasis added)
The war metaphor conditions our thinking in a way distinct from the game frame, but complementary to it. War is a matter of survival: the stakes are enormous, the mission urgent, and all’s fair. Exigent pressures grant us wide moral license, releasing us from adherence to everyday rules and justifying extreme tactics in pursuit of a higher goal; we must, after all, kill or be killed. If business is war, survival is at stake, and competitors, customers, suppliers, rivals or authorities are our enemies, then not only may we do whatever it takes to win, it’s our duty to do so. (emphasis added)
The full article is available here.
In light of the new ABA regulations on Learning Outcomes and Assessment, including the requirement that students have competency in exercising "proper professional and ethical responsibilities to clients and the legal system" this article seems like a great addition to a business organizations/corporations course line up. I know that I will be including it in my corporate governance seminar this coming year. And if I were responsible for new associate training, this would definitely merit inclusion in the materials.
Tuesday, July 14, 2015
A while back, I wrote about CVS's choice to eliminate tobacco products from its stores. I noted that it seemed clear to me that CVS could make that choice, even thought it would mean lower short-term profits, because it was a decision that is clearly protected (or should be) by the business judgment rule.
Today, according to an LA Times piece,
[CVS] stood up for its principles.
The pharmacy giant announced it was quitting the U.S. Chamber of Commerce after reports that the influential business organization was lobbying against anti-smoking laws around the world.
CVS bolted because of the Chamber's views on tobacco sales. In 2009, Apple and Nike made waves with the Chamber of its policy position on climate change. I find this interesting, and I have no reason to doubt that all of these companies are following their corporate values, though I also think they see public relations value in the noisy withdrawal.
That some big companies have stepped away from the Chamber is less surprising to me than the fact that the Chamber has maintained such strength with small business owners, while advocating for many big business positions that don't help, and may hurt, small businesses. I can't help but wonder if the Chamber's success it not so much in promoting policies that benefit of member businesses, and instead that it promotes policies that are consistent with the ideologies of many who work for or own businesses.
If the latter is the case, as I suspect it is, that's a good business model for the Chamber, but not necessarily for the entities it represents. Of course, if business owners, officers, and directors remain aligned with the Chamber, despite a lack of clear benefit to the entity, well, that too is protected by the business judgment rule.
CALL FOR PAPERS: A Workshop on Vulnerability at the Intersection of the Changing Firm and the Changing Family (October 16-17, 2015 in Atlanta, GA)
UPDATE: The deadline for submissions has been extended to July 21.
[The following is a copy of the official workshop announcement. I have moved the "Guiding Questions" to the top to highlight the business law aspects. Registration and submission details can be found after the break.]
A Vulnerability and the Human Condition Initiative Workshop at Emory Law
This workshop will use vulnerability theory to explore the implications of the changing structure of employment and business organizations in the new information age. In considering these changes, we ask:
• What kind of legal subject is the business organization?
• Are there relevant distinctions among business and corporate forms in regard to understanding both vulnerability and resilience?
• What, if any, should be the role of international and transnational organizations in a neoliberal era? What is their role in building both human and institutional resilience?
• Is corporate philanthropy an adequate response to the retraction of state regulation? What forms of resilience should be regulated and which should be left to the 'free market'?
• How might a conception of the vulnerable subject help our analysis of the changing nature of the firm? What relationships does it bring into relief?
• How have discussions about market vulnerability shifted over time?
• What forms of resilience are available for institutions to respond to new economic realities?
• How are business organizations vulnerable? How does this differ from the family?
• How does the changing structure of employment and business organization affect possibilities for transformation and reform of the family?
• What role should the responsive state take in directing shifting flows of capital and care?
• How does the changing relationship between employment and the family, and particularly the disappearance of the "sole breadwinner," affect our understanding of the family and its role in caretaking and dependency?
• How does the Supreme Court's willingness to assign rights to corporate persons (Citizen's United, Hobby Lobby), affect workers, customers and communities? The relationship between public and private arenas?
• Will Airbnb and Uber be the new model for the employment relationships of the future?
July 14, 2015 in Business Associations, Call for Papers, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Law and Economics, Social Enterprise, Stefan J. Padfield | Permalink | Comments (0)
Friday, July 10, 2015
I’ve always been eager to do pro bono work. I went to law school with the intent of helping the indigent upon graduation, but then with a six-figure debt load, I went to BigLaw in New York and Miami, and then corporate America so that I could pay that debt off. But even as an associate and as in house counsel, I dutifully accepted pro bono cases. As a relatively new academic, I paid my way out of pro bono for the first couple of years as Florida allows and assuaged my guilt with the knowledge that my payments were going to fund the local legal aid office.
This year, as a condition of attending a family law CLE for free, I volunteered to take a case. I’ve devoted over 70 hours to it thus far, and we still aren’t finished even after today’s marathon 6.5 hour hearing dealing with a motion for contempt and enforcement, modification of alimony and child support, a QDRO (qualified domestic relations order), and a house in foreclosure. The case was complicated even according to my seasoned family law practitioner friends.
As a former litigator and current BA professor, I found that my skills helped to make up for my lack of family law expertise. The techniques for cross examining witnesses, preparing for hearing, and introducing exhibits came flooding back. From a BA perspective, knowing to ask questions about the structure of the petitioner’s LLC, inquiring about charging orders, and dissecting the financial statements and corporate tax returns put me in a much better position to protect my client’s interests. I always tell my students on the first day of BA that they never know where they will end up as practitioners, and that in today’s market many of them will be in small firms taking on a number of kind of clients. I try to make them understand how BA can help them in practice areas that don’t seem directly related to business. Now, thanks to this pro bono case I can back that up with proof from my own experience.
Wednesday, July 8, 2015
For those of you who teach agency (and the related concept of independent contractors) the following recent case example will make for a fun and culturally relevant example for many of your students.
In March, 2015, the California Labor Commissioner’s Office issued an opinion finding that a driver for the ride-hailing service mobile app company, Uber, should be classified as an employee, not an independent contractor. The opinion details the control Uber exercised over the driver including setting the payment rates and terms, quality controls, service platforms, user communications, liability insurance requirements, and background checks all the while maintaining that drivers are independent contractors. Citing to S. G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal. 3d 341, 350-51, 769 P.2d 399 (1989), the Commission analyzed the following elements:
(a) whether the one performing services is engaged in a distinct occupation or business;
(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
(c) the skill required in the particular occupation;
(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;
(e) the length of time for which the services are to be performed;
(f) the method of payment, whether by the time or by the job;
(g) whether or not the work is a part of the regular business of the principal; and
(h) whether or not the parties believe they are creating the relationship of employer-employee.
The Commission explained its finding that Plaintiff was an employee (not an independent contractor) (Commission Opinion, Berwick v. Uber, at 8) with the following:
By obtaining the clients in need of the service and providing the workers to conduct it, Defendants retained all necessary control over the operation as a whole. The party seeking to avoid liability has the burden of proving that persons whose services he has retained are independent contractors rather than employees. In other words, there is a presumption of employment…..The modern tendency is to find employment when the work being done is an integral part of the regular business of the employers, and when the worker, relative to the employer, does not furnish an independent business or professional service.
Id. at 8.
The Commission found that “Plaintiff’s work was integral to Defendants’ business…Without drivers such as Plaintiff, Defendants’ business would not exist.” Id.
Many technology companies, like Uber, contend that their virtual marketplaces facilitate individuals acting as contractors, using their own possession to provide services for a personal profit. The argument is that this empowers workers giving them flexibility and freedom to set their own hours and success. A counter argument raised by labor activists and others is that this type of freelance work strips workers from certainty of wages and job status as well as other benefits of traditional employment such as health care, retirement and sick leave benefits. Opponents argue that what is being touted as good for individuals is just a means to minimize costs and increase corporate, not individual, profits.
[Note, I have included this, along with a host of other case updates and teaching materials, in my new Business Organizations electronic casebook, available through ChartaCourse starting fall 2015.]
Edited on 7/10/15 to add: colleague, friend and fellow blogger Haskell Murray suggested this article (How Crowd Workers Became the Ghosts in the Digital Machine) from The Nation on crowd-workers and the thought-provoking discussion on whether minimum wage laws should apply to these workers. Joan Hemminway, same credentials above, noted that the Wall Street Journal Blog is also commenting on the Uber case.
Friday, July 3, 2015
Among the DGCL amendments this year were a number of amendments to the Delaware Public Benefit Corporation (“PBC”) Law.
I refer to the Delaware PBC amendments as “The Etsy Amendments” because I believe (without being sure) that a main motivation in passing these amendments was to make it easier for Etsy (among other companies) to become a Delaware PBC. These amendments are effective as of August 1, 2015.
As mentioned in a previous post, Etsy is a certified B corporation and a Delaware C-corporation. According to B Lab’s terms for certified B corporations, Etsy will have to convert to a Delaware PBC by August 1, 2017 or forfeit its certification. This assumes that B Lab will not change its requirements or make an exception for publicly-traded companies.
The amendments to the PBC law are summarized below:
- Eliminates requirement of "PBC" or "Public Benefit Corporation" in the entity’s formal name. This amendment makes it easier and less costly for existing entities to convert, but the amendment also makes it more difficult for researchers (and the rest of the public) to track the PBCs. In addition to the cost of changing names, Rick Alexander notes in his article below that the previous naming requirement was causing issues when PBCs registered in other states because “[s]ome jurisdictions view the term as referring to nonprofit corporations. Other jurisdictions view the phrase ‘'PBC'’ as insufficient to signal corporate identity.”
- Reduces amount of shareholders that must approve a conversion from a traditional corporation to a PBC from 90% to 2/3rds of shareholders. This amendment brings Delaware PBC law in line with most of the benefit corporation statutes and gives Etsy a more realistic shot at converting. The requirement in Delaware to convert from a PBC to a traditional corporation was already approval by 2/3rds of shareholders.
- Provides a “market out” exception to appraisal rights when a corporation becomes a PBC. This amendment brings the Delaware PBC law in line with their general appraisal provision in DGCL 262. This amendment also means that Etsy shareholders would not receive appraisal rights if Etsy converts to a PBC.
Additional posts about the amendments are available below:
- Gregory Williams (Richards, Layton & Finger)
- Rick Alexander (B Lab & Morris Nichols) (Written Prior to Amendments Passing)
Wednesday, July 1, 2015
Last week Kent Greenfield and Adam Winkler published "The U.S. Supreme Court's Cultivation of Corporate Personhood," in the Atlantic discussing two recent Supreme Court opinions. Greenfield and Winkler covered the ruling in Horne v. Department of Agriculture where the Court held "a federal program requiring raisin growers to set aside a percentage of their crops for government redistribution was an unconstitutional 'taking' under the Fifth Amendment." The second case addressed was Los Angeles v. Patel where the Court extended Fourth Amendment privacy protections "invalidating a city ordinance (similar to laws around the country) allowing police to search [hotel] guest registries without a warrant."
While they distinguish certain rights, like political speech, that are "more appropriate for people than for corporations," Greenfield and Winkler acknowledge that some constitutional protections should be extended to corporations.
"A corporate right to be free from government takings, for example, makes sense both as a matter of constitutional law and of economics. Government overreach is problematic whether the raisin grower is a family farm or a business corporation. And corporations left exposed to government expropriation would find investors reluctant to take that risk, undermining the basic social purpose of the corporation, to make money."
Wednesday, June 24, 2015
I had the privilege of sitting in on a stimulating paper session on "Private Fiduciary Law" at the Law and Society Association conference in Seattle last month. The program featured some super work by some great scholars. My favorite piece from the session, however, is a draft book chapter written by Gordon Smith that he recently posted to SSRN. Aptly entitled The Modern Business Judgment Rule, the chapter grapples with the current state of the business judgment rule in Delaware by tracing its development and reading the disparate doctrinal tea leaves. Here is a summary of his "take," as excerpted from his abstract (spoiler alert!): "The modern business judgment rule is not a one-size-fits-all doctrine, but rather a movable boundary, marking the shifting line between judicial scrutiny and judicial deference."
In the mere 18 pages of text he uses to engage his description, analysis, and conclusion, Gordon gives us all a great gift. His summary is useful, his language is clear, and his analysis and conclusions are incredibly useful, imho. I am no soothsayer, but I predict that this will be a popular piece of work.
Gordon posted on his paper the other day on The Glom. He is inviting comments, and I know him to be serious in wanting to receive and incorporate them. So, have at it!
Friday, June 19, 2015
The book is much more “popular press” than academic, as should be clear from the splashy subtitle “liberating the heroic spirit of business.” There is a bit of academic influence in the appendix and notes, but it is mostly social business advocacy and story telling. In fact, the authors state that the primary purpose of the book “is to inspire the creation of more conscious businesses: businesses galvanized by higher purposes that serve and align the interests of all their major stakeholders.” (pg. 8). The book is interesting, passionate, and may accomplish its primary purpose.
The authors paint a compelling picture of Whole Foods Market and similar companies like Trader Joe's, The Container Store, Costco, and Southwest Airlines. These companies appear to take a long-term view and consider what is best for all their stakeholders. I would have appreciated, however, more attention to the struggles the companies must have faced in attempting to satisfy all of their stakeholders. After finishing the book, I was left wishing the authors would have spent more time discussing how to make decisions in situations where certain stakeholder interests irreconcilably conflict.
I may have more to say about this book in future posts, but as someone who has been researching in the social business area for a few years, I continue to be amazed at the proliferation of terms. The authors describe four tenants of their term “conscious capitalism”: (1) Higher Purpose (beyond just generating profits); (2) Stakeholder Integration (“optimizing value creation for all of them”); (3) Conscious Leadership (leaders “motivated primarily by service to the firm’s higher purpose and creating and creating value for all stakeholders.”); (4) Conscious Culture and Management (culture and management centering around traits like “trust, accountability, transparency, integrity, loyalty, egalitarianism, fairness, personal growth, and love and care.) (pg. 32-35)
The authors try to differentiate their term of “conscious capitalism” from similar terms, as discussed below. While some of the distinctions make sense, I wish that these various social business movements would agree on a common vocabulary and work together more consistently. Unfortunately and ironically, many associated with the social business movements seem especially territorial. Perhaps, the lack of focus on financial returns causes some to seek personal returns in the form of recognition and influence. Quotes in the bullet points below come from pages 38, 291-97 in the book.
- Corporate social responsibility. The authors note that CSR is often “grafted onto traditional business model, usually as a separate department or part of public relations," but for Conscious Capitalism “[s]ocial responsibility is at the core of the business.” The authors are not the first to note this difference between CSR and the more recent social business movements, and I think it is a fair distinction, at least in some cases.
- Natural Capitalism. According to the authors, “Conscious Capitalism included the valuable insights that natural capitalism offers about the environment and transcends them with a more comprehensive view of the entire business and economic system.” The authors seem to suggest that their term is more holistic, not merely focused on the environment, and more focused on human ingenuity than simply preserving the environment.
- Triple Bottom Line. The authors seem to think that Conscious Capitalism has a more inclusive view of stakeholders than TBL’s “people, profit, planet.” I don’t think the authors make their case for this distinction, failing to note stakeholders that don’t fall in one of TBL’s three buckets. The authors then note that their theory pays more attention to “purpose, leadership, management, and culture.” I also think this is stretching for distinctions; most of the TBL proponents I know recognize the importance of “purpose, leadership, management, and culture.” The authors admit that the TBL movement is "a fellow traveler," but I think TBL and Conscious Capitalism are roughly synonymous.
- Shared-Value Capitalism. SVC, championed by Michael Porter and Mark Kramer, focuses on creating economic value for shareholders and all of society. Conscious Capitalism, the authors claim, does not only focus on economic value like SVC, but expands to human values and includes “emotional and spiritual motivators” lacking with SVC.
- Creative Capitalism. Bill Gates popularized this term in 2008 at the World Economic Forum, claiming that certain companies can use variable pricing to make products affordable to those at the “base of the pyramid” and still make a profit. The authors claim Creative Capitalism seems like an “add on” similar to CSR, only applies certain companies, and over-focuses on the reputational benefits, rather than changing the core business purpose.
- B Corporations. The authors do not seem optimistic about “[certified] B corporations” which they unfortunately use interchangeably with “benefit corporations,” even though the two terms are distinct. The main reason the authors offer for their pessimism toward B corporations is that “B corporations appear to violate the important principle that owners [shareholders] should ultimately control the corporation.” Most legal readers will notice problems with that statement. First, shareholders don’t control corporations, boards of directors do (see, e.g., DGCL 141(a)). Second, to the extent the authors are talking about aspects of corporate governance like the shareholders’ ability to elect the directors and bring derivative suits, those powers remain for shareholders of both certified B corporations and benefit corporations. Giving the authors (neither of whom are legally trained) the benefit of the doubt – perhaps they are talking about the deprioritization of shareholders in the benefit corporation statutes (shareholders are simply one of many stakeholders that the board must consider in its decision making). The authors seem concerned that shareholders, the most vulnerable of the stakeholders (according to them), will be relatively unprotected. This is a fairly common concern, but the Conscious Capitalism model seems to deprioritize shareholders as well, and even in traditional corporate law, the business judgment rule provides significant protection to the board of directors. Delaware law does give shareholders more power in the M&A context, but benefit corporations and corporations committed to Conscious Capitalism that are incorporated in a constituency statute state seem like they would operate similarly, even in the M&A context. In short, the authors do not clearly express a strong grasp of the benefit corporation statutes, and throughout the book the authors actually seem to advocate operating corporations in line with the benefit corporation statutes (considering all stakeholders in decisions).
While I am a bit critical in some of my comments above, I did appreciate learning more about Whole Foods Market and similar companies. The companies discussed are some of my favorite companies and are certainly making the world better for many of their stakeholders. The book also made a number of claims that spurred additional thinking, for which I am grateful, and which made reading the book worthwhile.
Monday, June 15, 2015
On June 11, 2015, the Delaware House of Representatives joined the Delaware Senate in passing a bill that would prohibit fee-shifting bylaws by Delaware stock corporations. The bill awaits signature by Delaware Governor Jack Markell. Nonetheless, the panel provides a nice debate, between practicing attorneys, and is available here. The information from the Chancery Daily is below.
Fordham Law School hosted a panel on Fee Shifting in Shareholder Litigation, featuring three members of the corporate law council of the Delaware State Bar Association, which submitted proposed amendments to the Delaware General Corporation Law that would preclude the adoption of fee-shifting provisions in corporate instruments, on Thursday, March 26, 2015. A webcast video of the panel is now available online here.Professor Sean J. Griffith - Fordham Law School
Panelists:Frederick Alexander - Morris Nichols Arsht & Tunnell
Chris Cernich - Institutional Shareholder Services
Kurt Heyman - Proctor Heyman Enerio
Mark Lebovitch - Bernstein Litowitz Berger & Grossman
Norman Monhait - Rosenthal Monhait & Goddess
Andrew Pincus - Mayer Brown
Friday, June 12, 2015
By my count, the version updated 6/3/15, lists the following number of entities (for a total of 500 benefit companies):
- 1 professional benefit corporation
- 74 benefit corporations
- 425 benefit LLCs
Oregon is one of a very few states that provides for the formation of benefit LLCs, in addition to benefit corporations. As you can see, the benefit LLCs are a good bit more popular than the benefit corporations, likely because most social enterprises are small, closely-held entities that should probably be LLCs instead of corporations.
LLC law is generally flexible enough to allow a social purpose and Oregon's corporation law expressly allows corporations to be formed for a social purpose, so the main draw seems to be branding/signaling based rather than law based.
These are still relatively small numbers in the grand scheme, but it was a fairly short time ago that there were fewer than 500 total benefit companies nationwide.
Thursday, June 11, 2015
Cuba has been in the news a lot lately. I’ve just returned from ten days in Havana so I could see it first hand both as a person who writes on business and human rights and as an attorney who consults occasionally on corporate issues. The first part of the trip was with the International Law Section of the Florida Bar. The second was with a group of art lovers. I plan to write two or three blog posts about the prospects of doing business in Cuba if and when the embargo is lifted. Because I do some consulting work, I want to make clear that these views are my own as an academic and should not be attributed to anyone else.
In this post I will just briefly list some basic facts about Cuba and foreign investment. Next week I will talk a bit more about investment, introduce the Cuban legal system, and talk about some of the business and compliance challenges. That's the subject of my research this summer. The following week I will address human rights in Cuba and how various governments and businesses are addressing those issues, the subject of another article I am working on.
Some Cuba basics:
- The island has 11 million people
- The average monthly wage is $25-45 per month
- The government is just starting to develop a comprehensive tax code
- The government is now allowing the sale of private property but the concept of mortgages is undeveloped
- 86% of people work for the government in some form but the government is now allowing “self employment” and cooperatives (small private businesses such as agricultural farms, salons, and restaurants)
- 5% of population has access to internet or a cell phone
- The government is seeking foreign investment- except in health, education, or military sectors
- Cuba is not an OECD member state. It does sit on the UN Human Rights Council
- The GDP is 62.7 billion
- The literacy rate is 99.8% and the country scores high on the human development index
- The country is in the middle of the pack in terms of the Corruption Perception Index, which measures bribery
- There are now over 60 bilateral investment treaties in place but they are not all in force
- Most lawyers and law firms work for the Cuban government
There are now three possible methods of international investment:
1) International Economic Association Contract (AEI). 49% of the companies in the 2015 registry are AEIs. This is a contract that does not create a new company and there is no sharing of profits. Certain changes of parties require government approval;
2) Full Foreign Capital Company. This is almost never approved but the foreign company has total control of the enterprise; and
3) Joint venture with the Cuban government. These are 45% of the companies in the 2015 registry. Often the hotels and other EU businesses are JVs with the government.
In the preamble to Cuba’s 2014 Laws on Foreign Investment (LFI), the Cuban National Assembly makes clear that the underlying basis for the law is: “Cuba's need to provide greater incentives to attract foreign capital, new technologies, and know-how to increase domestic production and better position Cuba to export to international markets.” The new law halves the profits tax from 30 to 15% and exempts investors from paying it for eight years. But the new law also appears to withhold many of the tax benefits from companies that are 100% foreign-owned.
Although Cuba changed its law last year, many people believe that Cuba is not ready for investment. Clearly rule of law concerns and the lack of infrastructure are real barriers. I’ll give more of my opinion on compliance and investment challenges and opportunities next week.
Wednesday, June 10, 2015
Last week, I attended the National Business Law Scholars Conference at Seton Hall University School of Law in Newark, NJ. It was a great conference, featuring (among others) BLPB co-blogger Josh Fershee (who presented a paper on the business judgment rule and moderated a panel on business entity design) and BLPB guest blogger Todd Haugh (who presented a paper on Sarbanes-Oxley and over criminalization). I presented a paper on curation in crowdfunding intermediation and moderated a panel on insider trading. It was a full two days of business law immersion.
The keynote lunch speaker the second day of the conference was Kent Greenfield. He compellingly argued for the promotion of corporate personhood, following up on comments he has made elsewhere (including here and here) in recent years. In his remarks, he causally mentioned B corporations and social enterprise more generally. I want to pick up on that thread to make a limited point here that follows up somewhat on my post on shareholder primacy and wealth maximization from last week.
June 10, 2015 in Business Associations, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joan Heminway, Litigation, Social Enterprise | Permalink | Comments (6)
Recently, I received notice of the following call for papers from the French association of Law Professors in Business Schools – the Association des Professeurs de Droit des Grandes Ecoles (“APDGE”). The theme of the conference is "Governance and Compliance in Companies: Constraints or Opportunities." Additional information is available below and at the conference website:
3rd Conference of the Association of Law Professors of Les Grandes Ecoles/Business Schools, organized by Toulouse Business School
CALL FOR PAPERS
"Governance and Compliance in Companies: Constraints or Opportunities?"
December 3-4, 2015 – Toulouse Business School
Conference Website: http://www.tbs-education.fr/en/apdge-conference/
The taking into account of new legal rules (whether in Company Law, Banking Law, Tax Law, Environmental Law, Employment Law, Consumer Law, Digital Law, or in other fields of Law), involves increased attention to Governance and Compliance by companies, as well as by research professors. The position of Chief Compliance Officer has become widespread within major companies, as have charters, codes of good conduct and codes of good governance. Consequently, it is appropriate to look at Governance and Compliance in companies and to investigate whether or not they form constraints or opportunities for companies. To what extent does the appearance of new legal and regulatory provisions represent new constraints for companies? On the contrary, may opportunities be detected in these practices in order to deal with upheavals in the Law? What skills are necessary for lawyers in this new environment? What are the roles of soft law and of Corporate Social Responsibility (CSR) in this context?
These two research days propose to focus discussion on constraints and opportunities for companies in the development of the new rules and practices of Governance and Compliance.
This Call for Papers seeks to explore the following questions (as illustrations, not limitations):
- The links between Governance and Compliance, on the one hand, and Corporate Social Responsibility (CSR), on the other hand;
- Programs to be put in place for a better compliance;
- The role of lawyers in Governance and Compliance;
- Opportunities for good Governance and proper Compliance for companies;
- The impact of foreign laws on Governance (for example, the Sarbanes-Oxley Act);
- The legal risks in a breach of compliance;
- Legal monitoring and anticipation of new legal and regulatory constraints;
- Government procurement and a company's history of Compliance ;
- The interface between internal control (internal auditing, reporting, etc.) and the Law;
- The legal challenges of whistleblowing;
- The strategic role of Compliance;
- The interface between company lawyers, external advisors and operational staff in Governance and Compliance;
- The theory of groups of parent companies or subsidiaries and Compliance;
- Control of the chain of sub-contractors and subsidiaries and Compliance;
- Analysis of the effectiveness of soft law in Compliance;
- Investors and Governance;
- The comparative study of Governance.
A publication of the best papers is foreseen.
Proposals: June 30, 2015
Full Text: September 1, 2015
Author Notification by the Scientific Committee: October 12, 2015
[More information after the break]
Friday, June 5, 2015
This week, while preparing for and attending the National Business Law Scholars Conference, I have had to deal with a Tennessee corporate law "brushfire" of sorts generated by a Nashville Business Journal (NBJ) article published earlier this week. The article, written by a Nashville lawyer, took a somewhat alarmist--and substantively inaccurate--view of a recent addition to the Tennessee Business Corporation Act drafted by the Business Entity Study Committee (BESC) of the Tennessee Bar Association, of which I am a member (and about which I have written here in the past, including here, here, and here). Specifically, the author asserted that Tennessee's adoption of the text of Model Business Corporation Act Section 14.09 creates new liability for Tennessee corporate directors--especially directors of insolvent Tennessee corporations. Somewhat predictably, calls and emails from directors, executives, and the Tennessee Secretary of State's office (which, itself, received many calls) ensued.
By design, and (we believe) by effect, the statutory section at issue clarifies the duties of directors of dissolved Tennessee corporations and establishes a safe harbor from liability. Accordingly, the drafting team from the BESC (me included) believed we had to jump in and correct the mischaracterizations in the article, which the author apparently was unwilling to retract or self-correct. The NBJ, greatly to its credit, understood our concerns and published a rebuttal from the BESC chair, which the BESC collaborated in drafting and co-signed. In addition, the Chattanooga Times Free Press published an article that outlines the debate (in which the BESC chair and I am quoted).
So, folks do pay attention to corporate law--and they think it matters! Unfortunately, sometimes, they get it wrong. This leads to a number of lessons . . . . Apropos of that thought, it's important that a lawyer measure twice and cut once, especially when writing a critical exposé intended and destined to receive attention from an important audience--one personally affected by the contents of the exposé. Moreover, the need for experienced corporate legal counsel--lawyers steeped in the structure and function of corporate law--continues to be important in the drafting of, and public education regarding, complex corporate legal rules.
The New Yorker recently ran an interesting article entitled Patagonia’s Anti-Growth Strategy. Patagonia is a certified B corporation and a California benefit corporation.
As a customer, Patagonia is my favorite company for casual/outdoor clothing, and one of my favorite companies in any industry. Initially, I thought Patagonia's clothes were insanely expensive, but their clothes have been much cheaper on a “cost-per-wear” basis than any other clothes I have bought. In an age of cheap products and rampant consumerism, Patagonia is striking a chord with those who wish to buy fewer, quality products.
A taste of the article follows, but go read the entire thing.
The company’s anti-materialistic stance ramped up on Black Friday, 2011, with a memorable full-page advertisement in the Times that read, “Don’t Buy This Jacket.” The ad’s text broke down the environmental costs of the company’s top-selling R2 fleece sweater and asked consumers to think twice before buying it or any other product. The attention the ad received helped to bump Patagonia’s 2012 sales significantly. . . . Patagonia is trying second-hand-clothing sales at its shop in Portland, Oregon, and has made product repair and recycling a growing part of its business model. It recently invested in Yerdle—a Web startup whose stated mission is to reduce new-product purchases by twenty-five per cent—as a way for people, and even the company itself, to swap or give away used Patagonia gear.
Despite being a customer for about two decades, I haven’t needed the Patagonia repair services yet, but I love the idea.
As the article above mentions, “[a]ll of this would be jet fuel for the engines of modern cynicism, if not for the fact that Patagonia, a privately owned corporation now in its fifth decade, has a distinguished record of environmental philanthropy and investment.” Patagonia may eventually experience mission drift, but the trust they have created with their customers is invaluable. While Patagonia’s anti-consumerism stance may seem to be against the firm's self-interest, “anti-consumerism is clearly helping to build the Patagonia brand. Indeed, the company is seeing double-digit annual growth.”
Thursday, June 4, 2015
Southeastern Academy of Legal Studies in Business Annual Conference │ Atlanta, GA │ Nov. 12-14, 2015
I just signed up for the SEALSB Annual Conference, which will be held in Atlanta, GA from November 12 through 14. I have attended and presented at the SEALSB Annual Conference each of the past two years. Both years we had a good group of professors.
The paper presentations are not limited by legal subject area, and the presentations in past years have covered issues in corporate governance, constitutional law, employment law, international law, sports and the law, franchise law, and other areas.
The conference is intended for “teachers and scholars in the fields of business law, legal environment, and law-related courses outside of professional law schools.” Most participants teach legal studies in business schools. I am told that those who interested in or exploring teaching legal studies outside of a law school are also welcome.
Conference registration information is available here.
Wednesday, June 3, 2015
I just returned early Monday from this year's Law and Society Association conference. I presented my paper on LLC operating agreements as contracts--about which I later will blog here--on a panel as part of a CRN (Collaborative Research Network) on corporate and securities law. I enjoyed the conference and being in Seattle (a city I rarely get a chance to visit).
I noticed something in a number of the sessions I attended, however, that I want to share here. A number of scholars referenced, in their presentations or in comments to the presentations of others, "shareholder primacy." As I listened, it was clear these folks were referring to the prioritizing of shareholder interests--especially financial interests--ahead of the interests of other stakeholders in corporate decision-making, rather than the elements of corporate control (few as there are) enjoyed by shareholders. As I began to recognize this, several things happened in rapid succession.
First, I remembered David Millon's recent paper on this subject, which (among other things) tells a history of the use of the "shareholder primacy" term. It's well worth a read. Or a re-read!
Second, I remembered Steve Bainbridge's earlier work on this same topic. Ditto on that paper; read it or re-read it. His chart in Figure 1 of that paper is an amazing visual summary.
Third, and largely as a result of those two papers, I wondered why we use the same term for these two aspects of corporate modeling (whether you label them them radical versus traditional shareholder primacy, shareholder protection versus monitoring, corporate ends versus means, or anything else). It's confusing! I kept wanting to interrupt, as folks were using "shareholder primacy," to ask: "which kind?" to move my understanding and analysis further forward faster.
Here's my pitch. I advocate moving away from using the term "shareholder primacy" when a more specific term is available. In the alternative, I advise defining the use of "shareholder primacy" in context when it is used, whether orally or in writing. Am I alone in being unsettled by this? Am I being too pedantic or controlling in my advocated solution or advice? I welcome your views.