Tuesday, March 31, 2015

More Beliefs: Director Primacy and Public and Private Companies

Yesterday, Prof. Bainbridge annotated my "creed" on corporate governance, and I appreciated his take. In fact, many of his chosen sources would have been mine.

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.  

March 31, 2015 in Business Associations, Corporations, CSR, Delaware, Joshua P. Fershee, Securities Regulation | Permalink | Comments (3)

Friday, March 27, 2015

Commissioner Dan Gallagher on Twitter

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.

March 27, 2015 in Business Associations, Corporations, Haskell Murray, Securities Regulation | Permalink | Comments (1)

Developing Areas of Capital Market and Federal Securities Regulation at Vanderbilt Law School

Vanderbilt

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.

March 27, 2015 in Business Associations, Conferences, Corporate Finance, Corporations, Haskell Murray, Securities Regulation | Permalink | Comments (0)

Thursday, March 26, 2015

Corporations, the State, and the Rule of Law- Call for Papers

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, Law Reviews, Call for Papers, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Marcia Narine, Travel | Permalink | Comments (0)

Wednesday, March 25, 2015

Faculty Lounge Mini-Symposium on Board Diversity

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.

March 25, 2015 in Business Associations, Corporate Governance, Corporations, Current Affairs, Haskell Murray | Permalink | Comments (0)

Friday, March 20, 2015

Sports and Business

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.   

March 20, 2015 in Business Associations, Haskell Murray, Sports | Permalink | Comments (0)

Etsy's Dilemma

Etsy

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.  

Currently, I am not aware of any publicly-traded benefit corporations, though Delaware public benefit corporation Plum Organics is a subsidiary of publicly-traded Campbell Soup Company.

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.

 

March 20, 2015 in Business Associations, Corporate Governance, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Thursday, March 19, 2015

This I Believe: On Corporate Purpose and the Business Judgment Rule

Prof. Bainbridge yesterday posted about The Modern Corporation Statement on Company Law.  The statement has ten fundamental rules, of which number ten is:

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.      

March 19, 2015 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Delaware, Joshua P. Fershee, LLCs, M&A, Social Enterprise | Permalink | Comments (5)

Friday, March 13, 2015

Teaching Students to Deal with Ambiguity and Complexity

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 mnarine@stu.edu.

 

March 13, 2015 in Business Associations, Law School, Marcia Narine, Teaching | Permalink | Comments (3)

Wednesday, March 11, 2015

Women on Board(s): New Perspectives from Crowd Theory?

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!

March 11, 2015 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (0)

Monday, March 9, 2015

Western Carolinia University - Assistant Professor of Legal Studies Position

WCU

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. 

March 9, 2015 in Business Associations, Business School, Haskell Murray, Jobs | Permalink | Comments (0)

Friday, March 6, 2015

Social Enterprise in the Mainstream

Social enterprise has made two relatively recent appearances in the mainstream media:

(1) David Brooks on "How to Leave a Mark" in the NYT.

(2) George Roberts on "Bringing a Business Approach to Doing Good" in the WSJ.

In addition, a few law schools have started focusing more on social enterprise, including through the Georgetown Social Enterprise and Nonprofit Clinic and the Social Enterprise Law Association at Harvard Law School

Interest in social enterprise is and has been increasing, but the legal frameworks could still use significant work as my co-blogger Joan Heminway noted last month.

March 6, 2015 in Business Associations, Haskell Murray, Law School, Social Enterprise | Permalink | Comments (0)

Preparing today's students for the legal market

It’s always nice to be validated. Day two into torturing my business associations students with basic accounting and corporate finance, I was able to post the results of a recent study about what they were learning and why. "Torture" is a strong word-- I try to break up the lessons by showing up to the minute video clips about companies that they know to illustrate how their concepts apply to real life settings. But for some students it remains a foreign language no matter how many background YouTube videos I suggest, or how interesting the debate is about McDonalds and Shake Shack on CNBC.

My alma mater Harvard Law School surveyed a number of BigLaw graduates about the essential skills and coursework for both transactional and litigation practitioners. As I explained in an earlier post, most of my students will likely practice solo or in small firms. But I have always believed that the skills sets are inherently the same regardless of the size of the practice or resources of the client. My future litigators need to know what documents to ask for in discovery and what questions to ask during the deposition of a financial expert. My family law and trust and estates hopefuls must understand the basics of a business structure if they wish to advise on certain assets. My criminal law aficionados may have to defend or prosecute criminal enterprises that are as sophisticated as any multinational corporation. Those who want to be legislative aides or go into government must understand how to close loopholes in regulations.

What are the top courses students should take? The abstract is below:

We report the results of an online survey, conducted on behalf of Harvard Law School, of 124 practicing attorneys at major law firms. The survey had two main objectives: (1) to assist students in selecting courses by providing them with data about the relative importance of courses; and (2) to provide faculty with information about how to improve the curriculum and best advise students. The most salient result is that students were strongly advised to study accounting and financial statement analysis, as well as corporate finance. These subject areas were viewed as particularly valuable, not only for corporate/transactional lawyers, but also for litigators. Intriguingly, non-traditional courses and skills, such as business strategy and teamwork, are seen as more important than many traditional courses and skills.

Did you take these courses? Has your school started adding more of this type of coursework and does your faculty see the value? Do you agree with the results of this survey? Let me know in the comments or email me at mnarine@stu.edu.

March 6, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Jobs, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (2)

Tuesday, March 3, 2015

A Delaware Law Insider: A Nexus between Shareholder Activism & Hobby Lobby?

The Fordham Journal of Corporate and Financial Law recently published a March 6, 2014, lecture from Former Delaware Supreme Court Chief Justice Myron T. Steele, Continuity and Change in Delaware Corporate Law Jurisprudence (available on Westlaw, but fee may apply).  As an aside, I'll note that it appears to have taken a full calendar year for this to get published (at least on Westlaw), which seems crazy to me.  If there's any question why legal blogs can fill such a critical role in providing timely commentary on legal issues, this is a big part of the answer.

In the lecture, Chief Justice Steele discusses three main areas: (1) multi-forum jurisdiction, (2) shareholder activism, and (3) the Nevada, Delaware, and North Dakota Debate (a "competition for charters"). 

As to multi-forum jurisdiction, he makes the unsurprising point that Delaware courts are of the view that first impressions of the Delaware General Corporation Law or other "internal affairs doctrine" issues should be handled in Delaware courts.  Of note, he explains that the Delaware constitution (art. IV, § 11(8)) now allows federal courts, the top court from any state, the SEC, and bankruptcy courts to certify questions directly to the Delaware Supreme Court.  This option is one that lawyers litigating such cases in other forums won't want to miss.    

With regard to shareholder activism, Chief Justice Steele states, 

In my preferred system for the world, and I think in the minds of all Delaware judges, engaged if not antagonistic stockholders add positive value as a check on director authority and are a catalyst for corrective accountability, so long as their efforts focus on improved performance and not the advancement of political or personal agendas--a major caveat in my view. Delaware courts, it seems to me, will increasingly recognize the benefits that engaged investors bring to the table.

This is an interesting take, and it seems consistent with my read of most Delaware law. I am of the view that shareholders should have a lot of latitude to engage and even agitate, if they wish, as long as they follow the rules they agreed to in the corporate charter and bylaws (and applicable state law, of course).  There is concern that a court might determine an action to be political or personal in nature if it something with which the court does not agree, but that could happen on the political left or right, and judgment is always a risk at some point.  Delaware courts are usually up to the task.
 
Chief Justice Steele's view on this lends further credence to a view I have held since the Burwell v. Hobby Lobby Stores decision came out: Delaware corporations cannot use the Religious Freedom Restoration Act (RFRA) to justify their business decisions.  That is, RFRA applies in Delaware, but RFRA does not pre-empt Delaware corporations law, so RFRA cannot be used as a rationale for decision making, at least where a shareholder objects. In Hobby Lobby, Justice Alito wrote:
State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure. See, e.g.ibid; id., §3:2; Del. Code Ann., Tit. 8, §351 (2011) (providing that certificate of incorporation may provide how “the business of the corporation shall be managed”). Courts will turn to that structure and the underlying state law in resolving disputes.
Combine this with Chief Justice Steele's warning against company governance for the "advancement of political or personal agendas" and recent cases requiring Delaware corporation to seek profit, it seems Delaware courts are skeptical of non-profit-seeking rationales for shareholder or director action.  As Chancellor Chandler explained in eBay v. Newmark (more here):

The corporate form in which [an Delaware corporation] operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. . . . Having chosen a for-profit corporate form, . . . directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.

Thus, in Delaware a for-profit corporation cannot promote or practice the religious views of even a majority of directors or shareholders where such actions do not promote the value of the corporation for shareholders. 

Finally, as to the Nevada, Delaware, North Dakota debate, Chief Justice Steele questions the value of Nevada allowing "charters to exculpate directors for breaches of duty of loyalty," because he thinks such a massive change in widely held views of fiduciary duty law could invite federal "meddling."  I think he's exactly right on this.  He notes with skepticism the North Dakota Publicly Traded Corporations Act because there are only two companies that have adopted the law, but the law's failure in the competition for charter does not raise the same concerns of a race to the bottom (my words) that Nevada's law provides.

I think Chief Justice Steele's article provides interesting and useful insight into the workings of the Delaware court system, and I recommend the sort read.  I just wish I had seen it about nine months ago.  

March 3, 2015 in Business Associations, Corporate Governance, Corporate Personality, Corporations, Delaware, Joshua P. Fershee, Social Enterprise | Permalink | Comments (0)

Thursday, February 26, 2015

Entrepreneurship Resources - Startup Stash

Startupstash-icon-90x90

Via an Ethan Mollick (Wharton) tweet, I was recently introduced to Startup Stash.

Startup Stash is a beautifully simple set of curated resources for entrepreneurs. The categories of resources range from Naming to Hosting to Market Research to Marketing to Legal to Human Resources to Finance. And more.

As a law professor, I was obviously most curious about the legal resources. The list has the controversial and well-known Legal Zoom, but also has some relatively unknown resources. For example, UpCounsel ("get high-quality legal services from top business attorneys at reasonable rates") was new to me. You can see the full list of legal resources here.

As previously stated, the Startup Stash list is curated, so there are only 10 legal resources, all of which look interesting, if also potentially dangerous for those without legal training. As I tell my business students, an ounce of prevention is worth a pound of cure and consulting with a knowledgeable attorney early in the start-up process can be invaluable. 

February 26, 2015 in Business Associations, Entrepreneurship, Haskell Murray, Web/Tech | Permalink | Comments (0)

Tuesday, February 24, 2015

Proposed Fiduciary Duties for Retirement Investment Advisers and Brokers

On Monday the White House released a report on The Effects of Conflicted Investment Advise on Retirement Savings which highlights the unique constraints of many retirement investors.  The current "suitable" investment advise standard leaves room for financial service provides to channel retirement investors into investments with higher fees paid by the investor but higher commissions earned by the professional.  Higher fees paid on investments can reduce the return on savings an average of 12% over the life of the retirement account.  In other words, paying less in fees could mean that retirement savings could last an average of an additional 5 years.  This has major implications for individual financial stability as well as our national retirement policy, which is increasingly dependent upon self-directed retirement savings in the form of 401(k)s and IRAs.

To reduce the conflict of interest and lessen the likelihood that retirement investors will "select" higher-fee investment vehicles based on the self-interested advise of financial services providers, the White House is asking the Department of Labor to impose a fiduciary duty standard requiring the advise provided to be consistent with the best interests of the investor.  This is such an intuitive position that many investors think that financial advisers and brokers are already subject to this requirement.  The proposal would bring the legal reality and enforceable duty in line with the public perspective.  This is not to say that there won't be significant opposition from financial services providers who argue that the industry is already highly regulated.

The announcement and the focus on both retirement investors and the impact of fees on retirement savings is of particular interest to me.  I have written three law review articles on related topics.  

  • Citizen Shareholders and Modernizing the Agency Paradigm (2012) articulates the ways in which retirement investors (I call them Citizen Shareholders) are different from traditional corporate law shareholders;
  • The Retirement Revolution (2013) describes how the fundamental shift in the retirement landscape imposed additional risks onto the retirement investors; and 
  • The Outside Investor (2014) explores how the intersection of corporate law and ERISA standards leave many retirement investors exposed to additional market risks rather than intuitive guess that these investors would be more protected.

-Anne Tucker

February 24, 2015 in Business Associations, Anne Tucker, Corporations, Financial Markets | Permalink | Comments (0)

Monday, February 23, 2015

Benefit Corporations: What am I Missing--Seriously?

I serve on the Tennessee Bar Association Business Entity Study Committee (BESC) and Business Law Section Executive Committee (mouthfuls, but accurately descriptive).  The BESC was originated to vet proposed changes to business entity statutes in Tennessee.  It was initially populated by members of the Business Law Section and the Tax Law Section, although it's evolved to mostly include members of the former with help from the latter.  The Executive Committee of the Business Law Section reviews the work of the BESC before Tennessee Bar Association leadership takes action.

Just about every legislative session of late, these committees of the Tennessee Bar Association have been asked to review proposed legislation on benefit corporations (termed variously depending on the sponsors).  A review request for a bill proposed for adoption for this session recently came in.  Since I serve on both committees, I get to see these proposed bills all the time.  So far, the proposals have pretty much tracked the B Lab model from a substantive perspective, as tailored to Tennessee law.  To date, we have advised the Tennessee Bar Association that we do not favor this proposed legislation.  Set forth below is a summary of the rationale I usually give.

Continue reading

February 23, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (18)

Collins "C.J." Seitz, Jr. Nominated to the Delaware Supreme Court

Seitz

The Chancery Daily reports that Governor Markell has nominated Collins "C.J." Seitz, Jr. to the Delaware Supreme Court. The January 31, 2015 retirement of Justice Henry duPont Ridgely created the vacancy.

C.J. Seitz, Jr. has over thirty years of corporate/commercial/IP litigation experience and is a respected, influential member of the Delaware bar. He has also served as mediator, arbitrator, or special master in numerous cases.  He currently serves as a founding partner of Seitz Ross Aronstam & Moritz LLP.

February 23, 2015 in Business Associations, Delaware, Haskell Murray | Permalink | Comments (0)

Friday, February 20, 2015

Moultrie on Legal Employment

Joan Heminway and I must be thinking similar thoughts because before I even saw her helpful post on business law jobs, I asked my former research assistant Samuel Moultrie to share his thoughts and advice on finding legal employment in this economic environment.

Sam is one of the hardest workers I know and took his job search seriously. He also took a big risk by going beyond the typical employers we had recruiting on campus when we were at Regent Law – mostly non-profits, government agencies, and a few VA and NC law firms. Sam wanted to practice in the state that has the greatest influence on U.S. corporate law and has made it happen. His journey was not and is not easy, but I thought his story might be inspiring. Recently, Sam was also selected as a 2015 Leadership Delaware Fellow. Sam’s thoughts on finding legal employment are reproduced below. 

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By: Samuel L. Moultrie

The job market for recent law school graduates is, without a doubt, miserable.  While the statistics seem to vary, I think it is safe to say that the supply of new law school graduates exceeds the number of legal job openings.  Nevertheless, graduates should not lose all hope.  Any law school graduate can find a job, if they are motivated, willing to work hard, and take steps to distinguish themselves. 

[More after the break]

Continue reading

February 20, 2015 in Business Associations, Delaware, Haskell Murray, Jobs | Permalink | Comments (0)

Wednesday, February 18, 2015

Updated Social Enterprise Map

My colleague at Georgia State, Cass Brewer, posted on SOCENT (social enterprise) Law, an update to his incredibly useful social enterprise map.  On this blog and in other fora, I have discussed with many of you teaching BA whether you cover social enterprises and, if so, to what extent.  This is a great resource if you do anything in the area.  

How cool is this?

 

-Anne Tucker

February 18, 2015 in Business Associations, Anne Tucker, Social Enterprise | Permalink | Comments (0)