Sunday, November 12, 2017
I am putting together a panel or discussion group (depending on how many folks respond positively) for the SEALS conference for next summer, which is scheduled to be held August 5-11, 2018, at the Marriott Harbor Beach Resort & Spa in Fort Lauderdale, Florida (details here).
Here is the proposed title and a brief draft description (which may have to be shortened for the submission):
The Role of Corporate Personhood in Masterpiece Cakeshop
The United States Supreme Court is scheduled to hear arguments in the case of Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission on Dec. 5, 2017 (SCOTUSblog summary here). The issue presented in that case is: “Whether applying Colorado's public accommodations law to compel the petitioner to create expression that violates his sincerely held religious beliefs about marriage violates the free speech or free exercise clauses of the First Amendment.” A group of corporate law professors have filed an amicus brief in support to the CCRC (available here). One of the two arguments in that brief is: “Because Of The Separate Legal Personality Of Corporations And Shareholders, The Constitutional Interests Of Shareholders Should Not Be Projected Onto The Corporation.” This [panel] [discussion group] features [paper presentations] [a dialogue] on the pros and cons of this argument, together with related analysis and observations. Please note that the Supreme Court will likely have issued its opinion in the case by the time of the panel/discussion.
Please email me at firstname.lastname@example.org if you would like to participate in this program, letting me know if you are interested in presenting a paper, participating in a discussion, or both. Also, let me know if you know of anyone else who may want to participate—or just pass this on to others. I must file the proposal soon in order to ensure its consideration (the “best practices” deadline for submissions has already passed).
November 12, 2017 in Business Associations, Call for Papers, Conferences, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Family Business, Stefan J. Padfield | Permalink | Comments (0)
Friday, November 10, 2017
After my daughter Allie's first stay at Vanderbilt Children’s hospital, with what we think was a virus that attacked her lungs, Allie seemed to return to normal for a couple weeks before having another episode. This time, we spent 4 days in the hospital. The praise I lavished on Vanderbilt last time was less deserved on this trip, mostly blamed, staff repeatedly claimed, on a new computer system. (Note: In a place like a hospital, don’t you think you should provide adequate training and work out the bugs before launching a new computer system?)
In any event, Allie is back home again, though we are still working with doctors to uncover the precise cause.
Obviously, my daughter’s health is much more important than work, but I do need to continue to work (if for no other reason than health insurance...we would be bankrupt without health insurance). Given that my focus has been diverted, I have had to push on quite a number of deadlines -- 4 writing assignments and 2 speaking engagements -- and have been slower than normal in returning graded work. Thankfully, students, editors, and colleagues have been quite understanding.
As a professor and a person, I am a big believer in meeting deadlines, so it has been difficult for me to ask for extensions. When asking for extensions, I do think students and professors can “cry wolf” too often, and then, when true emergencies do arise, it becomes harder for the other side to happily grant the extension. This situation has made me even more committed to hitting every deadline I can, so that when I do ask for an emergency extension, people know it is for a valid reason.
Also, this situation has reminded me of the need to create some margin in my life. This past month was going to be a busy one, even without my daughter’s situation. It was doable, but all time needed to be available and efficiently used. Without margin, many projects were impacted, in domino fashion. Now, this situation with my daughter was unexpected and extraordinary and difficult to plan for, and I am not suggesting that we all run at 50% capacity in case of an emergency, but I do think I could have benefited from having built a bit more flexibility into my schedule. (Note: As a law review adviser, I recommended that my students to build some of this margin into their publishing schedule for professors. For example, tell the professors you need the article about a month before you actually do because various issues almost invariably arise.)
In any event, I am quite appreciative to all those who have been so understanding, and I am catching up. Barring any future issues, I think I will be back in the grove and on schedule in about 10 days or so, just in time to gear up for finals.
Friday, October 27, 2017
A former student brought this fundraising website to my attention: To the Stars Academy of Arts and Sciences ("TTS Academy). (Image above from a Creative Commons search).
This article describes TTS Academy as follows: "Former Blink-182 singer and guitarist Tom DeLonge is taking his fascination with/conspiracy theories about UFOs to their logical conclusion point: He's partnering with former government officials on a public benefit corporation studying 'exotic technologies' from Unidentified Aerial Phenomenon (UAP) that the consortium says can 'revolutionize the human experience.'"
Remember the Blink-182 song Aliens Exist?
I couldn't make this up. And I did spend some time trying to determine if it was a joke, but TTS Academy's 63-page offering circular suggests that it is no joke. And TTS Academy appears to have already raised over $500,000.
According to the organization's website, Tom DeLonge of Blink-182 fame is in fact the CEO and President. Supposedly, DeLonge has teamed with former Department of Defense official Luis Elizondo who confirmed to HuffPost that the TTS Academy is planning to "provide never before released footage from real US Government systems...not blurry, amateur photos, but real data and real videos." Rolling Stone reports that "DeLonge has long been interested in UFO and extraterrestrial research. After parting ways with Blink-182 in 2015, he delved deeper into the subject, releasing the book Sekret Machines: Gods earlier this year and he's also working on a movie that is related to those interests called Strange Times." TTS Academy is a Public Benefit Corporation, formed in Delaware.
The TTS Academy website states: "To The Stars Academy is a Public Benefit Corporation (PBC), which means our public benefit purpose is a core founding principle of our corporate charter alongside the traditional goal of maximizing profit for shareholders." Hmm... How does one pursue a public benefit purpose and seek to maximize profit for shareholders? A main point of benefit corporations is liberate companies from the perceived restrictions of shareholder wealth maximization.
The website continues: "Our public purpose: Education - Community - Sustainability - Transparency. PBCs have enjoyed a surge in popularity as the public becomes more interested in corporate responsibility, transparency, and more recently, the concept of impact investing.* It’s clear that an expanding portion of the general population is looking to make an impact on the world around them, not only through volunteering, or speaking out on social media, but through financial decision making.** We believe raising resources through Regulation A+ crowdfunding will allow us to expedite expansion of TTS Academy’s PBC initiatives, like promoting citizen science, enhancing traditional education with science, engineering and art-related programming, supporting veterans and their families, and promoting underrepresented people in film." Color me skeptical.
As Professor Christine Hurt noted way back in 2014/15, the crowdfunding and social enterprise circles may overlap significantly. Professor Hurt wrote, "for-profit social entrepreneurship may find equity crowdfunding both appealing and available. For-profit social entrepreneurs may be able to use the crowdfunding vehicle to brand themselves as pro-social, attracting individual and institutional cause investors who may operate outside of traditional capital markets and may look for intangible returns. Just as charitable crowdfunders rebut the conventional wisdom that donors expect tax-deductibility, prosocial equity crowdfunders may rebut the conventional wisdom that early equity investors expect high returns or an exit mechanism." Not sure if she, or any of us, predicted exactly this type of company.
Friday, October 20, 2017
Below the line is a call for papers that I just received.
The Atlantic Law Journal is a double-blind peer-reviewed law journal, and it is one of the regional publications of the Academy of Legal Studies in Business.
The Atlantic Law Journal is now open for submissions and is soliciting papers for its upcoming Volume 20 with an expected publication date in summer 2018. The Atlantic Law Journal is listed in Cabell's, fully searchable in Thomson-Reuters Westlaw, and listed by Washington & Lee. The journal is a double-blind peer-reviewed publication of the Mid-Atlantic Academy of Legal Studies in Business (MAALSB). Acceptance rates are at or less than 25%, and have been for all our recent history. We publish articles that explore the intersection of business and law, as well as pedagogical topics. Please see our website at http://www.atlanticlawjournal.org/submissions.html for the submission guidelines, the review timeline, and more information regarding how to submit. Submissions or questions can be sent to Managing Editor, Evan Peterson, at petersea [at] udmercy.edu.
The Harvard Law School Forum on Corporate Governance and Financial Regulation recently contained a notice about the Delaware Corporate Law Resource Center, which I thought might interest our readers as well. The post is reproduced below the line.
The oral histories of iconic Delaware cases are the most interesting, and useful, part of the website to me, though some of the cases do not appear to have materials yet. In addition to the cases, there is an oral history on 102(b)(7) to which my judge (VC Stephen Lamb) and others contributed. I hope the existing materials will be added to and expanded over time.
The University of Pennsylvania Law School Institute for Law and Economics (ILE) is pleased to announce the creation and public availability of a new website devoted to resources relating to the development of the Delaware General Corporation Law and related case law. This website (the Delaware Corporation Law Resource Center) has two principal components. The first is a compilation of resources relating to the Delaware General Corporation Law itself, including a link to the text of the statute, and links to the bills to amend the statute since its general revision in 1967. This portion of the website also includes links to annual commentaries on those amendments, the reports and minutes generated in the 1967 revision process, and memoranda disseminated by the Council of the Delaware State Bar Association Corporation Law Section describing some of the more significant and controversial amendments to the statute.
The second component of the website is a repository for materials constituting oral histories of iconic corporate law decisions of the Delaware courts since 1980, dealing with the director’s fiduciary duty of care, duties in takeovers, and freezeouts by controlling stockholders. This portion of the website is a work in progress, but for some of the cases it already contains the opinions in the case, briefs, selected transcripts of oral arguments, and selected key documents from the record. Most notably, the oral history compilation includes high quality videotaped interviews of lawyers and judges involved in the case, who describe the back story of the case with details not available through review of the courts’ opinions.
The oral history portion of the website also includes the first in a series of composite videos setting forth the background of each case. That premiere video describes the background of Smith v. Van Gorkom and presents, in narrative fashion, selected excerpts from the video interviews of the participants.
ILE hopes and expects that this website, which is freely available to the public, will prove to be a valuable resource for the teaching and development of Delaware corporate law. ILE welcomes suggestions for ways in which the website can be made even more useful to those interested in its subject.
The new website is available here.
Tuesday, October 17, 2017
The information below the line is from an e-mail I received about the SEALSB Conference. The SEALSB conference is the southeastern regional conference for law professors in business schools, but we have had practicing lawyers (especially those hoping to break into academia) and law school professors participate in the past.
The conference rotates locations in the southeast, and this year the conference will be held in Atlanta, GA from November 9-11.
SEALSB Conference 2017
The deadline to upload papers for inclusion in the conference materials has been extended to this Friday, October 20th. You may upload your paper by clicking on the following link: Paper Upload. Otherwise, please bring 25 copies to the meeting.
Friday, October 20th is also the conference registration deadline, so if you are planning to attend the conference but have not yet registered please make sure you do so sometime this week!
Additional information is available on the Conference Website. We look forward to seeing you at the Georgian Terrace!
Friday, October 13, 2017
Earlier this week, my two-year old daughter was in the pediatric ICU with a virus that attacked her lungs. We spent two nights at The Monroe Carell Jr. Children's Hospital at Vanderbilt (“Vanderbilt Children’s). Thankfully, she was released Wednesday afternoon and is doing well. Unfortunately, many of the children on her floor had been in the hospital for weeks or months and were not afforded such a quick recovery. There cannot be many places more sad than the pediatric ICU.
Since returning home, I confirmed that Vanderbilt Children’s is a nonprofit organization, as I suspected. I do wonder whether the hospital would be operated the same if it were a benefit corporation or as a traditional corporation.
Some of the decisions made at the hospital seems like they would have been indefensible from a shareholder perspective, if the hospital had been for-profit. Vanderbilt Children’s has a captive market, with no serious competitors that I know of in the immediate area. Yet, the hospital doesn’t charge for parking. If they did, I don’t think it would impact anyone’s decision to choose them because, again, there aren’t really other options, and the care is the important part anyway. The food court was pretty reasonably priced, and they probably could have charged double without seriously impacting demand; the people at the hospital valued time with their children more than a few dollars. The hospital was beautifully decorated with art aimed at children – for example, with a big duck on the elevator ceiling, which my daughter absolutely loved. There were stars on the ceiling of the hospital rooms, cartoons on TVs in every room, etc. All of this presumably cost more than a drab room, and perhaps it was all donated, but assuming it actually cost more, I am not sure those things would result in any financial return on investment.
As we have discussed many times on this blog, even in the traditional for-profit setting, the business judgment rule likely protects the decisions of the board of directors, even if the promised ROI seems poor. But at what point – especially when the board knows there will be no return on the investment at all - is it waste? (Note: Question sparked by a discussion that Stefan Padfied, Josh Fershee, and I had in Knoxville after a session at the UTK business law conference this year). And, in any event, the Dodge and eBay cases may lead to some doubt in the way a case may play out. And even if the law is highly unlikely to enforce shareholder wealth maximization, the norm in traditional for-profit corporations may lead to directorial decisions that we find problematic as a society, especially in a hospital setting.
Now, maybe the Hippocratic Oath, community expectations, and various regulations make it so nonprofit and forprofit hospitals operate similarly. As a father of a patient, however, even as a free market inclined professor, I would prefer hospitals to be nonprofit and clearly focused on care first. Also, some forprofit hospitals are supposedly considering going the benefit corporation route, which may be a step in the right direction – at least they have an obligation to consider various stakeholders (even if, currently, the statutory enforcement mechanisms are extremely weak) and at least there are some reporting requirements (even if , currently, reporting compliance is miserable low in the states I have examined and the statutory language is painfully vague).
I am not sure I have ever been in a situation where I would have paid everything I had, and had no other good options for the immediate need, and yet I still did not feel taken advantage of by the organization. There is much more that could be said on these issues, but I do wonder whether organizational form was important here. And, if so, what is the solution? Require hospitals to be nonprofits (or at least benefit corporations, if those statutes were amended to add more teeth)?
Friday, October 6, 2017
I assume most readers are familiar with Stonyfield Yogurt, and perhaps a bit of its story, but I think the podcast goes far beyond what is generally known.
The main thing that stuck out in the podcast was how many struggles Stonyfield faced. Most of the companies featured on How I Built This struggle for a few months or even a few years, but Stonyfield seemed to face more than its share of challenges for well over a decade. The yogurt seemed pretty popular early on, but production, distribution, and cash flow problems haunted them. Stonyfield also had a tough time sticking with their organic commitment, abandoning organic for a few years when they outsourced production and couldn't convince the farmers to follow their practices. With friends and family members' patient investing (including Gary's mother and mother-in-law), Stonyfield finally found financial success after raising money for its own production facility, readopting organic, and finding broader distribution.
After about 20 years, Stonyfield sold the vast majority of the company to large multinational Group Danone. Gary explained that some investors were looking for liquidity and that he felt it was time to pay them back for their commitment. Gary was able to negotiate some control rights for himself (unspecified in the podcast) and stayed on as chairman. While this sale was a big payday for investors, it is unclear how much of the original commitment to the environment and community remained. Also, the podcast did not mention that Danone announced, a few months ago, that it would sell Stonyfield.
Personally, I am a fan of Stonyfield's yogurt and it will be interesting to follow their story under new ownership. I also think students and faculty members could benefit from listening to stories like this to remind us that success is rarely easy and quick.
Friday, September 29, 2017
I recently finished Elizabeth Pollman and Jordan Barry's article entitled Regulatory Entrepreneurship. The article is thoughtfully written and timely. I highly recommend it.
This Article examines what we term “regulatory entrepreneurship” — pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing “too big to ban,” and mobilizing users for political support. Further, we theorize the business and law-related factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected startup businesses with mass appeal have advantages, especially when they target state and local laws and litigate them in the political sphere instead of in court.
Finally, we predict that regulatory entrepreneurship will increase, driven by significant state and local policy issues, strong institutional support for startup companies, and continued technological progress that facilitates political mobilization. We explore how this could catalyze new coalitions, lower the cost of political participation, and improve policymaking. However, it could also lead to negative consequences when companies’ interests diverge from the public interest.
Tuesday, September 26, 2017
Belmont University's College of Law is hiring for two professor position. I am in Belmont's College of Business, and have taught in our College of Law, so I selfishly hope they make some great hires across campus. My family loves Nashville and Belmont University is a great place to work.
The Belmont University College of Law, located in vibrant Nashville, Tennessee, invites applications from entry-level and experienced candidates for two anticipated tenure-track faculty positions to begin in 2018-2019. For the first tenure-track position, our primary areas of recruiting interest include business associations, secured transactions and family law. The second tenure-track position is in Belmont’s legal writing, research and advocacy program. Belmont is an EOE/AA employer under all applicable civil rights laws. Women and minorities are encouraged to apply.
Applicants for both positions must have an exemplary academic record and possess a J.D. or equivalent degree. They should demonstrate outstanding achievement or potential in teaching and scholarship, and also share the University’s values and support its mission and vision of promoting Christian values by example. Our goal is to recruit dynamic, bright, and highly motivated individuals who are interested in making significant contributions to our law school and its students. Practice experience is preferred, and teaching experience is desirable. To apply, please contact email@example.com.
The Belmont University College of Law is an ABA accredited law school with approximately 275 students in the heart of Nashville, one of the fastest growing and most culturally rich cities in the country. The Belmont faculty is dedicated to teaching, service to the community, and an active engagement in scholarship. Professors at the College of Law have published in top academic journals, written scholarly books and treatises, and addressed academic conferences across the country. The median LSAT and GPA for the 112 students who entered the law school in August 2017 were 155 and 3.47 (75th percentile: 158 and 3.70; 25thpercentile: 152 and 3.16). The two-year average pass rate (90.5%) for graduates of the College of Law on the Tennessee Bar Examination was the highest among Tennessee law schools. The employment statistic reported to the ABA for the class of 2016 is 94.2%. For more information about the College of Law, please visit our website at www.belmont.edu/law.
Belmont University is a private, comprehensive university, focusing on academic excellence. The university is a student-centered teaching university, dedicated to providing students from diverse backgrounds an academically challenging education. It is located in a quiet area convenient to downtown Nashville and adjacent to Music Row. It is the second largest private university, and the largest Christian-centered university, in Tennessee. Belmont’s student body of over 8,000 includes students from every state and more than 25 countries. It offers seven baccalaureate degrees in over 50 areas of study, master’s degrees in Business Administration, Accountancy, English, Education (including Sports Administration), Music, Nursing and Occupational Therapy, and doctorates in Occupational Therapy, Physical Therapy, Nursing Practice, Pharmacy, and Law.
Wednesday, September 20, 2017
Friend of the blog and South Texas College of Law (Houston) Professor Joe Leahy sent over the following post he authored. It is cross-posted at UberLaw.Net and Medium. Embarrassingly, I had not heard about Loftium before reading this post, though at least I know of and have used Airbnb. Joe has some interesting thoughts, and I am happy to include his post on this blog.
Loftium will provide prospective homebuyers with up to $50,000 for a down payment, as long as they are willing to continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium over that time.
At first glance, the arrangement between Loftium and participating homebuyers might sound like a loan. (Indeed, the Times even describes it as such in an infographic.) But upon a closer look, the arrangement that Loftium contemplates with homebuyers clearly is not a loan. First of all, Loftium says it is not a loan; rather, according to Loftium, the down payment assistance it provides to homebuyers is “a part of a services agreement” lasting 12-36 months. Second, and more important, the arrangement between Loftium and homebuyers has none of the characteristics of a traditional (term) loan. There is no “principal” amount that the homebuyer is required to repay in a set period of time, and Loftium does not charge the homeowner any “interest.” In fact, the homebuyer is not required to make anypayments to Loftium in return for the company’s cash (unless the homeowner breaches the parties’ agreement and stops renting on Airbnb before the term expires).
All the homebuyer must do in exchange for Loftium’s money is (1) list her spare room on Airbnb continuously through the term of her agreement with Loftium, (2) be a decent host (i.e., “not be rude to guests”) and (3) split her Airbnb rental revenue with Loftium (with two-thirds going to the company.) If, at the end of the term, Loftium has not been repaid its initial investment, the homeowner is not required to repay Loftium’s initial contribution. Hence, if renting out the homeowner’s spare room is not profitable during the term of the parties’ agreement, “Loftium takes full responsibility for that loss.”
Of course, Loftium expects that the total income from renting out a homeowner’s spare room will greatly exceed the amount that it originally provided to the homebuyer, so that both will profit. If Loftium makes more in rental income than it pays towards the homeowner’s down payment, Loftium will make a profit.
Further, by all appearances, there is no cap on Loftium’s potential profit is its business arrangement with homebuyers. In fact, Loftium makes clear that it wants to maximize the income that it splits with homebuyers: Loftium promises that it will work with them “to increase monthly bookings as much as possible, so both sides can benefit from the additional income.” To that end, Loftium provides homebuyers with some start-up supplies for their spare bedroom (and a keyless entry lock), access to advice and know-how regarding how to rent an Airbnb room, and online tools to help maximize their rental income.
So, if the business arrangement between Loftium and homeowners is not a loan, what is it? It is almost certainly a general partnership for a term (i.e., a “joint venture”).
[Post continues after the page break]
Friday, September 8, 2017
Gabriel (“Gabe”) Azar and I graduated one year apart, from the same law school. He has an undergraduate degree in electrical engineering from Georgia Tech and started his legal career as an associate practicing patent law at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. He moved from Finnegan to Paul Hastings and from there to an in-house position with FIS. Currently, he is Senior Patent Counsel at Johnson & Johnson. I’ve admired, mostly from a distance (he lives in Jacksonville, FL now), how Gabe has balanced family, work, and health. We recently reconnected on Strava, and it has been inspiring to see a dedicated husband/father/attorney taking his fitness seriously.
The interview is below the page break.
Thursday, September 7, 2017
As previously mentioned, I am always looking for good podcasts. I listen to podcasts while mowing our lawn and on road trips.
StartUp is the latest podcast series that I have uncovered, thanks to a recommendation from my sister Anna who works for a media/marketing start up herself.
From what I have uncovered so far, StartUp seems to be quite like NPR's How I Built This, which I mentioned in a previous post. Hosts of both podcasts interview entrepreneurs about the founding of their businesses and the ups and downs thereafter. The biggest difference I see is that StartUp seems to focus on smaller companies (a number that I had never heard of), while How I Built This seems to focus on companies that are now quite large and successful. In early seasons of StartUp there appear to be a number of the podcasts that depart from the entrepreneur-interview model, but I haven't dug into the early seasons yet. I am mainly focused on the recent podcasts.
Perhaps most interestingly, I recently listened to a podcast on StartUp about Mokhtar Alkhanshali and his specialty coffee. Mokhtar sources his coffee beans from war-torn Yemen and a cup of his coffee sells for $16 a cup. At first, this seemed like a ridiculous price for a cup of coffee, but after hearing how Mokhtar risked his life for his business in Yemen (bombings, escaping on a tiny boat, being captured, etc.) and listening to the specialty coffee to wine comparison, the pricing does make more sense. I might pay $16 once, just for the story, but I couldn't see a $16 cup of coffee becoming even a semi-regular purchase for me. That said, I know people who are getting increasingly serious about their coffee and perhaps it can be sustained in some cities.
Friday, August 25, 2017
From an e-mail I recently received:
The University of Alabama School of Law seeks to fill multiple entry-level/junior-lateral tenure-track positions for the 2018-19 academic year. Candidates must have outstanding academic credentials, including a J.D. from an accredited law school or an equivalent degree (such as a Ph.D. in a related field). Entry-level candidates should demonstrate potential for strong teaching and scholarship; junior-lateral candidates should have an established record of excellent teaching and distinguished scholarship. Positions are not necessarily limited by subject. However, there is a particular need for applicants who study and/or teach business law (corporate finance, mergers & acquisitions, and business planning are of particular interest); criminal law; insurance law; and torts (including products liability). Family law and labor/employment are also areas of interest. We welcome applications from candidates who approach scholarship from a variety of perspectives and methods (including quantitative or qualitative empiricism, formal modeling, or historical or philosophical analysis).
The University embraces diversity in its faculty, students, and staff, and we welcome applications from those who would add to the diversity of our academic community. Interested candidates should apply online at facultyjobs.ua.edu. Salary, benefits, and research support will be nationally competitive. All applications are confidential to the extent permitted by state and federal law; the positions remain open until filled. Questions should be directed to Professor William Brewbaker, Chair of the Faculty Appointments Committee (firstname.lastname@example.org).
Wednesday, August 16, 2017
Business leaders probably didn’t think the honeymoon would be over so fast. A CEO as President, a deregulation czar, billionaires in the cabinet- what could possibly go wrong?
When Ken Frazier, CEO of Merck, resigned from one of the President’s business advisory councils because he didn’t believe that President Trump had responded appropriately to the tragic events in Charlottesville, I really didn’t think it would have much of an impact. I had originally planned to blog about How (Not) To Teach a Class on Startups, and I will next week (unless there is other breaking news). But yesterday, I decided to blog about Frazier, and to connect his actions to a talk I gave to UM law students at orientation last week about how CEOs talk about corporate responsibility but it doesn’t always make a difference. I started drafting this post questioning how many people would actually run to their doctors asking to switch their medications to or from Merck products because of Frazier’s stance on Charlottesville. Then I thought perhaps, Frazier’s stance would have a bigger impact on the millennial employees who will make up almost 50% of the employee base in the next few years. Maybe he would get a standing ovation at the next shareholder meeting. Maybe he would get some recognition other than an angry tweet from the President and lots of news coverage.
By yesterday afternoon, Under Armour’s CEO had also stepped down from the President’s business advisory council. That made my draft post a little more interesting. Would those customers care more or less about the CEO's position? By this morning, still more CEOs chose to leave the council after President Trump’s lengthy and surprising press conference yesterday. By that time, the media and politicians of all stripes had excoriated the President. This afternoon, the President disbanded his two advisory councils after a call organized by the CEO of Blackstone with his peers to discuss whether to proceed. Although Trump “disbanded” the councils, they had already decided to dissolve earlier in the day.
I’m not teaching Business Associations this semester, but this is a teachable moment, and not just for Con Law professors. What are the corporate governance implications? Should the CEOs have stayed on these advisory councils so that they could advise this CEO President on much needed tax, health care, immigration, infrastructure, trade, investment, and other reform or do Trump’s personal and political views make that impossible? Many of the CEOs who originally stayed on the councils believed that they could do more for the country and their shareholders by working with the President. Did the CEOs who originally resigned do the right thing for their conscience but the wrong thing by their shareholders? Did those who stayed send the wrong message to their employees in light of the Google diversity controversy? Did they think about the temperament of their board members or of the shareholder proposals that they had received in the past or that they were expecting when thinking about whether to stay or go?
Many professors avoid politics in business classes, and that’s understandable because there are enough issues with coverage and these are sensitive issues. But if you do plan to address them, please comment below or send an email to email@example.com.
August 16, 2017 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Law School, Marcia Narine Weldon, Shareholders, Teaching | Permalink | Comments (1)
Tuesday, August 15, 2017
From an e-mail I received earlier today:
FACULTY POSITION IN BUSINESS AND LAW
The Wharton School of the University of Pennsylvania invites applications for a tenure-track position at any level (Assistant, Associate, or Full Professor) in its Department of Legal Studies and Business Ethics. Applicants must have a J.D., a J.S.D./S.J.D., a Ph.D. in law, or an equivalent law degree from an accredited institution. An additional graduate degree in a relevant field is desirable but not required. For applicants in a doctoral program, an expected degree completion date of no later than July 1, 2019 is acceptable.
Applicants must have a demonstrated research interest in an area of law relevant to the Wharton School's business education and research missions. Examples of such fields include, without limitation, corporate law, employment and labor law, financial regulation, securities regulation, and global trade and investment law.
The Wharton School has one of the largest and most widely published business school faculties in the world, with ten academic departments and over twenty research centers. Legal scholars in its Legal Studies and Business Ethics Department publish their research in leading law reviews and journals in the United States and abroad. The Department’s faculty teach a variety of required and elective courses in law and business ethics in Wharton's undergraduate, MBA, and EMBA divisions, as well as in its own Ph.D. program in Ethics and Legal Studies.
Applicants are requested to electronically submit a letter of introduction, c.v., and at least one selected article or writing sample in PDF format via the following website,https://lgst.wharton.upenn.
The University of Pennsylvania is an equal opportunity employer. Minorities, women, individuals with disabilities and veterans are encouraged to apply.
Earlier this week, Professor Bainbridge posted California court completely bollixes up business law nomenclature, discussing Keith Paul Bishop's post on Curci Investments, LLC v. Baldwin, Cal. Ct. App. Case No. G052764 (Aug. 10, 2017). The good professor, noting (with approval) what he calls my possibly "Ahabian" obsession with courts and their LLC references, says that "misusing terminology leads to misapplied doctrine." Darn right.
To illustrate his point, let's discuss a 2016 Colorado case that manages to highlight how both Colorado and Utah have it wrong. As is so often the case, the decision turns on incorrectly merging doctrine from one entity type (the corporation) into another (the LLC) without acknowledging or explaining why that makes sense. To the court's credit, they got the choice of law right, applying the internal affairs doctrine to use Utah law for veil piercing a Utah LLC, even though the case was in a Colorado court.
After correctly deciding to use Utah law, the court then went down a doctrinally weak path. Here we go:
Marquis is a Utah LLC. (ECF No. 1 ¶ 7.) Utah courts apply traditional corporate veil-piercing principles to LLCs. See, e.g., Lodges at Bear Hollow Condo. Homeowners Ass'n, Inc. v. Bear Hollow Restoration, LLC, 344 P.3d 145, 150 (Utah Ct. App. 2015). The basic veil-piercing analysis requires two steps:The first part of the test, often called the formalities requirement, requires the movant to show such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist. The second part of the test, often called the fairness requirement, requires the movant to show that observance of the corporate form would sanction a fraud, promote injustice, or condone an inequitable result.
The failure of a limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a member or manager of the limited liability company for a debt, obligation, or other liability of the limited liability company.
(1) undercapitalization of a one-[person] corporation; (2) failure to observe corporate formalities; (3) nonpayment of dividends; (4) siphoning of corporate funds by the dominant stockholder; (5) nonfunctioning of other officers or directors; (6) absence of corporate records; [and] (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders....
The Marquis Properties court skips actually applying the test saying simply that an SEC investigation report was sufficient to allow veil piercing. The court determined that an SEC report establishes that sole member of the LLC used the entity "to create the illusion of profitable investments and thereby to enrich himself, with no ability or intent to honor" the LLC's obligations. "Given this, strictly respecting [the LLC's] corporate form [ed. note: UGH] would sanction [the member's] fraud." The Court then found that veil-piercing was appropriate to hold the member "jointly and severally liable for the amounts owed by" the LLC to the plaintiffs.
But veil piercing is both neither appropriate nor necessary in this case. In discussing the SEC report earlier in the case, the court found that "all elements of mail and wire fraud are present." I see nothing that would absolve either the LLC as an entity of liability for the fraud and I see no reason why the member of the LLC would not be personally liable for the fraud he committed purportedly on behalf of the LLC and for his own benefit.
This case illustrates another problem with veil piercing: both courts and lawyers are too willing to jump to veil piercing when simple fraud will do. This case illustrates clearly that fraud was evident, and fraud should be sufficient grounds for the plaintiffs to recover from the individual committing fraud. That means the entire veil piercing discussion should be treated as dicta. The entity form did not create this problem, and the entity form does not need to be disregarded, at least as far as I can tell, to allow plaintiffs to recover fully. Before even considering veil piercing, a court should be able to state clearly why veil piercing is necessary to make the plaintiff whole. Otherwise, you end up with bad case law that can lead to bad doctrine, which leads to inefficient courts and markets.
Oh, and while I'm at it, Westlaw needs to get their act together, too. The Westlaw summary and headnotes say "limited liability corporation (LLC)" five times in connection with this case. Come on, y'all.
Wednesday, August 9, 2017
AALS Section on Business Associations Call for Papers: Institutional Investors and Corporate Governance
Call for Papers (DEADLINE: August 24, 2017)
AALS Section on Business Associations
Institutional Investors and Corporate Governance
AALS Annual Meeting, January 5, 2018
The AALS Section on Business Associations is pleased to announce a Call for Papers for a joint program to be held on Friday, January 5, 2018 at the 2018 AALS Annual Meeting in San Diego, California. The topic of the program is “Institutional Investors and Corporate Governance.”
In thinking through the difficulty of agency costs within the public corporation, corporate law academics have turned repeatedly to institutional investors as a potential solution. The agglomeration of shares within a large investing firm, together with ongoing cooperation amongst a large set of such investors, could overcome the rational apathy the average shareholder has towards participation in corporate governance. Alternatively, activist investors could exert specific pressure on isolated companies that have been singled out—like the weakest animals in the herd—for extended scrutiny and pressure. In these examples, the institutionalization of investing offers a counterbalance to the power of management and arguably provides a systematized way of reorienting corporate governance. These institutional-investor archetypes have, in fact, come to life since the 1970s and have disrupted the stereotype of the passive investor. But have we achieved a new and stable corporate governance equilibrium? Or have we instead ended up with an additional set of agency costs – the separation of ownership from ownership from control? This program seeks to explore these questions and assess the developments in the field since the beginning of the new century.
The program is cosponsored by the Section on Securities Regulation.
Form and length of submission
Eligible law faculty are invited to submit manuscripts or abstracts that address any of the foregoing topics. Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of final manuscripts. Any unpublished manuscripts (including unpublished manuscripts already accepted for publication) may be submitted for consideration. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.
The initial review of the papers will be blind. Accordingly, the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.
Deadline and submission method
To be considered, manuscripts or abstracts must be submitted electronically to Professor Matthew Bodie, Chair-Elect of the Section on Business Associations, at firstname.lastname@example.org. Please use the subject line: “Submission: AALS BA CFP.” The deadline for submission is Thursday, August 24, 2017. Papers will be selected after review by members of the Executive Committee of the Section on Business Associations. The authors of the selected papers will be notified by Thursday, September 28, 2017.
Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members; graduate students; fellows; non-law school faculty; and faculty at fee-paid non-member schools. Papers co-authored with a person ineligible to submit on their own may be submitted by the eligible co-author.
The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.
Tuesday, August 1, 2017
My colleague, Joan Heminway, yesterday posted Democratic Norms and the Corporation: The Core Notion of Accountability. She raises some interesting points (as usual), and she argues: "In my view, more work can be done in corporate legal scholarship to push on the importance of accountability as a corporate norm and explore further analogies between political accountability and corporate accountability."
I have not done a lot of reading in this area, but I am inclined to agree that it seems like an area that warrants more discussion and research. The post opens with some thought-provoking writing by Daniel Greenwood, including this:
Most fundamentally, corporate law and our major business corporations treat the people most analogous to the governed, those most concerned with corporate decisions, as mere helots. Employees in the American corporate law system have no political rights at all—not only no vote, but not even virtual representation in the boardroom legislature.
Those on the right, like Milton Friedman, argue that the shareholder-wealth-maximization requirement prohibits firms from acting in ways that benefit, say, local communities or the environment, at the expense of the bottom line. Those on the left, like Franken, argue that the duty to shareholders makes corporations untrustworthy and dangerous. They are both wrong.
August 1, 2017 in Business Associations, Corporations, CSR, Delaware, Joan Heminway, Joshua P. Fershee, Legislation, Management, Research/Scholarhip, Shareholders, Social Enterprise | Permalink | Comments (1)
Friday, June 16, 2017
Next week, I will write about my focus group experience with Brooks Running.
Last week, on Global Running Day, Brooks announced “the biggest athlete endorsement deal in sports history” saying that they want to endorse everyone who runs….with $1 and a chance to win Brooks running gear.
This would have made a decent April Fools Day joke, but as a serious attempt at building brand value, it is pretty weak.
Brooks would have done much better to follow the lead of Oiselle, a women's athletic apparel company that I have spoken and written about before in regard to their multi-level team of professional, semi-pro, and recreational athletes. The main differences between Brooks and Oiselle is that Oiselle provides value to the team members and creates shared experiences. Oiselle athletes get team gear (even though the recreational runners pay for the gear), and they get invited to numerous group events. Oiselle has state team leaders and helps connect the team members for training and races. The “birds”, as they call themselves, really seem to support each other.
Now, the Oiselle method is definitely more complicated, and it probably comes with various legal risks. For example, what if one the team leaders turns violent or what if a team member gets hit by a car on a run led by a team leader or what if someone gets a bit out of control at one of their camps or parties? (I am sure Oiselle has everyone sign waivers, but as we know, waivers don't always prevent costly litigation and liability). There is also a fair bit temporal and financial costs involved in creating the team singlet, sending out newsletters, updating social media, planning events, etc. But building real community and brand value is almost never easy. (And Oiselle is far from perfect and has its critics, but I applaud Oiselle's effort. That said, if they are still requiring the recreational athletes to both pay and only post photos of themselves on social media in Oiselle gear, that seems overly restrictive. If they are going for authentic, they should provide suggestions instead of mandates. With sponsored athletes, I better understand the restrictions, though even with sponsored athletes you can usually tell a difference between organic and forced marketing posts.)
Sadly, Brooks' “endorsement” isn’t about building community, rather it is a pretty transparent attempt to buy your e-mail address and lure potential customers for $1. (Also, I uncovered in the fine print that they limited the $1 payment to the first 20,000; they have over twice that many signed up already).
As I will write next week, I was impressed with the people running the Brooks focus group, but they didn’t ask us about this “endorsement” idea, and if they asked others about it, I think they got bad advice. Brooks might get a bit of press, and they will probably even get a fair number of email addresses from curious people, but I doubt they will get much of lasting value.
[I wonder how many people who signed up read the fine print. For example, there is a Code of Conduct that will be sent to participants. Also, see the clause below the break seemed incredibly broad.]