Wednesday, July 27, 2016
Just in case you haven't gotten the message yet: Delaware law means fiduciary duty freedom of contract for alternative entities. In May 2016, the Delaware Chancery Court upheld a waiver of fiduciary duties in a master limited partnership. In Employees Retirement System of the City of St. Louis v. TC Pipelines GP, Inc., Vice Chancellor Glasscock upheld challenges to an interested transaction (sale of a pipeline asset to an affiliated entity) that was reviewed, according to the partnership agreement, by a special committee and found to be fair and reasonable. The waiver has been described as "ironclad" to give you a sense of how straight forward this decision was. No close call here.
Vice Chancellor Glasscock's letter opinion starts:
Delaware alternative entity law is explicitly contractual;1 it allows parties to eschew a corporate-style suite of fiduciary duties and rights, and instead to provide for modified versions of such duties and rights—or none at all—by contract. This custom approach can be value enhancing, but only if the parties are held to their bargain. Where equity holders in such entities have provided for such a custom menu of rights and duties by unambiguous contract language, that language must control judicial review of entity transactions, subject only to the cautious application of the implied covenant of good faith and fair dealing. Such is the case in the instant matter, which involves a master limited partnership (“MLP”) created with interested transactions involving the general partner as part of its business model.....
The Defendants point out that the [transaction] was approved by a special committee (the “Conflicts Committee”), which approval, in accordance with the partnership agreement, creates a conclusive presumption that the transaction is fair and reasonable to the Partnership. I find that the Conflicts Committee’s approval, in these circumstances, precludes judicial scrutiny of the substance of the transaction and grant the Defendants’ Motion.
Importantly, the contractual safe harbor for interested transactions established a process which, if followed, created a fair and reasonable transaction outside of judicial scrutiny and without recourse by the other partners. The court found that the partnership agreement precluded a good faith analysis of the Conflicts Committee's review and limited the court's review purely to matters of process.
The relevant portions of the Special Approval provision, importantly, are silent as to good faith.....According to the contractual language, the Special Approval of a duly constituted and fully informed Conflicts Committee is conclusive evidence that such transaction is fair and reasonable, and such approval is, therefore, preclusive of further judicial review. The Plaintiff does not allege that the Conflicts Committee was not duly constituted—that is, directors who are neither security holders nor employees or officers of the General Partner or its affiliates. Nor does the Plaintiff allege that the Conflicts Committee was not fully informed. Thus, the approval here is conclusive that the [transaction] is “fair and reasonable” to TCP. According to the explicit language of the LPA, when a conflicted transaction is deemed “fair and reasonable” by the terms of the agreement, such conflicted transaction is incapable of breaching the LPA.
Get the message? LOUD and CLEAR!
The opinion contains more analysis and excerpts of the relevant portions of partnership agreement. Look for an excerpt on this case in my ChartaCourse (electronic platform) Business Organizations casebook.
Monday, July 25, 2016
In a recent decision of the Tennessee Supreme Court, Keller v. Estate of Edward Stephen McRedmond, Tennessee adopted Delaware's direct-versus-derivative litigation analysis from Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031 (Del. 2004), displacing a previously applicable test (that from Hadden v. City of Gatlinburg, 746 S.W.2d 687 (Tenn. 1988)). Although this is certainly significant, I also find the case interesting as an example of the way that a court treats different types of claims that can arise in typical corporate governance controversies (especially in small family and other closely held businesses). This post covers both matters briefly.
The Keller case involves a family business eventually organized as a for-profit corporation under Tennessee law ("MBI"). As is so often the case, after the children take over the business, a schism develops in the family that results in a deadlock under a pre-existing shareholders' agreement. A court-ordered dissolution follows, and after a bidding process in which each warring side of the family bids, the trustee contracts to sell the assets of MBI to members of one of the two family factions as the higher bidder. These acquiring family members organize their own corporation to hold the transferred MBI assets ("New MBI") and assign their rights under the MBI asset purchase agreement to New MBI
Prior to the closing, the losing bidder family member, Louie, then an officer and director of MBI who ran part of its business (its grease business), solicited customers and employees, starved the MBI grease business, diverted business opportunities from MBI's grease business to a corporation he already had established (on the MBI property) to compete with MBI in that business sector, and engaged in other behavior disloyal to MBI. Louie's actions were alleged to have contravened a court order enforcing covenants in the MBI asset purchase agreement. They also were allegedly disloyal and constituted a breach of his fiduciary duty of loyalty to MBI. Finally, they constituted an alleged interference with New MBI's business relations.
Thursday, July 21, 2016
My contribution is based on my 2015 West Virginia Law Review article, An Early Report on Benefit Reports, which showed under 10% compliance with benefit corporation reporting, noted problems with the statutory framework, and suggested statutory amendments.
Wednesday, July 20, 2016
Last week on the blog I featured the smart book Empire of the Fund by sharing excerpts from a conversation with author, Professor William Birdthistle. In discussing the book, he shared with me some insights on writing a book: its process, genesis and use in the classroom. I am fascinated by other's people writing process in the continual effort to improve my own.
writing a book...
[W]riting a book was more of a challenge than I expected, even though I told myself it was simply a collection of law review articles. It turns out that the blinking cursor on an empty screen is more taunting when you're obliged to fill hundreds of pages. Brief stints of productivity need to be repeated again and again and, until it all exists, nothing really exists. I developed a convoluted system of drafting notes, then sitting down with a research assistant to record a chat about those notes, then working that recording into an outline. That process still left me with plenty of writing to do, but I found it much easier to expand, polish, and revise those outlines than to fight the demon blank page.
Talking through your ideas forces you to synthesize the materials. It also retains the humanity behind the arguments. This method makes a lot of sense when you read Professor Birdthistle's book because it feels like he is talking to you— just in a way that is smarter, better organized and more pithy than most of us can muster in the average conversation. His book doesn't read like the belabored, bloated, and laborious sections that all too often find their way in law review articles (my own included).
genesis for the book...
The contents, to a large extent, have actually come from the classroom -- as these materials serve as the syllabus for a seminar I've taught for a few years. The seminar, called Investment Funds, is almost always popular: in a go-go market, all the students want to hear about private equity and hedge funds; then in downturns, I get a sober audience of students who want to know more about their 401(k)s.
application to broader classes...
I often work this material in to my BusOrg and SecReg classes too: so, I emphasize the role of funds on topics like corporate purpose (does charitable giving look different if the corporate funds might otherwise go to 401(k) holders), proxy contests (in which mutual funds are major institutional investors but often conspicuously absent from these fights), shorting (where the securities are often borrowed from mutual funds and ETFs), and behavioral versus neoclassical theory (quoting heavily from a wonderful disagreement between Judges Easterbrook and Posner in Jones v. Harris before it went to the Supreme Court).
Since almost all students will soon be figuring out their own 401(k) and mutual fund investments, I've found that it's easy to make business issues far more salient to their lives. Even to the saints who'll soon have a 403(b).
the role of behavioral work...
Finally, I highlight Professor Birdthistle's observations about changes to the corporate law landscape made space for a book like his to contribute, in a serious way, to the academic and popular debate about the efficacy of the mutual fund market.
I've been struck by the change in our intellectual and academic disposition towards investing problems. I've been in the academy for a decade now and, when I began, the rational investor model was so thoroughgoing that it was difficult to discuss problems of individual investing. Many conversations -- and job talks -- required a first-principles exegesis about how this market might possibly be anything other than highly efficient. But a tide of behavioral work in recent years has helped explain why investors might struggle, and a good deal of empirical work has concretely shown how they struggle. So conversations today focus more upon solutions rather than on whether there is even a problem.
To this last point, I wonder what ideas and principles, which seem untouchable today, will give way to the next generation's breakthrough. I think is a particularly heartening message for young scholars--not all of the work has been done! Keep at it! And it is an important message for folks who aren't writing in the mainstream. For folks who are passionate about their work, but feeling like their ideas aren't garnering the right cache with the right audiences. This is where you persevere so long as the work is thorough and well researched. Maybe you and your work are contributing to an important intellectual advancement. You could be changing the tides in ways that in presently imperceptible, but significant nonetheless. So as the August submission deadline looms and the summer hours threaten to languish, press on!
Because this post is a compilation of quotes, I now turn to Garrison Keeler to close:
Be well, do good work, and keep in touch.
*Query: Are the best motivational speeches are the ones you write for yourself?
Friday, July 15, 2016
Robert Esposito (Drinker Biddle) passed along his firm's interesting report on early crowdfunding offerings. The report is available here. Be sure to download the firm level detail spreadsheet available via the data download on the top right of the page.
The report shows that social enterprise and breweries/distilleries account for outsized portions of the early offerings. A group of us (including co-blogger Joan Heminway) predicted, at the University of Colorado's business school in July 2013, that social entrepreneurs would gravitate to equity crowdfunding. Separately, in my social enterprise law seminar, I was surprised by how many students presented on breweries that were social enterprises, and looking at this list it appears that there is at least one company (Hawaiian Ola Brewing Corporation - a Certified B Corporation) that falls into both the social enterprise and brewery categories highlighted below. It may be that both areas appeal to younger entrepreneurs who may also be eager to try this new form of capital raising.
Go read the entire report, but I provide a teaser quote below the dotted line with some emphasis added.
In general. As of June 30, 2016, 50 companies have filed a Form C with the SEC to offer securities under the Regulation Crowdfunding exemption. Minimum target offering amounts range from $20,000 to $500,000 per offering, with a median of $55,000. All but one of these issuers, however, have disclosed that they will accept offers in excess of the target amount, including 27 issuers that say they will accept investments at or near the maximum permitted offering amount of $1,000,000. In contrast, 18 of the first 50 issuers elected to cap their offering at just $100,000, with the remainder setting an offering cap of between $200,000 and $500,000. In the aggregate, if this first wave of retail crowdfundings is successful, 50 small companies will raise an aggregate of $6 to $30 million in new capital to fund their businesses.
While announced offering durations range from 21 days to one year, the median period that issuers say they will keep their offerings open is just under six months, with about half electing an offering duration between 166 and 182 days.
Eighteen different jurisdictions of incorporation are represented among the first 50 issuers; however, nearly half of the initial filers (24) are Delaware entities. Early data shows that issuers tend to be early-stage startups, with a median issuer age of just 354 days. Nevertheless, nine of the issuers were more than five years old, and the oldest was incorporated in 2003. . . .
While a total of 12 funding portals have registered with FINRA to date, the early mover Wefunder portal hosts more than half (26) of the first 50 offerings. The StartEngine portal has secured eight offerings, with the remainder split among other portals, including SeedInvest, Next Seed, Flashfunders, and Venture.co.
- Social Enterprises. According to the Global Entrepreneurship Monitor’s Special Topic Report on Social Entrepreneurship, social enterprises account for only 5.7 percent of entrepreneurial activity in the United States. However, early crowdfunding data shows that social enterprises are strongly represented among crowdfunding issuers. Seven issuers, representing 14 percent of the first 50 offerings, are either registered as benefit corporations or benefit LLCs, or are certified by B Lab as B Corps, and at least an additional nine issuers operate within traditional corporate forms with strong social and/or environmental missions. Combined, these issuers represent 32 percent of the first 50 offerings.
- Raise a Glass. Craft breweries, distilleries, and licensed establishments are also disproportionately represented among the first 50 issuers. Eight issuers, representing 16 percent of the first 50 offerings, fall into this category, including 2 distilleries, 2 craft breweries, 2 bars, as well as a frozen alcohol producer and a producer of ginger liqueur.
Friday, July 8, 2016
Like Anne and Joan, I enjoyed the Berle Symposium and found it incredibly valuable. As they have mentioned, former Chancellor Chandler's presentation was definitely a highlight, and it was affirming to hear Delaware law described as I understand it, if much more eloquently expressed than I have managed. Former Chancellor Chandler appeared to make clear that directors of Delaware firms could be at risk if they admit to taking an action that is not aimed at (eventually) meeting the short or long-term financial interests of shareholders.
Former Chancellor Chandler's description of Delaware law, both in the symposium and in his eBay case, coupled with the law review writings of Delaware Supreme Court Chief Justice Leo Strine, confirm, in my mind, that benefit corporations could be useful, at least in Delaware, for entrepreneurs who want to admit pursing strategies that are not aimed at benefiting shareholders in the short or long run. For example, I think some companies, like Patagonia, make decisions that benefit the environment, even though the directors may honestly believe that financial costs will far exceed financial benefits, even in the long-term.
Interestingly, however, much of what I heard from the B Lab representatives at the symposium was about how benefit corporations can do just as well, if not better, than traditional corporations from a financial perspective. This obviously poses an empirical question that we may get better answers to in the coming years. But if you can "do well by doing good" then then entrepreneurs, even under Delaware law, seem likely to avoid legal problems given the protection of the business judgment rule and the argument that financial benefits will eventually follow from their society-focused actions.
The benefitcorp.net website has a list of reasons to become a benefit corporation, which are:
Reduced Director Liability
Expanded Stockholder Rights
A Reputation For Leadership
An Advantage in Attracting Talent
Increased Access to Private Investment Capital
Increased Attractiveness to Retail Investors and Mission Protection as a Publicly Traded Company
I am a bit surprised that more of these reasons are not focused on societal and environmental benefit (and am not sure why mission protection is limited to publicly traded companies, especially when there are no stand-alone publicly traded benefit corporations today -- though there will likely soon be some soon.) I question whether all of these benefits are true. For example, I have heard mixed things about benefit corporations from investors, and the liability issue is completely untested. But if all of these things are true, and social entrepreneurs do get better access to capital and an advantage attracting employees, etc., then I think the benefit corporation form is less necessary as a legal matter. Maybe the thought is that benefit corporations have expressive value or that they provide an extra layer of protection. But, as a legal matter, if you can justify your social actions by pointing to potential long-term financial benefits, you do not really need a new form, even in Delaware (and, of course, many other states are even more permissive with social actions). Maybe benefit corporation proponents see the real value in the M&A context when facing Unocal/Revlon, but Page & Katz showed ways around those issues, especially if focused on long-term value. Entrepreneurs could also incorporate outside of Delaware, in a state that has expressly rejected Revlon.
Personally, while it is possible for some firms to do well by doing good, I think social entrepreneurs will often be openly sacrificing financial returns---they will be doing good through purposeful financial sacrifice. As such, an benefit corporation option, at least in states like Delaware.
There was quite a lot of good discussion at the Berle Symposium, and I may have more to write about it in later posts.
Tuesday, July 5, 2016
Today, the following business law professor position at Pepperdine University's Seaver College was brought to my attention. Further information is available here and below.
Assistant Professor of Business Law
The business administration division of Pepperdine University seeks a candidate with a terminal degree in law for a tenure-track position in business law. Candidates are expected to complete all requirements for the JD before the date of appointment, which is August 1, 2017. A documented research interest in law is required and teaching experience is preferred. The expected courses taught would be undergraduate classes in business law and international business. The flexibility to teach occasionally in another field is preferred.
The business program at Seaver College, is accredited by The Association to Advance Collegiate Schools of Business (AACSB). USA Today ranked Seaver's business program as the 7th best undergraduate business program in the country. We have approximately 775 undergraduate students in the Business Administration Division. Despite the large number of majors, our classes are small (rarely more than 25 students) and our faculty is collegial and collaborative. The division offers Bachelor of Science degree programs in accounting, business administration, and international business, and a contract major in finance. Degree programs are offered on a full-time, residential basis at the campus in Malibu, California. Seaver College has an enrollment of approximately 3,200 students. Please visit our website for more information.
Pepperdine University was established in 1937 by Mr. George Pepperdine, a Christian businessman, who stressed the desirability of a complete education built on a Christian value system. The institution is committed to the ideals of the founder. Successful candidates also must demonstrate an active commitment to Pepperdine's Christian mission and tradition. Located near Los Angeles in Southern California, Pepperdine University is especially interested in candidates who can contribute through their teaching, research and service to the diversity and excellence of the University and our surrounding community.
Applicants should apply at apply.interfolio.com/35896. A background check will be required as a condition of employment.
For more information, please contact the chair of the search committee:
Keith Whitney (email@example.com )
Chair, Recruiting Committee
Business Administration Division
Seaver College, Pepperdine University
24255 Pacific Coast Highway
Malibu, CA 90263
Monday, July 4, 2016
Anne Tucker (who, together with Haskell Murray, me, and many others, attended the 8th Annual Berle Symposium in Seattle a week ago) penned an excellent post last week on the importance of shareholder value under Delaware law. Her post covers important outtakes from the symposium presentation given by former Delaware Chancellor William (Bill) Chandler and Elizabeth Hecker, both lawyers in the Wilmington, Delaware office of Wilson Sonsini Goodrich & Rosati. In the post, Anne accurately and succinctly summarizes a key take-away from the former Chancellor's remarks:
[A] Delaware court will invalidate a board of directors' other serving actions only if they are in conflict with shareholder value, but never when it is complimentary. And there is a expanding appreciation of when "other interests" are seen as complimentary to, and not in competition with, shareholder value maximization.
Specifically, as Anne's summary indicates, Chancellor Chandler stated his view that a Delaware corporate board must place shareholder financial wealth (whether in the short term or the long term) ahead of any other value in its decision making. This is hardly a surprise to anyone who follows Delaware corporate law judicial opinions (although the former Chancellor's statement of the law was among the clearest and most definite I have heard). After all, Chancellor Chandler's opinion in the eBay case is widely cited for this proposition.
The Berle symposium focused on benefit corporations this year, and my draft paper for the symposium highlights the central importance of a corporation's charter-based corporate purpose in that type of firm. So, I asked the former Chancellor for his personal view on how a Delaware court might handle a specific type of corporate purpose clause in a non-benefit-corporation Delaware corporate law context. The specific corporate purpose clause I had in mind is one that expresses a clear "second bottom line" (other than the promotion of shareholder value) and clearly indicates that neither bottom line is to be given constant or presumed precedence over the other in decisions made by the board of directors or the corporate officers.
Monday, June 27, 2016
I am still at Berle VIII with Haskell Murray and Anne Tucker. One more day of my June Scholarship and Teaching Tour to go--and I have a final presentation to do. Then, back to Knoxville to stay until late in July. Whew!
As you may recall or know, my Berle appearance this week follows closely on the heels of a talk on the same work (on corporate purpose and litigation risk in publicly held U.S. benefit corporations) that I made at last week's 2016 National Business Law Scholars conference. While I am thinking about this conference, please join me in saving the date for the next one: the 2017 National Business Law Scholars conference. Next year's conference will be held June 8-9 at The University of Utah S. J. Quinney College of Law, with Jeff Schwartz hosting. I will post more information and the call for papers, etc. once I have it.
June 27, 2016 in Anne Tucker, Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Haskell Murray, Joan Heminway, Research/Scholarhip, Teaching | Permalink | Comments (0)
Monday, June 20, 2016
Having helped a few Tennessee bar applicants get straight on their knowledge of agency, unincorporated business associations, and personal property law last Friday at my BARBRI lecture (such a nice group present at the taping to keep me company!), it's now time for me to wrap up my June Scholarship and Teaching Tour with a twofer--a week of travel to two of my favorite U.S. cities: Chicago, for the National Business Law Scholars Conference and Seattle for Berle VIII. At both events, I will present my draft paper (still in process today, unfortunately) on publicly held benefit corporations, Corporate Purpose and Litigation Risk in Publicly Held U.S. Benefit Corporations. Here's the bird's-eye view from the introduction:
Benefit corporations—corporations organized for the express purpose of realizing both financial wealth for shareholders and articulated social or environmental benefits—have taken the United States by storm. With Maryland passing the first benefit corporation statute in 2010, legislative growth of the form has been rapid. Currently, 31 states have passed benefit corporation statutes.
The proliferation of benefit corporation statutes and B Corp certifications can largely be attributed to the active promotional work of B Lab Company, a nonprofit corporation organized in 2006 under Pennsylvania law that supports social enterprise (“B Lab”). B Lab works with individuals and interest groups to generate attention to social enterprise generally and awareness of and support for the benefit corporation form and B Corp certification (a social enterprise seal of approval, of sorts) specifically. B Lab also supplies model benefit corporation legislation, social enterprise standards that may meet the requirements of benefit corporation statutes in various states, and other services to social enterprises.
Benefit corporation statutes have not, by and large, been the entity law Field of Dreams. Despite the legislative popularity of the benefit corporation form, there have not been as many benefit corporation incorporations as one might expect. In the first four years of benefit corporation authority, for example, Maryland reported the existence of fewer than 40 benefit corporations in total. Tennessee’s benefit corporation statute came into effect in January 2016, and as of May 2, 2016, Secretary of State filings evidence the organization of 26 for-profit benefit corporations. However, a review of these filings suggests that well more than half were erroneously organized as benefit corporations. Colorado, another recent adopter of the benefit corporation, does appear to have a large number of filings (90 in total as of June 12, 2016 based on the list of Colorado benefit corporations on the B Lab website). However, as with Tennessee, a number of these listed corporations appear to be erroneously classified. These anecdotal offerings indicate that published lists of benefit corporations—even those constructed from state filings—over-count the number of benefit corporations significantly.
Research for this article identified no publicly held U.S. benefit corporations. For these purposes (and as referenced throughout this article), the term “publicly held” in reference to a corporation is defined to mean a corporation (a) with a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (“1934 Act”), or (b) otherwise required to file periodic reports with the Securities and Exchange Commission under Section 13 of the 1934 Act. Yet, benefit corporations may be subsidiaries of publicly held corporations (as Ben & Jerry's Homemade Inc., New Chapter Inc., and Plum, PBC have demonstrated), and corporations certified as B Corps have begun to enter the ranks of publicly held corporations (perhaps Etsy, Inc. being the most well known to date). It likely is only a matter of time before we will see the advent of publicly held U.S. benefit corporations.
With the likely prospect of publicly held U.S. benefit corporations in mind, this article engages in a thought experiment. Specifically, this article views the publicly held U.S. benefit corporation from the perspective of litigation risk. It first situates, in Part I, the U.S. benefit corporation in its structural and governance context as an incorporated business association. Corporate purpose and the attendant managerial authority and fiduciary duties are the key points of reference. Then, in Part II, the article seeks to identify the unique litigation risks associated with publicly held corporations with the structural and governance attributes of a benefit corporation. These include both state and federal causes of action. The reflections in Part III draw conclusions from the synthesis of the observations made in Parts I and II. The closing thoughts in Part III are intended to be of use to policy makers, academic observers, and advisers of corporations, among others.
As Haskell mentioned in an earlier post, he and Anne and I will be together at the Berle VIII event. What a great way to end my June tour--with my friends and colleagues from the Business Law Prof Blog! I look forward to it.
Friday, June 17, 2016
By now, I am sure all readers are aware of the horrific, hateful mass shooting that occurred in Orlando earlier this week.
If your social media feeds are anything like mine, it did not take long for politicians, pundits, and friends to politicize this tragedy. The tragedy was quickly used, by people all along the political spectrum, as evidence supporting their views on guns, religion, sexuality, and immigration. There is certainly a time and need for solutions, but there needs to be space to mourn. Orin Kerr (George Washington Law) summarized my thoughts well when he tweeted:
It's impressive how national tragedies prove to everyone that they were right all along.— Orin Kerr (@OrinKerr) June 13, 2016
What could and should be done immediately after a tragedy? I am not entirely sure, but those who took steps to donate blood and financial resources should be commended.
Some local businesses also attempted to help. For example, it was reported that Chick-fil-A, which is famously closed on Sundays, cooked and gave away food to those waiting in line to donate blood. This is an admittedly small gesture, but at a time when our nation often seems hopelessly divided, I am thankful for the gesture. Chick-fil-A and its conservative Christian COO Dan Cathy were, of course, at the center of controversy regarding views on marriage. I have seen no indications that Dan Cathy has changed his views on marriage, though Chick-fil-A does appear to have made changes in its donations. In any event, I am so glad to see a business looking past differing views and caring for human beings in the aftermath of tragedy.
[Disclosure: While no company is perfect, my family and I are Chick-fil-A fans, and I have friends, including a former roommate, who work for the company.]
Thursday, June 16, 2016
8th Annual Berle Symposium - Benefit Corporations and the Firm Commitment Universe - June 27-28, 2016 - Seattle, WA
Three Business Law Prof Blog editors (myself included) are presenting at the upcoming Berle Symposium on June 27-28 in Seattle.
Colin Mayer (Oxford) is the keynote speaker, and I look forward to hearing him present again. I blogged on his book Firm Commitment after I heard him speak at Vanderbilt a few of years ago. The presenters also include former Chancellor Bill Chandler of the Delaware Court of Chancery. Given that Chancellor Chandler's eBay v. Newmark decision is heavily cited in the benefit corporation debates, it will be quite valuable to have him among the contributors. The author of the Model Benefit Corporation Legislation, Bill Clark, will also be presenting; I have been at a number of conferences with Bill Clark and always appreciate his thoughts from the front lines. Finally, the list is packed with professors I know and admire, or have read their work and am looking forward to meeting.
More information about the conference is available here.
June 16, 2016 in Anne Tucker, Business Associations, Conferences, Corporate Governance, Corporations, CSR, Delaware, Financial Markets, Haskell Murray, Joan Heminway, Law School, Social Enterprise | Permalink | Comments (0)
Monday, June 6, 2016
The first part of my June scholarship and teaching tour is now done. Having just returned from the Law and Society Association conference in New Orleans (about which I will say more in later posts), I now am preparing for my presentation on Friday at "Method in the Madness: The Art and Science of Teaching Transactional Law and Skills," this year's conference hosted by Emory University School of Law's Center for Transactional Law and Practice. Emory Law convenes these conferences every other year. The conferences always focus on teaching transactional business law and skills.
Here's the abstract for my presentation:
Drafting Corporate Bylaws: From Alpha to Omega
The archetypal introductory law school course in business associations law characteristically introduces students to corporate bylaws. Typically, course references to corporate bylaws occur in the context of corporate formation and in cases construing corporate bylaws in the context of private ordering, fundamental corporate changes, and the like. Treatment of the subject is necessarily somewhat superficial and episodic. Although students may be exposed to bylaw provisions and even, in some cases, a sample set of corporate bylaws, little time exists in the standard basic Business Associations course to address the optimal drafting process for drafting organic documents (including corporate bylaws).
An advanced business associations offering or a business planning course, however, provides a wonderful opportunity to engage students in this type of activity and give them a deeper appreciation for the governance significance of corporate bylaws. For the past two years, I have taught a module in Representing Enterprises, a transaction simulation course offered to participants in The University of Tennessee College of Law’s Concentration in Business Transactions, that focuses on drafting bylaws for a closely held start-up corporation organized under Tennessee law. The module offers a sequenced approach to the construction of corporate bylaws, starting with an in-depth survey of applicable statutory and decisional law, progressing through the identification of forms and norms, and ending with individual and group drafting exercises. The five class meetings (ten classroom hours in total over a period of two-and-a-half weeks) in the module engage facilitated peer-to-peer teaching and focus on relevant drafting processes (incorporating and reflecting on the students’ approaches to the required course assignments) and resulting outtakes (more precisely, takeaways).
In this presentation, I will share in more detail the content of and pedagogy involved in this course offering. As support, I will supply all participants with the module syllabus and the staged series of assignments that I give to the students to execute on the embodied learning objectives. This presentation should be particularly useful to those offering, planning on offering, or considering offering a business entity planning and drafting opportunity for law students. But it also may be valuable for those teaching introductory doctrinal offerings in business associations law.
If you cannot be at the conference and are interested in the materials supporting or PowerPoint slides for this presentation, please just let me know.
Also, you may want to note that many (most) presentations at the conference will be memorialized in a forthcoming volume of our student-edited business law journal, Transactions: Tennessee Journal of Business Law. Transactions has been a partner of Emory Law in its biennial conferences from the start. The Transactions volumes from the Emory Law conferences typically are quite popular among business law instructors. I use my copies a fair amount. So, you may want to get one of these, too. Just fyi: the book usually comes out in the spring semester following the conference. Also note that some of the included works are produced from transcripts of the proceedings (very tough to do) and some are papers prepared by the presenters on the topic of their presentation.
Atlanta, here I come!
Thursday, June 2, 2016
See below for information on the The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference in Chicago, IL and their call for papers. I attended MALSB this year, found it beneficial, and reflected on the conference in this post.
Midwest Academy of Legal Studies in Business
2017 Annual Conference
March 22 – 24, 2017
The Palmer House Hilton Hotel – Chicago, Illinois
Conference Registration and Call for Papers
The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference is held in conjunction with the MBAA International Conference, long billed as “The Best Conference Value in America.”
The MBAA International Conference draws hundreds of academics from business-related fields such as accounting, business/society/government, economics, entrepreneurship, finance, health administration, information systems, international business, management, and marketing. Although the MALSB will have its own program track on legal studies, attendees will be able to take advantage of the multidisciplinary nature of this international conference and attend sessions held by the other program tracks.
Monday, May 30, 2016
This year, my research and writing season has started off with a bang. While grading papers and exams earlier this month, I finished writing one symposium piece and first-round-edited another. Today, I will put the final touches on PowerPoint slides for a presentation I give the second week in June (submission is required today for those) and start working on slides for the presentation I will give Friday.
All of this sets into motion a summer concert conference, Barbri, and symposium tour that (somewhere along the line) got a bit complicated. Here are the cities and dates:
New Orleans, LA - June 2-5
Atlanta, GA - June 10-11
Nashville, TN - June 17
Chicago, IL - June 23-24
Seattle, WA - June 27
I know some of my co-bloggers are joining me along the way. I look forward to seeing them. Each week, I will keep you posted on current events as best I can while managing the research and writing and presentation preparations. The topics of my summer research and teaching run the gamut from insider trading (through by-law drafting, agency, unincorporated business associations, personal property, and benefit corporations) to crowdfunding. A nice round lot.
This coming week, I will be at the Law and Society Association annual conference. My presentation at this conference relates to an early-stage project on U.S. insider trading cases. The title and abstract for the project and the currently envisioned initial paper (which I would, of course, already change in a number of ways) are as follows:
May 30, 2016 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporations, Joan Heminway, Research/Scholarhip, Securities Regulation, Social Enterprise, Teaching, White Collar Crime, Writing | Permalink | Comments (0)
Saturday, May 28, 2016
A former law student of mine who practices in Delaware just alerted me to this Delaware Online article.
The article describes the proposed bill as follows:
House Bill 371 would restrict the number of corporate shareholders who can petition the court for a stock appraisal to only those who own $1 million or more of a company's stock or 1 percent of the outstanding shares, depending on which is less. Currently, any shareholder can ask the court to appraise their shares. Those motions are typically filed when a company is the target of an all-cash acquisition and the shareholder wants to ensure the buyer is paying a fair price for the stock. (emphasis added)
Corporate governance expert Charles Elson is quoted as saying:
. . . he understands the argument on both sides. "Anytime you attempt to restrict the rights of a smaller shareholder, it is going to be controversial whether or not the approach is warranted"
The article cites co-authored work by my Nashville neighbor, Randall Thomas (Vanderbilt Law):
A study published earlier this month by four noted corporate law professors, including Wei Jang of Columbia Business School and Randall S. Thomas of Vanderbilt Law School, found that hedge funds have accounted for nearly 75 percent of the amount awarded in all appraisal actions over the last few years. The study also found that 32 percent of the cases involved stakes below $1 million or 1 percent of a company's stock.
Go read the entire article.
Wednesday, May 18, 2016
Today, I received notice of a web seminar on corporate political activity to be hosted by one of my former firms, King & Spalding.
Interested readers can register for the free web seminar here.
More information, from the notice I received, is reproduced below.
Election 2016: What Every Corporate Counsel Must Know About Corporate Political Activity
Thursday, May 26, 2016, 12:30 PM – 1:30 PM ET
In this election year, corporations and their employees will be faced with historic opportunities to engage in the political arena. Deciding whether and how to do so, however, must be made carefully and based on a thorough understanding of the relevant law. In this presentation, King & Spalding experts will address this timely and important area of the law and provide the guidance that corporate counsel need when engaging in the political process.
Tuesday, May 10, 2016
This is just to give everyone a "heads up" on a symposium being held this fall (Friday, October 21 and Saturday, October 22) to honor Lyman Johnson and David Millon. The symposium is being sponsored by the Washington & Lee Law Review (which will publish the papers presented), and I am thrilled to be among the invited speakers. I will have more news on the symposium and my paper for it as the date draws nearer. But I wanted everyone to know about this event so that folks could plan accordingly if they want to attend. I understand Lexington, Virginia is lovely in late October . . . . Actually, it's always been lovely when I have been up there! And the honorees and contributors are a stellar group (present company notwithstanding). I hope to see some of you there.
Monday, May 9, 2016
Thought Josephine Sandler Nelson's recent Oxford Business Law Blog post on Volkswagen might be of interest to our readers. It is reposted here with permission.
Fumigating the Criminal Bug: The Insulation of Volkswagen’s Middle Management
New headlines each day reveal wide-spread misconduct and large-scale cheating at top international companies: Volkswagen’s emissions-defeat devices installed on over eleven million cars trace back to a manager’s PowerPoint from as early as 2006. Mitsubishi admits that it has been cheating on emissions standards for the eK and Dayz model cars for the past 25 years—even after a similar scandal almost wiped out the company 15 years ago. Takata’s $70 million fine for covering up its exploding air bags in Honda, Ford, and other car brands could soon jump to $200 million if a current Department of Justice probe discovers additional infractions. The government has ordered Takata’s recall of the air bags to more than double: one out of every five cars on American roads may be affected. Now Daimler is conducting an internal investigation into potential irregularities in its exhaust compliance.
A recent case study of the 2015-16 Volkswagen (‘VW’) scandal pioneers a new way to look at these scandals by focusing on their common element: the growing insulation and entrenchment of middle management to coordinate such large-scale wrongdoing. “The Criminal Bug: Volkswagen’s Middle Management” describes how VW’s top management put pressure on the rest of the company below it to achieve results without inquiring into the methods that the agents would use to achieve those results. The willing blindness of top executives to the methods of the agents below them is conscious and calculated. Despite disclosure-based regulation’s move to strict-liability prosecutions, the record of prosecutorial failure at trial against top executives in both the U.S. and Germany demonstrates that assertions of plausible deniability succeed in protecting top executives from accountability for the pressure that they put on agents to commit wrongdoing.
Agents inside VW receive the message loud and clear that they are to cheat to achieve results. As even the chairman of the VW board has admitted about the company, “[t]here was a tolerance for breaking the rules”. And, contrary to VW’s assertion, no one believes that merely a “small group of engineers” is responsible for the misconduct. Only middle management at the company had the longevity and seniority to shepherd at least three different emissions-control defeat devices through engine re-designs over ten years, to hide those devices despite heavily documented software, and to coordinate even across corporate forms with an outside supplier of VW’s software and on-board computer.
The reason why illegal activity can be coordinated and grow at the level of middle management over all these years is rooted in the failure of the law to impose individual accountability on agents at this level of the corporation. Additional work by the same author on the way in which patterns of illegal behavior in the 2007-08 financial crisis re-occur in the 2015-16 settlements for manipulations of LIBOR, foreign currency exchange rates, and other parts of the financial markets indicates that middle management is further protected from accountability by regulators’ emphasis on disclosure-based enforcement. In addition, U.S. law has lost the ability to tie together the behavior of individuals within a corporation through conspiracy or other types of prosecutions.
Previous research has shown that the more prominent the firm is, and the higher the expectations for performance, the more likely the firm is to engage in illegal behavior. Now we understand more about the link between the calculated pressure that top executives put on their companies and the protection of middle management that supports the patterns of long-term, large-scale wrongdoing that inflict enormous damage on the public. It is not solely VW that needs to fumigate this criminal bug: the VW case study suggests that we need to re-think the insulation from individual liability for middle management in all types of corporations.
This post originally appeared on the Oxford Business Law Blog, May 5, 2016.
Wednesday, May 4, 2016
Last week, Hamdi Ulukaya, founder and CEO of Chobani, announced a 10% company stock grant to all company employees. Chobani joined the ranks of high profile stock grants including Whole Foods, Starbucks, Apple and Twitter. Stock grants, while more common in tech industries, are a part of hybrid corporate law-employment law conversation on shared ownership. Employee ownership in companies can occur in several different forms such as ERISA-governed benefit plans where the company stock issued or bought as a part of a retirement saving plan. Alternatively, a stock grant may be structured as a bonus plan, a standard compensation, or a vesting employee benefit eligible after threshold years and types of service. All of these plans fall under the rubric of shared ownership. In 2015, the National Center for Employee Benefits estimated that over 9000 companies participated in some form of shared ownership.
In a similar vein, actors in the hit (and record-breaking with 16 Tony Nominations) musical Hamilton have entered into a profit-sharing agreement with producers. The deal is different for these actors, but the sentiment is the same in sharing profits, aligning interests, and promoting employee loyalty.
Shared ownership plans, especially the ERISA-governed ones can have specific tax and financing benefits for companies. Creating a shared ownership plan, however is often focused on creating certain firm-specific benefits such as recruiting and retaining talent, and improving firm performance by aligning interests between employees and the company. The recruitment and retention aspect can be especially valuable to start-up firms that struggle to compete with mature firms on salary and reputation. Empirical studies have found improved workplace performance, on average, for firms with shared capitalism plans, with positive effects observed most strongly when combined with policies such as low supervision, decision-making participation, and competitive pay.
I note these stories with particular interest for several reasons. The first is that I am routinely embarrassed by how little play I give employees in my corporation class . I seem all too happy to ignore this very important piece of the corporate power puzzle, engine for the machine, etc., etc. Second, I have been looking at shared ownership in the context of a recent research project, so look for more on that topic in a separate post once the project progresses. Third, my sense is that social enterprise movement will bring with it greater demands for shared ownership as a means to address social factors such as retirement security, employee autonomy and wage inequality. Look for more of these stories in the headlines and an emphasis on it in scholarship.