Thursday, November 27, 2014

Can a socially responsible person shop on Thanksgiving or Black Friday?

As regular readers know, I research and write on business and human rights. For this reason, I really enjoyed the post about corporate citizenship on Thanksgiving by Ann Lipton, and Haskell Murray’s post about the social enterprise and strategic considerations behind a “values” message for Whole Foods, in contrast to the low price mantra for Wal-Mart. Both posts garnered a number of insightful comments.

As I write this on Thanksgiving Day, I’m working on a law review article, refining final exam questions, and meeting with students who have finals starting next week (being on campus is a great way to avoid holiday cooking, by the way). Fortunately, I gladly do all of this without complaint, but many workers are in stores setting up for “door-buster” sales that now start at Wal-Mart, JC Penney, Best Buy, and Toys R Us shortly after families clear the table on Thanksgiving, if not before. As Ann pointed out, a number of protestors have targeted these purportedly “anti-family” businesses and touted the “values” of those businesses that plan to stick to the now “normal” crack of dawn opening time on Friday (which of course requires workers to arrive in the middle of the night). The United Auto Workers plans to hold a series of protests at Wal-Mart in solidarity with the workers, and more are planned around the country.

I’m not sure what effect these protests will have on the bottom line, and I hope that someone does some good empirical research on this issue. On the one hand, boycotts can be a powerful motivator for firms to change behavior. Consumer boycotts have become an American tradition, dating back to the Boston Tea Party. But while boycotts can garner attention, my initial research reveals that most boycotts fail to have any noticeable impact for companies, although admittedly the negative media coverage that boycotts generate often makes it harder for a companies to control the messages they send out to the public. In order for boycotts to succeed there needs to be widespread support and consumers must be passionate about the issue.

In this age of “hashtag activism” or “slacktivism,” I’m not sure that a large number of people will sustain these boycotts. Furthermore, even when consumers vocalize their passion, it has not always translated to impact to lower revenue. For example, the CEO of Chick-Fil-A’s comments on gay marriage triggered a consumer boycott that opened up a platform to further political and social goals, although it did little to hurt the company’s bottom line and in fact led proponents of the CEO’s views to develop a campaign to counteract the boycott.

Similarly, I’m also not sure of the effect that socially responsible investors can have as it relates to these labor issues. In 2006, the Norwegian Pension Fund divested its $400 million position (over 14 million shares in the US and Mexico operations) in Wal-Mart. In fact, Wal-Mart constitutes two of the three companies excluded for “serious of systematic” human rights violations. Pension funds in Sweden and the Netherlands followed the Fund’s lead after determining that Wal-Mart had not done enough to change after meetings on its labor practices. In a similar decision, Portland has become the first major city to divest its Wal-Mart holdings. City Commissioner Steve Novick cited the company’s labor, wage and hour practices, and recent bribery scandal as significant factors in the decision. Yet, the allegations about Wal-Mart’s labor practices persist, notwithstanding a strong corporate social responsibility campaign to blunt the effects of the bad publicity. Perhaps more important to the Walton family, the company is doing just fine financially, trading near its 52-week high as of the time of this writing.

I will be thinking of these issues as I head to Geneva on Saturday for the third annual UN Forum on Business and Human Rights, which had over 1700 companies, NGOs, academics, state representatives, and civil society organizations in attendance last year. I am particularly interested in the sessions on the financial sector and human rights, where banking executives and others will discuss incorporation of the UN Guiding Principles on Business and Human Rights into the human rights policies of major banks, as well as the role of the socially responsible investing community. Another panel that I will attend with interest relates to the human rights impacts in supply chains. A group of large law firm partners and professors will also present on a proposal for an international tribunal to adjudicate business and human rights issues. I will blog about these panels and others that may be of interest to the business community next Thursday. Until then enjoy your holiday and if you participate in or see any protests, send me a picture.

November 27, 2014 in Ann Lipton, Conferences, Corporate Finance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Haskell Murray, International Business, Marcia Narine, Securities Regulation, Social Enterprise | Permalink | Comments (0)

Monday, November 24, 2014

Giving Thanks for Motivated and Motivating Students

Turkey_0

Happy Thanksgiving you all!  With my co-blogger colleagues here on the BLPB writing various Thanksgiving posts on retail-related and other holiday-oriented business law issues (here and here), I find myself in a Thanksgiving-kind-of-mood.  I honestly have so much to be thankful for, it's hard to know where to start . . . .  But apropos of the business law focus of this blog, I am choosing today to be thankful for my students.  They make my job really special.

This semester, I have been teaching Business Associations in a new three-credit-hour format (challenging and stressful, but I have wanted to teach Business Associations in this format for fifteen years) and Corporate Finance (which I teach as a planning and drafting seminar).  I have 69 students in Business Associations and ten in Corporate Finance.  I have two class meetings left in each course.

The 69 students in Business Associations have been among the most intellectually and doctrinally curious folks to which I have taught this material.  I have talked to a lot of them after class about the law and its application in specific contexts.  Two stayed after class the other day to discuss statutory interpretation rules with me in the context of some problems I gave them.  This large group also includes a number of students who have great senses of humor, offering us some real fun on occasion in class meetings and on the class TWEN site.  They are not always as prepared as I would like (and, in fact, some of the students have expressed to me their disappointment in their colleagues' lack of preparedness and participation), but they pick up after each other when one of them leaves a mess in his or her wake (volunteering to be "co-counsel" for a colleague--a concept I introduce in class early in the semester).  I enjoy getting up on Monday mornings to teach them at 9:00 am.

Corporate Finance includes a more narrow self-selected group.  Almost all of these students have or are actively seeking a job in transactional or advocacy-oriented business law.  They handed in their principal planning and drafting projects a bit over a week ago, projects that they spend much of the semester working on.  (These substantial written projects are described further in this transcribed presentation.)  Now, each student is reviewing and commenting on a project drafted by a fellow student.  Both the project and the review are constructed in a circumscribed format that I define.  I am excited to read their work on these projects, given the great conversations I have had with a number of them over the course of the semester as they puzzled through financial covenants, indemnification provisions, antidilution adjustments, and the like.  Great stuff.  I teach this class from 1:00 pm to 2:15 pm two days a week--a time in the day when I generally am most sleepy/least enthusiastic to teach.  But these folks ask good questions and seem to genuinely enjoy talking about corporate finance instruments and transactions, making the experience much more worthwhile.

So, I am very thankful for each and all of these 79 students.  I may not feel that way after I finish all the grading I have to do, but for now, I am both grateful and content.  And I didn't consume a single calorie getting there (which is more than I will be able to say Thursday night . . .).  Just looking at the picture at the top of this post makes my stomach feel full and me feel heavier.  Ugh.

November 24, 2014 in Business Associations, Corporate Finance, Joan Heminway, Law School, Teaching | Permalink | Comments (2)

Saturday, November 22, 2014

Call for Papers - Fourth European Research Conference on Microfinance

CALL FOR PAPERS

Fourth European Research Conference on Microfinance

1-3 June 2015

Geneva School of Economics and Management, University of Geneva

Geneva, Switzerland

Access to suitable and affordable finance is a precondition for meeting basic human needs in incomes and employment, health, education, work, housing, energy, water and transport. Microfinance – and more broadly, financial inclusion – will continue to be on the research and policy agenda. 2015 will be a special occasion to question received notions about the link between access to finance and welfare. In 2015 the Millennium Development Goals will make place for the Sustainable Development Goals. A broad debate and exchange on micro, macro and policy topics in financial inclusion will advance our knowledge and ultimately improve institutional performance and policy. This applies in particular to issues of financial market organization, but also patterns, diversity and trade-offs in institutional performance, scope for fiscal instruments, impact of technology on efficiency and outreach etc.

The European Research Conference on Microfinance is a unique platform of exchange for academics involved in microfinance research. The three former conferences organized by the Centre for European Research in Microfinance (CERMI) at the Université Libre de Bruxelles in 2009, by the University of Groningen in the Netherlands in 2011 and the University of Agder in Norway in 2013 brought together  several hundred researchers, as well as practitioners interested in applied research. The upcoming Fourth Conference is organized by the University of Geneva, in cooperation with the European Microfinance Platform (www.e-mfp.eu) and in association with the University of Zurich and the Graduate Institute of Geneva. 

To provide cutting-edge insights into current research work on microfinance and financial inclusion and to enrich the conference agenda we invite papers on the following topics:

  • Client-related issues: consumer behavior, client protection, financial education, household-enterprises and entrepreneurship
  • Financial products: credit, insurance, deposits, domestic and cross-border payments
  • Non-financial services
  • Microfinance adjacencies: Millennium Development Goals
  • Institutional issues: management, governance, legal form, transformation, growth, mission drift
  • Market: monopolies, competition, alliances and cooperation, mergers and acquisitions, crowding-in and crowding-out issues
  • Funding: subsidies (smart and other), investments (public and private) in microfinance institutions
  • Policy and regulatory issues
  • Impact
  • International governance

Papers will be selected for presentation at the conference by the Scientific Committee, based on criteria of academic quality.

Members of the Scientific Committee include, amongst others: Arvind Ashta (Burgundy School of Business), Bernd Balkenhol (U Geneva), Georges Gloukoviezoff (U Bordeaux and U College Dublin), Isabelle Guerin (IRD, Cessma), Begona Gutierrez-Nieto (U Zaragoza), Malcom Harper (Cranfield School of Management), Valentina Hartarska (U Auburn, USA), Marek Hudon and Ariane Szafarz (CERMI and Solvay School of Business Brussels), Susan Johnson (U Bath), Annette Krauss (U Zürich), Marc Labie (CERMI and University of Mons), Roy Mersland (U Agder), Christoph Pausch (European Microfinance Platform Luxembourg), Trond Randoy (U Agder), Daniel Rozas (European Microfinance Platform Luxembourg), Jean Michel Servet (Graduate Institute Geneva) and Adalbert Winkler (Frankfurt School of Finance and Management), Hans Dieter Seibel (U of Cologne).

Authors are invited to submit an abstract of their paper (not exceeding 2 pages) to bernd.balkenhol@unige.ch by December 20, 2014.  

The full paper needs to be sent in by March 31, 2015.

November 22, 2014 in Call for Papers, Conferences, Corporate Finance, Entrepreneurship, International Business, Joan Heminway | Permalink | Comments (0)

Monday, November 17, 2014

SEC Crowdfunding Regulations: Congress Should Stop the Current Exercise in Futility

Regular readers of this column know that I’m a strong supporter of a federal crowdfunding exemption, which would allow companies to sell securities online to ordinary investors without registration.

The SEC’s Foot-Dragging

The JOBS Act, passed in April 2012, included a crowdfunding exemption, but, 956 days later, the SEC still has not adopted rules to implement it. Last month, I complained about the SEC’s failure to adopt those rules. Now, I’m not so sure I want that to happen.

 A Little Legislative History

Why have I changed my mind? First, a little legislative history. The House originally passed a crowdfunding bill, sponsored by Representative Patrick McHenry, that was much less regulatory than the final law. Unfortunately, the Senate amended the JOBS Act to substitute the version that was eventually enacted into law. That final version is much more regulatory than Congressman McHenry’s version, and is riddled with errors and ambiguities. The House accepted that Senate substitution, probably because fighting would have risked everything else in the JOBS Act.

As I wrote shortly after the JOBS Act passed, the exemption that came out of the Senate is flawed and unlikely to be effective. If so, it’s not the SEC’s fault. The SEC has limited discretion to fix the problems in the statute.

A Better Way

Things have changed since my last post on crowdfunding. No, the SEC still has not acted. Things have changed in other ways.

The Republicans now control both houses of Congress, and the Republican-controlled Congress will undoubtedly be friendlier to small business and more concerned about the regulatory costs involved in raising capital. The new Congress is dominated by people like Congressman McHenry.

It might be better at this point to start over, instead of waiting for the SEC to finish its exercise in regulatory futility. And, this time, Congress shouldn’t wait for SEC action. It should put the final exemption in the statute itself, with SEC input. The SEC certainly can’t argue that they need more time to study the issue.

President Obama might threaten a veto and argue that we should wait to see if the existing provisions work. But keep in mind that the Obama administration endorsed the original House bill. Was that original endorsement mere political grandstanding, or does President Obama really want to provide an effective exemption?

Congress is unlikely to override a presidential veto, so if that happens, we’ll probably have to wait for a new President to get a workable crowdfunding exemption.

November 17, 2014 in C. Steven Bradford, Corporate Finance, Securities Regulation | Permalink | Comments (1)

Friday, November 14, 2014

SEC Pursues Foreign Crowdfunding Site

In a 2012 article on securities crowdfunding, I warned about the U.S. securities law issues raised by foreign crowdfunding sites selling securities to U.S. investors. I pointed out that “some of those foreign sites also sell to U.S. investors, and some of the investments they sell would almost certainly qualify as securities under U.S. law.”

A recent SEC consent order involving Eureeca Capital shows that the SEC is well aware of the issue and willing to go after foreign sites that sell to U.S. investors.

According to the consent order, Eureeca, based in the Cayman Islands, operates a global crowdfunding platform that connects non-U.S. issuers with investors interested in buying equity securities. Eureeca had a disclaimer on its website that the securities were not being offered to U.S. residents, but it nevertheless allowed U.S. residents to invest in some of the offerings. Eureeca apparently knew these investors were Americans; they provided copies of their passports and proof of U.S. addresses before investing.

The consent order finds that these unregistered sales of securities violated section 5 of the Securities Act and also that Eureeca was acting as an unregistered broker, in violation of section 15 of the Exchange Act. Eureeca is required to pay a $25,000 fine (a fairly significant fine considering that the total amount sold to the U.S. investors, according to the order, was only $20,000).

Given the plethora of international crowdfunding platforms, I wouldn’t be surprised to see more actions like this in the future.

November 14, 2014 in C. Steven Bradford, Corporate Finance, Securities Regulation | Permalink | Comments (1)

Monday, November 10, 2014

Call for Crowdfunding Papers - Pisa, Italy - June 23-26, 2015

Received Saturday (edited slightly for publication here):

Dear Colleague,

Please consider submitting your work to the Track "Crowdfunding: a democratic way for financing innovative projects" @ the RnD Management Conference 2015.

The RnD Management Conference 2015 will be held in June 23-26 at Sant’Anna School of Advanced Studies in Pisa.

You can find more information on the Conference Track and on the submission process at the following link: http://www.rnd2015.sssup.it/.

I warmly apologize for cross-posting.

Best regards,

Cristina Rossi Lamastra, PhD

Associate Professor at Politecnico di Milano School of Management

Phone: 0039 0223993972

Fax: 0039 0323992710

Skype: crossi73

Web page: http://www.dig.polimi.it/index.php?id=308&tx_wfqbe_pi1[id]=52

November 10, 2014 in Call for Papers, Conferences, Corporate Finance, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Thursday, November 6, 2014

Why is Steve Bainbridge So Angry?

I have previously blogged about Institutional Shareholder Services’ policy survey and noted that a number of business groups, including the Chamber of Commerce, had significant concerns. In case you haven’t read Steve Bainbridge’s posts on the matter, he’s not a fan either. 

Calling the ISS consultation period “a decision in search of a process,” the Chamber released its comment letter to ISS last week, and it cited Bainbridge's comment letter liberally. Some quotable quotes from the Chamber include:

Under ISS’ revised policy, according to the Consultation, “any single factor that may have previously resulted in a ‘For’ or ‘Against’ recommendation may be mitigated by other positive or negative aspects, respectively.” Of course, there is no delineation of what these “other positive or negative aspects” may be, how they would be weighted, or how they would be applied. This leaves public companies as well as ISS’ clients at sea as to what prompted a determination that previously would have seen ISS oppose more of these proposals. This is a change that would, if enacted, fly in the face of explicit SEC Staff Guidance on the obligations to verify the accuracy and current nature of information utilized in formulating voting recommendations.

The proposed new policy—as yet undefined and undisclosed—is also lacking in any foundation of empirical support… Indeed, a number of studies confirm that there is no empirical support for or against the proposition ISS seems eager to adopt.

[Regarding equity plan scorecards] there is no clear indication on the part of ISS as to what weight it will assign to each category of assessment—cost of plan, plan features, and company grant practices…  this approach benefits ISS (and in particular its’ consulting operations), but does nothing to advance either corporate or shareholder interests or benefits. The Consultation also makes clear that, for all ISS’ purported interest in creating a more “nuanced” approach, in fact the proposed policy fosters a one-size-fits-all system that fails to take into account the different unique needs of companies and their investors.

Proxy votes cast in reliance on proxy voting policies based upon this Consultation cannot—by definition—be reasonably designed to further shareholder values.

ISS had a number of other recommendations but they didn’t raise the ire of Bainbridge and the Chamber. For the record, Steve is angry about the independent chair shareholder proposals, but please read his well-documented posts and judge for yourself whether ISS missed the mark. The ISS’ 2015 US Proxy Voting Guidelines were released today. Personally, I plan to raise some of the Guidelines discussing fee-shifting bylaws and exclusive venue provisions in both my Civil Procedure and Business Associations classes.

Let’s see how the Guidelines affect the next proxy season—the recommendations from the two-week comment period go into effect in February. 

November 6, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Tuesday, November 4, 2014

Election Impact: Capital Allocation, Corporate Investments, and Stock Prices

Back in 2010, Art Durnev published a short paper, The Real Effects of Political Uncertainty: Elections and Investment Sensitivity to Stock Prices, available here.  The article studies the interaction between national elections and corporate investment.  Today is not a national election -- we get two more years before we have to choose our next president -- but it's still seems like an apt day to think about the role of elections on corporate activity.

The most interesting part of the article, to me anyway, is the test of the relationship between political uncertainty and firm performance. As the article explains, 

If prices reflect future profitability of investment projects, investment-to-price sensitivity can be interpreted as a measure of the quality of capital allocation. This is because if capital is  allocated efficiently, capital is withdrawn from sectors with poor prospects and invested in profitable sectors. Thus, if political uncertainty reduces investment efficiency, firm performance is likely to suffer. Consistent with this argument, we show that firms that experience a drop in investment-to-price sensitivity during election years perform worse over the two years following elections.

The conclusion: this signifies that political uncertainty significantly impacts real economic outcomes.  Therefore, "political uncertainty can deteriorate company performance because of inferior capital allocation."

So, it's election day.  Please vote, regardless of your views.  Voting is a right, a privilege, and duty. And if you're in charge of a firm's investment decisions, consider this study.  As we approach the next national election, you might want to be wary of dropping your investment-to-price sensitivity leading up to the next election.  If you do, odds are your firm will do worse in the two years following the election. 

And, while we're talking presidential politics, here's another study worth considering: Effects of Election Results on Stock Price Performance: Evidence from 1980 to 2008.  Here's the abstract (and, please, go vote!):

We analyze whether the results of the 1980 to 2008 U.S. presidential elections influence the stock market performance of eight industries and we examine factors that are expected to affect firms’ stock returns around these elections. Our empirical analysis reflects firms’ exposure to government policies in two ways. First, to determine whether investors presume any Democratic or Republican favoritism towards or biases against certain industries we perform an event study for each of the eight industries around the eight elections. Second, we include the firms’ marginal tax rate as proxy for the firms’ exposure to uncertainty about fiscal policy in a regression analysis. We do not find a consistent pattern in industry returns when comparing the effect of Democratic versus Republican victories. However, the extent of the reaction differs among industries. The victory of a Democratic candidate rather negatively influences overall stock returns, while the results are rather mixed for Republican victories. Furthermore, a change in presidency from either a Democratic to a Republican candidate or from a Republican to a Democratic candidate causes stronger stock market effects than re-election or the election of a president from the same party. We also find that the firms’ marginal tax rate is positively correlated with abnormal stock price returns around the election day. The results are relevant for academics, investors and policy makers alike because they provide insight on the question whether stock market participants respond to expected changes in policy making as a result of presidential elections.

November 4, 2014 in Corporate Finance, Corporations, Current Affairs, Financial Markets, International Business, Joshua P. Fershee | Permalink | Comments (1)

Thursday, October 30, 2014

Do Small and Large Shareholders Have a Say on Pay?

 

 

 

Miriam Schwartz-Ziv from Michigan State University and Russ Wermers from the University of Maryland have written an interesting article in time for the next proxy season. The abstract is below:

This paper investigates the voting patterns of shareholders on the recently enacted “Say-On-Pay” (SOP) for publicly traded corporations, and the efficacy of vote outcomes on rationalizing executive compensation. We find that small shareholders are more likely than large shareholders to use the non-binding SOP vote to govern their companies: small shareholders are more likely to vote for a more frequent annual SOP vote, and more likely to vote “against” SOP (i.e., to disapprove executive compensation). Further, we find that low support for management in the SOP vote is more likely to be followed by a decrease in excess compensation, and by a more reasonable selection of peer companies for determining compensation, when ownership is more concentrated. Hence, the non-binding SOP vote offers a convenient mechanism for small shareholders to voice their opinions, yet, larger shareholders must be present to compel the Board to take action. Thus, diffuse shareholders are able to coordinate on the SOP vote to employ the threat that large shareholders represent to management.

 

October 30, 2014 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Friday, October 24, 2014

Ello and Social Enterprise

My co-blogger Stefan Padfield passed along this article from The New York Times Dealbook on the social network Ello.

Ello is a Delaware public benefit corporation. The social enterprise terminology is proving difficult, even for sophisticated authors at the New York Times Dealbook. The article calls Patagonia and Ben & Jerry’s public benefit corporations. Patagonia, however, is a California benefit corporation. I wrote about the differences between public benefit corporations and benefit corporations here. Ben & Jerry’s is a certified B corporation, but, as far as I know, Ben & Jerry’s has not yet made the legal change to convert to any of the social enterprise forms. I wrote about the differences between benefit corporations and certified B corporations here and here. Just as my co-blogger Joshua Fershee remains vigilant at pointing out the differences between LLCs and corporations, so I will remain vigilant on the social enterprise distinctions. 

Besides my nitpicking on the use of social enterprise terminology, there are a few other things I want to say about this article.     

First, Ello raised $5.5 million dollars, which is not that much money in the financial world, but puts Ello in pretty rare company in the U.S. social enterprise world. The vast majority of U.S. social enterprises are owned by a single individual or family; some social enterprises have raised outside capital, but not many. The increasing presence of outside investors in social enterprise means two main things to me: (1) the social enterprise concept is starting to gain some traction with previously skeptical investors, and (2) we may see a shareholder derivative lawsuit in the near future, which would give us all more to write about. 

Second, Ello included a clause in its charter that “forbids the company from using ads or selling user data to make money.” This provision seems a direct response to the eBay v. Newmark case. The business judgment rule provides significant protection to directors and, at least theoretically, should calm many of the fears of social entrepreneurs. But risk adverse individuals may seek additional layers of protection.

Third, Ello claims that their charter provision “basically means no investor can force us to take a really good financial deal if it forces us to take advertising.” This seems overstated.  Charters can be amended, but at least the charter puts outside investors on notice. This provision in the charter does not, however, protect against a change of heart by the founders and a selling of the company (such as in the case of Ben & Jerry’s sale to Unilever).

Fourth, this October 4, 2014 article claims that Ello is pre-revenue. The NYT Dealbook article notes that “[u]sers will eventually be able to download widgets and modifications, paying a few dollars for each purchase.” (emphasis added). Ello seems to be one of the growing number of technology companies that are being valued by number of users rather than by revenues or profits. Ello “grew from an initial 90 users on Aug. 7 to over a million now, with a waiting list of about 3 million.”

Fifth, even if traditional investors are (somewhat) warming up to social enterprises, social entrepreneurs still seem to be a bit skeptical of traditional investors. When raising money, Ello "drew the attention of the usual giants in the venture capital world. . . . But Mr. Budnitz said he instead turned to investors whom he could trust to back the start-up’s mission, including the Foundry Group, whom he came to know when he lived in the firm’s hometown, Boulder, Colo.” There are increasing sources of capital for social enterprises from investors who also have a stated social goal (See, e.g., JP Morgan’s May 2014 survey of impact investors).

Some in the academic world have wondered if social enterprise is just a fad. While I am confident that the space will and must continue to evolve, if it is a fad, it has already been a long-running one. The names and details of the statutes may change, but I see a growing interest in marrying profit and social purpose, and I think that interest is likely to continue in some form.     

Cross-posted at SocEntLaw.

October 24, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Monday, October 20, 2014

Convertibles, Exchangeables, and Derivatives . . . . Oh My!

I typically teach Corporate Finance as a planning and drafting course to 3L law students in the fall semester each academic year.  (See my part of this transcription for some details.)  This year is no different in that regard.  I really like my Corporate Finance class this fall.  The students all seem pretty motivated (although not in every class meeting) and are asking relevant "how to" questions in class.

I am in the midst of teaching my unit on convertible, exchangeable, and derivative instruments at the moment.  This semester, I am teaching that unit in three 75-minute parts (after teaching one 75-minute class on hybrid instruments).  The first part is an introduction to the instruments themselves.  What are they and how do they operate?  Where are the provisions authorizing them in state corporate law statutes?  What do they look like and what are the key components of the operative (conversion, exchange, or exercise) provisions?  The second part is a dive into the poison pill as an intriguing example.  The third part is a look at common litigation issues affecting parties' rights under these kinds of instruments (focusing on things like the characterization of transactions not expressly provided for in determining the applicability and effect of antidilution adjustment provisions and interactions between conversion and redemption provisions). 

I really enjoy teaching this part of the course, but I keep feeling like I am missing something.  Do any of you teach planning and drafting in a corporate finance context?  Do you focus on these instruments?  If so, what topics do you teach and hone in on?  I am writing a casebook for use in this kind of course and would love to make it relevant to as many folks as possible.  Please respond in the comments here or in an email message.  I would appreciate your feedback and guidance.

While you are at it (or even if you're not), I also would be grateful if folks would weigh in on whether hybrid instruments should be taught separately from or together with convertibles, exchangeables, and derivatives.  Do you/would you teach convertibles, exchangeables, and derivatives as a type of hybrid instrument? Or would you call an instrument "hybrid" only if it, e.g., combines core elements of debt and equity at the same time?  I look forward to reading what you have to say on any of this.

October 20, 2014 in Corporate Finance, Joan Heminway, Teaching | Permalink | Comments (4)

Wednesday, October 8, 2014

Update: Call for Papers - ITEM 6

Call for Papers

ITEM 6 – Lyon

Microfinance: Coaching, Counting, and Crowding


The Banque Populaire Chair in Microfinance of the Burgundy School of Business (France) organizes the 6th edition of the annual conference “Institutional and Technological Environments of Microfinance” (ITEM) in March 2015 (17, 18, 19) in Lyon, France. This conference was initially programmed in Tunis, Tunisia within the campus of l’École supérieure du commerce de Tunis.

The 6th edition brings together--but is not limited to--three major issues that are shaping the sector of microfinance:  Coaching, Counting, and Crowding.

Coaching in microfinance provides training in business and soft skills (attributes enhancing an individual's interactions and self-performance) that the poor micro-entrepreneurs rarely have. Increasingly, microfinance academics and practitioners consider building the human capital of micro-entrepreneurs as a critical ingredient of moving out of poverty.

Counting and tracking the microfinance clients and prospects with information technologies not only lessen information asymmetry, but also lower the transaction cost of financial intermediation. Corollary: information technologies can open ways for offering financial services to the poor as a normal way of doing and extending normal business and accelerate their social integration. 

Crowding, based on Web 2.0 technologies, enables direct interactions between millions of lending and borrowing people. Through crowdfunding, micro and small entrepreneurs can raise the crucial funds required for their projects by a large number of individuals via social networks on the Internet. It provides an unprecedented opportunity for alleviating poverty in both developed and developing countries.

In addition to the above topics, other microfinance-related topics (such as impact measures, social governance, innovation, and sustainable development) are welcomed.

The ITEM conference provides a forum for both researchers and practitioners to discuss and exchange on financial inclusion. The conference in March 2015 seeks quantitative, qualitative, and experience-based papers from industry and academia. Case studies and Ph.D. research-in-progress are also welcomed. It encourages reflections on the potential and use of technology in microfinance in developed and developing countries.

Publication opportunity

Papers presented at the conference will also be considered for publication in partnering journals.

Submission procedure

Proposals: All contribution types require a proposal in the first instance, including: a short abstract between 300 and 500 words; up to five keywords; the full names (first name and surname, not initials) and email addresses of all authors; and a postal address and telephone number for at least one contact author.

Submission period for the proposals: Up to November 10, 2014.

Acceptance of proposals: By November 30, 2014. As abstract selection notifications will be sent out to relevant authors, please indicate clearly if the contact author is not the lead author.

Full paper: Only required after acceptance of abstract. Papers should not to be more than 5000 words including abstract, keywords and references.

Submission period for the full papers: Up to February 16, 2015.

Contacts:

Web site: http://item6.weebly.com

Fees: Author registration and payment must be completed by February 27, 2015.

There are special discounts available for early-bird registration, students and group bookings (3 registrations). Details will be available on the ITEM 6 website.

October 8, 2014 in Call for Papers, Corporate Finance, Corporations, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Alibaba Presents "Current Events" Illustration of Corporate Law Principles

Alibaba dominated the September business press coverage with its record-breaking IPO last month, and news of its stock price, trading at a 30% premium, continues to dominate coverage.  I have been using the headline-hogging IPO in my corporations class to discuss raising capital, which I am sure many of you are doing as well.  Here are a few creative uses for the class-friendly headlines:

  • I used coverage of the IPO and its short-lived halo effect on other tech IPO's as a companion to the E-bay stock spinning case (taught under director fiduciary duties).  

As we move into securities next week,

Please add to the list of uses in the comments section if you have any new ideas or suggestions.

-Anne Tucker

October 8, 2014 in Business Associations, Anne Tucker, Corporate Finance, Corporations, Current Affairs, Securities Regulation | Permalink | Comments (1)

Thursday, October 2, 2014

What Would Business Associations Students Do If They Were Shareholders?

For the second time, I have assigned my BA students to write their own shareholder proposals so that they can better understand the mechanics and the substance behind Rule 14-a8. As samples, I provided a link to over 500 proposals for the 2014 proxy season. We also went through the Apple Proxy Statement as a way to review corporate governance, the roles of the committees, and some other concepts we had discussed. As I reviewed the proposals this morning, I noticed that the student proposals varied widely with most relating to human rights, genetically modified food, environmental protection, online privacy, and other social factors. A few related to cumulative voting, split of the chair and CEO, poison pills, political spending, pay ratio, equity plans, and other executive compensation factors.

After they take their midterm next week, I will show them how well these proposals tend to do in the real world. Environmental, social, and governance factors (political spending and lobbying are included) constituted almost 42% of proposals, up from 36% in 2013, according to Equilar. Of note, 45% of proposals calling for a declassified board passed, with an average of 89% support, while only two proposals for the separation of chair and CEO passed. Astonishingly, Proxy Monitor, which looked at the 250 largest publicly-traded American companies, reports that just three people and their family members filed one third of all proposals. Only 4% of shareholder proposals were supported by a majority of voting shareholders.  Only one of the 136 proposals related to social policy concerns in the Proxy Monitor data set passed, and that was an animal welfare proposal that the company actually supported.

I plan to use two of the student proposals verbatim on the final exam to test their ability to assess whether a company would be successful in an SEC No-Action letter process. Many of the students thought the exercise was helpful, although one of the students who was most meticulous with the assignment is now even more adamant that she does not want to do transactional law. Too bad, because she would make a great corporate lawyer. I have 7 weeks to convince her to change her mind. 

October 2, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, September 25, 2014

New Article-Worldwide Hedge Fund Activism: Dimensions and Legal Determinants.

Professor Dionysia Katelouzou of Kings College, London has written an interesting empirical article on hedge fund activisim. The abstract is below:

In recent years, activist hedge funds have spread from the United States to other countries in Europe and Asia, but not as a duplicate of the American practice. Rather, there is a considerable diversity in the incidence and the nature of activist hedge fund campaigns around the world. What remains unclear, however, is what dictates how commonplace and multifaceted hedge fund activism will be in a particular country.

The Article addresses this issue by pioneering a new approach to understanding the underpinnings and the role of hedge fund activism, in which an activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry stage), accumulates a nontrivial stake (trading stage), then determines and employs its activist strategy (disciplining stage), and finally exits (exit stage). The Article then identifies legal parameters for each activist stage and empirically examines why the incidence, objectives and strategies of activist hedge fund campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries.

The findings suggest that the extent to which legal parameters matter depends on the stage that hedge fund activism has reached. Mandatory disclosure and rights bestowed on shareholders by corporate law are found to dictate how commonplace hedge fund activism will be in a particular country (entry stage). Moreover, the examination of the activist ownership stakes reveals that ownership disclosure rules have important ramifications for the trading stage of an activist campaign. At the disciplining stage, however, there is little support that the activist objectives and the employed strategies are a reflection of the shareholder protection regime of the country in which the target company is located.

 

 

September 25, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, M&A, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Friday, September 19, 2014

Call for Crowdfunding Book Chapter Proposals

I am passing on the English translation of a call for book chapters issued by a friend and colleague in Dijon, France.  The book is international and has a broad business management focus.

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As the editor of a forthcoming book, it is my greatest pleasure to invite you to submit articles as chapters. The tentative title is: Strategic Managerial Approaches to Crowdfunding Online. The book will be published by IGI Global publishers in the USA, within the series “Advances in Business Strategy and Competitive Advantage (ABSCA).”

Please read carefully the following guidelines for submission:

The context

The emerging crowdfunding phenomenon is a collective effort by individuals who network and pool their money together, usually via the internet and without any specific conventional financial intermediation, in order to invest in and support for-profit, artistic, and cultural ventures initiative undertaken by other people or organizations. The spontaneous interactions and transactions between individuals allow relatively considerable fund raisings by drawing on small contributions from a relatively large number of individuals using the Internet, without standard financial intermediaries.

The advent of crowdfunding coincides with the democratization of information technologies that enable people to contact, interact, collaborate and exchange at lowest costs, if not for free. In fact, information technologies have allowed the drastic reduction of transaction costs and by the same the revival of ancient forms of transactions such as auctions, barter, tenders, recycling, and direct transactions between individuals.

Many platforms encourage crowdfunding such as Kiva, Babyloan, MyC4 in lending to the poor entrepreneurs, Prosper, Kapipal and Zopa in P2P social lending, Kickstarter, MyMajorCompany in entrepreneurial projects, SellaBand in music, etc.

Continue reading

September 19, 2014 in Books, Call for Papers, Corporate Finance, Joan Heminway | Permalink | Comments (0)

Call for Papers - 6th International Conference on Institutional and Technological Environment for Microfinance (ITEM 6)

Call for Papers

ITEM 6 – Tunis, Tunisia

Microfinance: Coaching, Counting, and Crowding


The Banque Populaire Chair in Microfinance of the Burgundy School of Business (France) and l’École supérieure du commerce de Tunis jointly organize the 6th edition of the annual conference “Institutional and Technological Environment of Microfinance” (ITEM) in March 2015 (17, 18, 19) in Tunis, Tunisia.

The 6th edition brings together–but not limited to-three major issues, which are shaping the sector of microfinance: Coaching, Counting, and Crowding.

Coaching in microfinance provides training in business and soft skills (attributes enhancing an individual's interactions and self-performance) that the poor micro-entrepreneurs rarely have. Increasingly, microfinance academics and practitioners consider building the human capital of micro-entrepreneurs a critical ingredient of moving out of poverty.

Counting and tracking the microfinance clients and prospects with the information technologies not only lessen information asymmetry, but also lower the transaction cost of financial intermediation. Corollary: information technologies can open ways for offering financial services to the poor as a normal way of doing and extending normal business, and accelerate their social integration. 

Crowding, based on the Web 2.0 technologies, enables direct interactions between millions of lending and borrowing people. Through crowdfunding, micro and small entrepreneurs can raise the crucial funds required for their projects by a large number of individuals via social networks on the Internet. It provides an unprecedented opportunity for alleviating poverty in both developed and developing countries.

In addition to the above topics, other microfinance related topics such as impact measures, social governance, innovation, and sustainable development are welcomed.

The ITEM conference provides a forum for both researchers and practitioners to discuss and exchange on financial inclusion. The conference in March 2015 seeks quantitative, qualitative and experience-based papers from industry and academia. Case studies and PhD research-in-progress are also welcomed. It encourages reflections on the potential and use of technology in microfinance in developed and developing countries.

Publication opportunity

Papers presented at the conference will also be considered for publication in partnering journals.

Submission procedure

Proposals: All contribution types require a proposal in the first instance, including a short abstract between 300 and 500 words, up to five keywords, the full names (first name and surname, not initials), email addresses of all authors, and a postal address and telephone number for at least one contact author.

Submission period for the proposals: Up to November 10, 2014.

Acceptance of proposals: By November 30, 2014. As abstract selection notifications will be sent out to relevant authors, please indicate clearly if the contact author is not the lead author.

Full paper: Only required after acceptance of abstract. Papers should not to be more than 5000 words including abstract, keywords and references.

Submission period for the full papers: Up to February 16, 2015.

Contacts:

  • ITEM6@escdijon.eu
  • Djamchid ASSADI: Djamchid.Assadi@escdijon.eu
  • Maaouia BEN NASR: Maouia.Ben-Nasr@escdijon.eu

Web site: http://item6.weebly.com

Fees: Author registration and payment must be completed by February 27, 2015.

There are special discounts available for early-bird registration, students and group bookings (3 registrations). Details will be available on the ITEM 6 website.

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[Ed. Note:  I participated in ITEM 5 last year.  The conference was very worthwhile and attracted a diverse group of scholars and others (in industry) from a number of countries (not the usual suspects, in many cases).  We took a field trip to a local microfinance lender on the first day of the conference (as part of the event), which was incredibly enlightening.  I am looking at funding opportunities to enable me to attend the 2015 conference as well.]

September 19, 2014 in Call for Papers, Conferences, Corporate Finance, Entrepreneurship, Joan Heminway | Permalink | Comments (0)

Thursday, September 18, 2014

Alibaba and the forty (not really) risk factors

Teaching the definition of a "security" to business associations students who: 1) want to be litigators; 2) are afraid of math, finance, and accounting; 3) don't know anything about business; 4) only take the class because it's required; and 5) aren't allowed to distract themselves with electronics in class is no small feat.

Thankfully, as we were discussing the definition and exemptions, we also touched on IPOs. Many of the students knew nothing about IPOs but were already Alibaba customers and going through some of the registration statement made them understand the many reasons companies want to avoid going public. Of course, now that we went through some of the risk factors, my students who seemed gung ho about the IPO after watching some videos about the hype were a little less excited about it (good thing because they probably couldn't buy anyway).  

Now if I can only figure out how to jazz up the corporate finance chapter next week.

 

September 18, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (2)

Thursday, September 11, 2014

Is it time to repeal the Dodd-Frank conflict minerals rule? Maybe, but not so fast

As I predicted in 2011 here and here, in 2012 here, in 2013 in amicus brief, and countless times on this blog, the SEC Dodd-Frank conflicts minerals law has had significant unintended consequences on the Congolese people and has been difficult to comply with. Apparently the Commerce Department, which has a role to play in determining which mines are controlled by rebels so that US issuers can stay away from them, can't actually figure it out either. In the past few days, the Washington Post, the Guardian, and other experts including seventy individuals and NGOS (some Congolese) who signed a memo, have called this misguided law into question.  In my view, without the "name and shame" aspect of the law, it is basically an extremely expensive, onerous due diligence requirement that only a few large companies can or have the incentive to do well or thoroughly. More important, and I as I expected, it has had little impact on the violence on the ground and has hurt the people it purported to help.

I had hoped to be wrong. The foundation that I work with helps medical practitioners, midwives, and traditional birth attendants in eastern Congo and many of their patients and neighbors are members of the artisanal mining community. I won’t go as far as Steve Bainbridge has in calling for the law’s repeal because I think that companies should do better due diligence of their supply chains, especially in conflict zones. This law, however, is not the right one for Congo and the SEC is not the right agency to address this human rights crisis. Frankly, I don’t know that the EU's voluntary certification is the right answer either. I hope that Canada, which is looking at a similar rule, pays close heed and doesn’t perpetuate the same mistake that the US Congress made and that the SEC exacerbated. In the meantime, I will stay tuned to see how and if the courts, Congress, and the SEC revisit the rule.

 

September 11, 2014 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Thursday, September 4, 2014

What do shareholders value? ISS asks but the US Chamber questions the questions.

Behemoth proxy advisory firm Institutional Shareholder Services has released its 2015 Policy Survey.  I have listed some of the questions below:

Which of the following statements best reflects your organization's view about the relationship between goal­setting and award values?

 Is there a threshold at which you consider that the magnitude of a CEO’scompensation should warrant concern even if the company’s absolute and relative performance have been positive, for example, outperforming the peer group?

With respect to evaluating the say­ on ­pay advisory vote, how does your organization view disclosed positive changes to the pay program that will be implemented in the succeeding year(s) when a company demonstrates pay­ for ­performance misalignment or other concerns based on the year in review?

If you chose either the first or second answer in the question above, should shareholders expect disclosure of specific details of such future positive changes (e.g., metrics, performance goals, award values, effective dates) in order for the changes to be considered as a potential mitigator for pay ­for ­performance or other concerns for the year in review?

Where a board adopts without shareholder approval a material bylaw amendment that diminishes shareholders' rights, what approach should be used when evaluating board accountability?

Should directors be held accountable if shareholder ­unfriendly provisions were adopted prior to the company’s IPO?

In general, how does your organization consider gender diversity when evaluating boards?

As a general matter, what weight (relative out of 100%) would you view as appropriate for each of the categories indicated below (notwithstanding that some factors, such as repricing without shareholder approval, may be 100% unacceptable)?

How significant are the following factors when evaluating the board's role in risk oversight in your voting decision on directors (very significant, somewhat significant, not significant)?

In making informed voting decisions on the ratification of the outside auditor and the reelection of members of audit committees, how important (very important/somewhat important/not important) would the following disclosures be to you?

In your view, when is it appropriate for a company to utilize quantitative E&S (environmental and social) performance goals?

As someone who studies and consults on corporate governance issues, I look forward to seeing the results of this survey. However, the US Chamber of Commerce’s Center for Capital Market Competitiveness, which has argued that ISS and other proxy advisory firms have conflicts of interest and lack transparency, has issued a response to ISS because:

The CCMC is concerned that the development of the Survey lacks a foundation based on empirical facts and creates a one-size-fits-all system that failure to take into account the different unique needs of companies and their investors. We believe that these flaws with the Survey can adversely affect advisory recommendations negatively impacting the decision making process for the clients of proxy advisory firms. The CCMC is also troubled that certain issues presented in the Survey, such as Pay for Performance, will be the subject of Securities and Exchange Commission (“SEC”) rulemakings in the near future. While we have provided commentary to those portions of the Survey, we believe that their inclusion in the survey is premature pending the completion of those rulemakings….It is both surprising and very troublesome that the Survey does not contain a single reference to the paramount concern of investors and portfolio managers—public company efforts to maintain and enhance shareholder value—and seeks to elicit only abstract philosophies and opinions, completely eschewing any pretense of an interest in obtaining hard facts and empirically-significant data. This confirmation—that ISS’ policies and recommendations are based solely on a miniscule sampling of philosophical preferences, rather than empirical data—is itself a matter that requires, but does not yet receive, appropriate disclosure and disclaimers on ISS research reports.

The CCMC’s letter details concerns with each of ISS’ questions.  Both the complete survey and the CCMC response are worth a read. 

September 4, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)