Monday, July 30, 2018
Hello to all from Tokyo, Japan (Honshu). I have been in Japan for almost a week to present at and attend the 20th General Congress of the International Academy of Comparative Law (IACL), which was held last week in Fukuoka, Japan (Kyushu). By the time you read this, I will be on my way home.
As it turns out, I was at the Congress with old business law friends Hannah Buxbaum (Indiana Maurer Law), Felix Chang (Cincinnati Law), and Frank Gevurtz (McGeorge Law), as well as erstwhile SEALS buddy Eugene Mazo (Rutgers Law). I also met super new academic friends from all over the world, including several from the United States. I attended all of the business law programs after my arrival (I missed the first day due to my travel schedule) and a number of sessions on general comparative and cross-border legal matters. All of that is too much to write about here, but I will give you a slice.
I spoke on the legal regulation of crowdfunding as the National Rapporteur for the United States. My written contribution to the project, which I am told will be part of a published volume, is on SSRN here. The entire project consists of eighteen papers from around the world, each of which responded to the same series of prompts conveyed to us by the General Rapporteur for the project (in our case, Caroline Kleiner from the University of Strasbourg). The General Rapporteur is charged with consolidating the information and observations from the national reports and synthesizing key take-aways. I do not envy her job! The importance of the U.S. law and market to the global phenomenon is well illustrated by this slide from Caroline's summary.
The Congress was different from other international crowdfunding events at which I have presented my work. The diversity of the audience--in terms of the number of countries and legal specialties represented--was significantly greater than in any other international academic forum at which I have presented. Our panel of National Rapporteurs also was a bit more diverse and different than what I have experienced elsewhere, including panelists hailing from from Argentina, Brazil, Canada, France, Germany, Poland, and Singapore (in addition to me). At international conferences focusing on the microfinance aspects of crowdfunding, participants from India and Africa are more prominent. I expect to say more about the individual national reports on crowdfunding in later posts, as the need or desire arises.
A few outtakes on other sessions follow.
July 30, 2018 in Conferences, Contracts, Corporate Finance, Corporate Governance, Crowdfunding, Current Affairs, International Business, International Law, Joan Heminway, Research/Scholarhip, Securities Regulation, Social Enterprise | Permalink | Comments (0)
Thursday, July 26, 2018
One of the business law academy's power couples, Amy and Bert Westbrook, recently posted an intriguing piece on SSRN that Bert and I have been communicating about a bit this summer. It is entitled Snapchat's Gift: Equity Culture in High-Tech Firms, and it is, indeed, a lovely gift--well conceived and packaged. It is a look at dual class common equity in technology firms--and equity more generally--that confronts and incorporates many perspectives from law, economics, and other social sciences.
Some of you, like me, teach basic corporate finance in a variety of courses. In those situations, it is important for instructors to have a handle on descriptions of the basic instruments of corporate finance--debt, equity, hybrid, and other. What is the package of rights each instrument represents that incentivizes investors to supply money or other valuable assets? In my classes, we ultimately discuss equity as a bundle of rights that includes potentials for financial gain and governance. Snapchat's Gift digs into the validity of these perceived rights in relevant part by focusing on recent changes in the primary public offering market for equity securities in the United States--in particular, the advent of highly publicized and fully subscribed initial public offerings of nonvoting common shares.
Tuesday, June 12, 2018
Bernie Sharfman's paper, A Private Ordering Defense of a Company's Right to Use Dual Class Share Structures in IPOs, was just published, and I think he has a point. In fact, as I read his argument, I think it is consistent with arguments I have made about the difference between restrictions or unconventional terms or practices that exist at purchase versus such changes that are added after one becomes a member or shareholder. Here's the abstract:
The shareholder empowerment movement (movement) has renewed its effort to eliminate, restrict or at the very least discourage the use of dual class share structures in initial public offerings (IPOs). This renewed effort was triggered by the recent Snap Inc. IPO that utilized non-voting stock. Such advocacy, if successful, would not be trivial, as many of our most valuable and dynamic companies, including Alphabet (Google) and Facebook, have gone public by offering shares with unequal voting rights.
Unless there are significant sunset provisions, a dual class share structure allows insiders to maintain voting control over a company even when, over time, there is both an ebbing of superior leadership skills and a significant decline in the insiders’ ownership of the company’s common stock. Yet, investors are willing to take that risk even to the point of investing in dual class shares where the shares have no voting rights and barely any sunset provisions, such as in the recent Snap Inc. IPO. Why they are willing to do so is a result of the wealth maximizing efficiency that results from the private ordering of corporate governance arrangements and the understanding that agency costs are not the only costs of governance that need to be minimized.
In this essay, Zohar Goshen and Richard Squire’s newly proposed “principal-cost theory,” “each firm’s optimal governance structure minimizes the sum of principal costs, produced when investors exercise control, and agent costs, produced when managers exercise control,” is used to argue that the use of dual class shares in IPOs is a value enhancing result of private ordering, making the movement’s renewed advocacy unwarranted.
The recommended citation is Bernard S. Sharfman, A Private Ordering Defense of a Company's Right to Use Dual Class Share Structures in IPOs, 63 Vill. L. Rev. 1 (2018).
I find his argument compelling, as I lean toward allowing contracting parties to enter into agreements as they so choose. I find this especially compelling at start-up or the IPO stage. I might take a more skeptical view of changes made after start-up. That is, if dual-class shares are voted created after an IPO by the majority insiders, there is a stronger bait-and-switch argument. Even in that case, if the ability to create dual-class shares by majority vote was allowed by the charter/bylaws, it might be reasonable to allow such a change, but I also see a self-dealing argument to do such a thing post-IPO. At the outset, though, if insiders make clear that, to the extent that a dual-class share structure is self-dealing, the offer to potential purchasers is, essentially, "if you want in on this company, these are our terms." I can work with that.
This is consistent with my view of other types of disclosure. For example, in my post: Embracing Freedom of Contract in the LLC: Linking the Lack of Duty of Loyalty to a Duty of Disclosure, I discussed the ability to waive the duty of loyalty in Delaware LLCs:
At formation . . . those creating an LLC would be allowed to do whatever they want to set their fiduciary duties, up to and including eliminating the consequences for breaches of the duty of loyalty. This is part of the bargain, and any member who does not agree to the terms need not become a member. Any member who joins the LLC after formation is then on notice (perhaps even with an affirmative disclosure requirement) that the duty of loyalty has been modified or eliminated.
It was my view, and remains my view, that there some concerns about such changes after one becomes a member that warrant either restrictions or at least some level of clear disclosures of the possibility of such a change after the fact, though even in that case, perhaps self-dealing protections in the form of the obligations of good faith and fair dealing would be sufficient.
Similarly, in my 2010 post, Philanthropy as a Business Model: Comparing Ford to craigslist, I explained:
I see the problem for Henry Ford to say, in essence, that his shareholders should be happy with what they get and that workers and others are more his important to him than the shareholders. However, it would have been quite another thing for Ford to say, “I, along with my board, run this company the way I always have: with an eye toward long-term growth and stability. That means we reinvest many of our profits and take a cautious approach to dividends because the health of the company comes first. It is our belief that is in the best interest of Ford and of Ford’s shareholders.”
For Ford, there seemed to be something of a change in the business model (and how the business was operated with regard to dividends) once the Dodge Brothers started thinking about competing. All of a sudden, Ford became concerned about community first. For craigslist, at least with regard to the concept of serving the community, the company changed nothing. And, in fact, it seems apparent that craiglist’s view of community is one reason, if not the reason, it still has its “perch atop the pile.”
Thus, while it is true craigslist never needed to accept eBay’s money, eBay also knew exactly how craigslist was operated when they invested. If they wanted to ensure they could change that, it seems to me they should have made sure they bought a majority share.
I understand some of the concern about dual-class shares and other mechanisms that facilitate insider control, but as long as the structure of the company is clear when the buyer is making the purchase decision, I'm okay with letting the market decide whether the structure is acceptable.
Monday, June 4, 2018
It was great to see co-blogger Marcia Narine Weldon (albeit briefly) at the Sixth Biennial Conference: To Teach is to Learn Twice: Fostering Excellence in Transactional Law and Skills Education hosted by Emory Law's Center for Transactional Law and Practice. I had the opportunity to present and attend some of the presentations on Friday. I had to leave Saturday morning to teach Contract Law to ProMBA students in Knoxville Saturday afternoon, however, and missed hearing half the conference program as a result. Even on Friday, due to the number of super concurrent sessions, I had to forego a lot of great presentations. Consequently, I was delighted to read Marcia's post on Tina Stark's presentation. Great stuff.
At the conference, I offered insights on my document "treasure hunt" teaching method in a "try this" session on Friday afternoon. More specifically, I talked about and demonstrated a corporate finance treasure hunt. After laying a substantive and practical foundation, I sent the audience, some of whom are not corporate finance folks, on a search for blank check preferred stock provisions in Delaware corporate charters. Then, I called on them to share their search logic and make observations about what they found, relating their treasure to the example I had given them. They did so well with this exercise! Everyone found a blank check stock provision, and many in the audience were willing to talk about what they found.
I went to several other "try this" sessions on Friday (billed as forums "for individual presenters to demonstrate in-class activities"). They included:
The Creative Aspect of Transactional Lawyering: Structuring the Transaction and Drafting the Agreement to Resolve a Legal Issue
John F. Hilson
UCLA School of Law
Stephen L. Sepinuck
Gonzaga University School of Law
Teaching Contract Law, Terms, and Practice Skills Through Problems
Marquette University Law School
Teach the Basics of Contract Drafting, Corporate Governance & Transactional Law in One Sentence
Neil J. Wertleib
UCLA School of Law
Each session offered much to think about, a hallmark of this conference. I plan to consider over the course of the summer--and beyond--how I may use some of the demonstrated techniques in my teaching and writing. The proceedings of the conference will be published in principal part in Transactions: The Tennessee Journal of Business Law, UT Law's business law journal, during the 2018-19 academic year. I will try to remember to let folks know when that volume of Transactions is available.
This week, I am off to New York and Toronto for two additional conferences (in New York, the Impact Investing Legal Working Group (IILWG)/Grunin Center for Law and Social Entrepreneurship’s 2018 Conference on “Legal Issues in Social Entrepreneurship and Impact Investing–in the US and Beyond,” and in Toronto, the Law and Society Association Annual Meeting on "Law at the Crossroads: Le Droit à la Croisée des Chemins"). I am at the airport waiting for my first (delayed) flight as a type this. I expect to be able to report out on both next week.
Monday, May 21, 2018
Call for Papers
AALS Section on Transactional Law and Skills
Transactional Law and Finance: Challenges and Opportunities
for Teaching and Research
2019 AALS Annual Meeting
New Orleans, Louisiana
The AALS Section on Transactional Law and Skills is proud to announce a call for papers for its program, “Transactional Law and Finance: Challenges and Opportunities for Teaching and Research.” This session will examine the role of finance in business transactions from various perspectives with the goal of inspiring more deliberate consideration of finance in law school teaching and legal scholarship.From structured finance to real estate, from mergers & acquisitions to capital markets, finance plays an important and fundamental role in transactional law. The intersection of transactional law and finance is dynamic, providing academics, practitioners, and the judiciary with both challenges and opportunities. For example, financial product innovation and new funding sources for entrepreneurs continue to expand. Meanwhile, the significant growth in merger appraisal litigation has cast a new spotlight on the ability to critically analyze financial models (with a critical issue being whether a particular model is appropriate for expert use to determine fair value in appraisal proceedings). At the same time, activist investors are impacting company boards and the way in which companies do business. Although these are just a few examples, they demonstrate the breadth and significance of finance in transactional law.
The Section on Transactional Law and Skills invites submissions from any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper on this topic to submit a 1 or 2-page proposal to the Chair of the Section by August 31, 2018. Papers accepted for publication as of August 31, 2018 that will not yet be published as of the 2019 meeting are also encouraged. The Executive Committee will review all submissions and select proposals for presentation as part of our AALS 2019 Section Meeting. Please note that presenters who are selected are responsible for paying their own annual meeting registration fees and travel expenses.
Please direct all submissions and questions to the Chair of the Section, Christina Sautter, at the following address:
Cynthia Felder Fayard Professor of Law
Byron R. Kantrow Professor of Law
Louisiana State University
Paul M. Hebert Law Center
1 East Campus Drive
Baton Rouge, LA 70803
Tel: +1 225-578-1306
Monday, April 23, 2018
Call for Papers for the
Section on Business Associations Program on
Contractual Governance: the Role of Private Ordering
at the 2019 Association of American Law Schools Annual Meeting
The AALS Section on Business Associations is pleased to announce a Call for Papers from which up to two additional presenters will be selected for the section’s program to be held during the AALS 2019 Annual Meeting in New Orleans on Contractual Governance: the Role of Private Ordering. The program will explore the use of contracts to define and modify the governance structure of business entities, whether through corporate charters and bylaws, LLC operating agreements, or other private equity agreements. From venture capital preferred stock provisions, to shareholder involvement in approval procedures, to forum selection and arbitration, is the contract king in establishing the corporate governance contours of firms? In addition to paper presenters, the program will feature prominent panelists, including SEC Commissioner Hester Peirce and Professor Jill E. Fisch of the University of Pennsylvania Law School.
Our Section is proud to partner with the following co-sponsoring sections: Agency, Partnership, LLC's and Unincorporated Associations; Contracts; Securities Regulation; and Transactional Law & Skills.
Please submit an abstract or draft of an unpublished paper to Anne Tucker, email@example.com on or before August 1, 2018. Please remove the author’s name and identifying information from the submission. Please include the author’s name and contact information in the submission email.
Papers will be selected after review by members of the Executive Committee of the Section. Authors of selected papers will be notified by August 25, 2018. The Call for Papers presenters will be responsible for paying their registration fee, hotel, and travel expenses.
Any inquiries about the Call for Papers should be submitted to: Anne Tucker, Georgia State University College of Law, firstname.lastname@example.org or (404) 413.9179.
[Editorial note: As some may recall, the BLPB hosted a micro-symposium on aspects of this issue in the limited liability company context in anticipation of a program held at the 2016 AALS annual meeting. The initial post for that micro-symposium is here, and the wrap-up post is here. This area--especially as writ broadly in this proposal--remains a fascinating topic for study and commentary.]
April 23, 2018 in Anne Tucker, Business Associations, Call for Papers, Conferences, Contracts, Corporate Finance, Corporate Governance, Corporations, Joan Heminway, LLCs, Nonprofits, Partnership | Permalink | Comments (0)
Friday, April 13, 2018
Greetings from the ABA Business Law Meeting in sunny Orlando, Florida. Today, I attended an excellent program on Protecting Human Rights in Supply Chains; Moving from Policy to Action. I plan to blog more about the meeting next week, highlighting the work surrounding draft human rights clauses for supplier contracts. The project was spearheaded by David Snyder of American University and corporate lawyer Susan Maslow. In this post, I want to address one of the topics Susan Maslow discussed-- the recent spate of lawsuits brought by consumers who allege unfair trade practices based on what companies say (or don’t say) about their human rights records.
I’ve blogged (incessantly for the past five years) and written longer articles about the various ESG disclosure regimes. I’ve argued that in theory, disclosure is a good thing. But without meaningful financial penalties from regulators for violations, many corporations won’t do anything more than the bare minimum for human rights, even with the threat of (often short-lived) consumer boycotts. Further, most consumers suffer from disclosure overload or don’t understand or remember what they read.
The disclosure issue has now reached the courts. In 2015, a law firm filed cases in California under unfair competition and false advertising laws against the Hershey Company, Mars, and Nestle. The firm likely chose those causes of action because there’s no private right of action under the California Transparency in Supply Chain Act. The suits claimed, among other things that:
- in violation of California law, Hershey’s, Mars and Nestle failed to disclose that their suppliers in the Ivory Coast relied on child laborers and profitted from the child labor that supplies the chocolate sold to American consumers,
- the children subjected to the forced labor are victims of hazardous work involving dangerous tools, transport of heavy loads and exposure to toxic substances, and,
- “sometimes extremely poor people sell their own children into slavery for as little as $30. Children that are sometimes not even 10 years old carry huge sacks that are so big that they cause them serious physical harm. Much of the world’s chocolate is quite literally brought to us by the back-breaking labor of child slaves.”
Plaintiffs lost those cases because the court found that these companies had no legal duty to disclose on their labels that African child slaves might have been involved in manufacturing their cocoa. Had the plaintiffs won, I imagine that the First Amendment argument that prevailed in the Dodd-Frank conflicts minerals litigation would have played a prominent role in the appeal.
Fast forward a few years and the same law firm has now filed a similar class action lawsuit against Hershey in Massachusetts. This claim alleges unjust enrichment in violation of the state’s consumer protection law. According to plaintiffs, “much of the world’s chocolate is quite literally brought to us by the back-breaking labor of children, in many cases under conditions of slavery.” Moreover, they claim, “Hershey’s material omissions and failure to disclose at the point of sale [are] all the more appalling considering that Hershey’s Corporate Social Responsibility Report state[s] that ‘Hershey has zero tolerance for the worst forms of child labor in its supply chain.’ But Hershey does not live up to its own ideals.”
Hershey, like many companies, produces a CSR report showcasing its efforts and progress in accordance with the Global Reporting initiative, the gold standard for CSR. Companies like Hershey also report on their CSR initiatives in good faith with the knowledge that their statements are generally not legally binding, at least not in the United States. I’ll be following this case closely. If the court grants class certification, this could have a chilling effect on what companies say in their CSR reports, and that would be a shame.
Tuesday, April 10, 2018
I often use my space here to complain about courts and lawmakers being imprecise with regard to limited liability companies (LLCs). Today, I will focus on my home state of West Virginia, which recently passed a bill to support (and provide loans for cooperatives designed to provide) much-needed broadband development in the state. I applaud the effort, but the execution was not great.
Here's an example from the West Virginia Code:
12-6C-11. Legislative findings; loans for industrial development; availability of funds and interest rates.
. . . .
(f) The directors of the board shall bear no fiduciary responsibility with regard to any of the loans contemplated in this section.
This applies to a cooperative board that takes on loans for broadband projects. But it doesn't make sense. I think they used "fiduciary" when they meant "financial," as I assume they meant to say that the board members of the organization would not have “financial liability.” I am pretty sure they did not mean to remove fiduciary duties. Then again, who knows. Maybe they are fine with the directors using loans for personal vacations. (Just kidding. I am pretty sure they'd care.) I know that in finance, the term fiduciary can be used to describe money (meaning some that that relies on public trust for value), but that does not make sense here, either.
When the legislature returns for the next session, I plan to see if I can get this amended to track the LLC liability defaults. Maybe something like:
"(f) The directors of the board are not personally liable for any of the loans contemplated in this section."
I won't hold my breath, but it's worth a try.
Monday, April 2, 2018
This timely post comes to us from Jeremy R. McClane, Associate Professor of Law and Cornelius J. Scanlon Research Scholar at the University of Connecticut School of Law. Jeremy can be reached at email@example.com.
Spotify, the Swedish music streaming company known for disrupting the music market might do the same thing this week to the equity capital markets. On April 3, Spotify plans to go public but in an unusual way. Instead of issuing new stock and enlisting an underwriter to build a book of orders and provide liquidity, Spotify plans to cut out the middleman and list stock held by existing shareholders directly on the New York Stock Exchange.
This will be an interesting experiment that will test some prevailing assumptions that about how firms must raise capital from the public.
The Importance of Bookbuilding. First, we will see just how important bookbuilding is to ensuring a successful IPO. When most companies go public, they hire an underwriter to market the shares in what is known as a “firm commitment” underwriting. The investment banks commit to finding buyers for all of the shares, or purchasing any unsold shares themselves if they cannot find buyers (an occurrence which never happens in practice). The process involves visiting institutional investors and building a book of orders, which are then used to gauge demand and set a price at which to float the stock. The benefit of this process is risk management – the issuing company and its underwriters try to ensure that the offering will be a success (and the price won’t plummet or experience volatile ups and downs) by setting a price at a level that they know market demand will bear, and ensuring that there are orders for all of the shares even before they are sold into the market.
Without underwriters or bookbuilding, Spotify is taking a risk that its share price will be set at the wrong level and become unstable. In Spotify’s case, however there is already relatively active trading of shares in private transactions, which gives the company some indication of what the right price should be. Nonetheless, that indication of price is volatile, in part because the securities laws limit the market for its shares by restricting the number of pre-IPO shareholders to 2,000, at least in the US. In 2017 for example, the price of Spotify’s shares traded in private transactions ranging from $37.50 to $125.00, according to the company’s Form F-1 registration statement.
Monday, March 26, 2018
I am committed to introducing my business law students to business law doctrine and policy both domestically and internationally. The Business Associations text that I coauthored has comparative legal observations in most chapters. I have taught Cross-Border Mergers & Acquisitions with a group of colleagues and will soon be publishing a book we have coauthored. And I taught comparative business law courses for four years in study abroad programs in Brazil and the UK.
In the study abroad programs, I struggled in finding suitable texts, cobbling together several relatively small paperbacks and adding some web-available materials. The result was suboptimal. I yearned for a single suitable text. In my view, texts for study abroad courses should be paperback and cover all of the basics in the field in a succinct fashion, allowing for easy portability and both healthy discussion to fill gaps and customization, as needed, to suit the instructor's teaching and learning objectives.
And so it was with some excitement--but also some healthy natural skepticism--that I requested a review copy of Corporations: A Comparative Perspective (International Edition), coauthored by my long-time friend Marco Ventoruzzo (Bocconi and Penn State) and five others (all scholars from outside the United States), and published by West Academic Publishing. I am pleased to say that if/when I teach international and comparative corporate governance and finance (especially in Europe) in the future, I will/would assign this book. It is a paperback text that, despite its 530 pages, is both reasonably comprehensive and manageable.
The book is divided into ten chapters, starting with basic "building blocks" of comparative corporate law and ending (before some brief final thoughts) with unsolicited business combinations. U.S. law is, for the most part, the centerpiece of the chapters, which consist principally of original text, cases, statutes, law journal article excerpts, and (in certain circumstances) helpful diagrams. The methodological introduction, which I found quite helpful and user-friendly, notes that the coauthors "often (not always) start our analysis with the U.S. perspective." (xxvi) Yet, despite the anchoring use of U.S. law throughout the book, it somehow has a very European feel. The coauthors note the emphasis on "U.S., U.K., major European continental civil law systems (France, Germany, Italy) and European Union law, and Japan," (id.) but my observation is that the words and phrasing also have a European flair. Of course, this is unsurprising, given that all but one of the coauthors hail from European universities. I note this without praise or criticism, but I mention it so others can assess its impact in their own teaching environments.
I recommend that those teaching in study abroad (or other courses focusing on comparative corporate law) review a copy of this book. I will look forward to teaching from it the next time I need an international or comparative law teaching text for use in or outside the United States.
March 26, 2018 in Business Associations, Comparative Law, Corporate Finance, Corporate Governance, Corporations, International Business, International Law, Joan Heminway, Teaching | Permalink | Comments (0)
Monday, February 26, 2018
Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts
Like my fellow editors here at the BLPB, I enjoyed the first Business Law Prof Blog conference hosted by The University of Tennessee College of Law back in the fall. They have begun to post their recently published work presented at that event over the past few weeks. See, e.g., here and here (one of several newly posted Padfield pieces) and here. I am adding mine to the pile: Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts. The SSRN abstract reads as follows:
Business lawyers in the United States find little in the way of robust, tailored guidance in most applicable bodies of rules governing their professional conduct. The relative lack of professional responsibility and ethics guidance for these lawyers is particularly troubling in light of two formidable challenges in business law: legal change and complexity. Change and complexity arise from exciting developments in the industry that invite—even entice—the participation of business lawyers.
This essay offers current examples from three different areas of business law practice that involve change and complexity. They are labeled: “Alternative Entities,” “Alternative Finance,” and “Alternative Facts.” Each area is described, together with significant attendant professional responsibility and ethics challenges. The essay concludes by offering general prescriptions for addressing these and other professional responsibility and ethics challenges faced by business lawyers in an age of legal change and complexity.
I do not often write on professional responsibility issues. However, I do feel an obligation every once in a while to add to the literature in that area addressing issues arising in transactional business law. In essence, it's service through scholarship.
I hope you read the essay and, if you do, I hope you enjoy it. I also can recommend the commentary on it published by my UT Law faculty colleague George Kuney and my student Claire Tuley. Both comments will be available electronically in the coming months. I will try to remember to post links . . . .
Monday, February 19, 2018
Mark your calendars!
March 1, 2018 is the deadline for nominations for the inaugural award of the Grunin Prize.
The Grunin Prize has been created to recognize the variety and impact of lawyers’ participation in the ways in which business, whether for-profit or not-for-profit, is increasingly advancing the goals of sustainability and human development.
Lawyers, legal educators, policymakers, in-house counsel, or legal teams that recently have developed innovative, scalable, and social entrepreneurial solutions using existing law, legal education, or the development of new legal structures or metrics are eligible for nomination. And self-nominations are encouraged!
The Grunin Prize will be presented on June 5, 2018 at the IILWG/Grunin Center conference. To learn more about the Grunin Prize and the nomination process, go to https://www.law.nyu.edu/centers/grunin-social-entrepreneurship/grunin-prize.
June 5-6, 2018 are the dates of the Impact Investing Legal Working Group (IILWG)/Grunin Center for Law and Social Entrepreneurship’s 2018 Conference on “Legal Issues in Social Entrepreneurship and Impact Investing – in the US and Beyond.” This year’s IILWG/Grunin Center’s annual conference will take place at NYU School of Law in New York City.
The themes of this year’s conference include:
· Embedding Impact into Deal Structures and Terms
· Policy and Regulation of Impact Investing and Social Entrepreneurship
· Blending and Scaling Capital for Impact
· Building Investment-Ready Social Enterprises
· Mainstreaming Impact
Last year over 250 lawyers and other stakeholders attended this groundbreaking conference for lawyers working in the fields of social entrepreneurship and impact investing. In a post-conference survey of these conference attendees, we learned that:
· Over 99% of survey respondents rated the conference as “excellent” (over 76%) or “very good” (23%);
· Over 84% of survey respondents were very likely to recommend attending this conference to others; and
· Over 64% of survey respondents made 6 or more new connections at this conference.
Come join this growing community of legal practice!
Conference registration will open in April. For more information about the conference, go to https://www.law.nyu.edu/centers/grunin-social-entrepreneurship.
June 7, 2018 is the date of the first Grunin Center Legal Scholars convening. This convening, which is scheduled to take place immediately after the IILWG/Grunin Center Annual Conference, is intended to advance legal scholarship in the fields of social entrepreneurship and impact investing by bringing together legal scholars who are writing and researching in these fields and introducing them to the legal/policy challenges and opportunities that legal practitioners are facing in these fields.
Law school faculty (fulltime and adjunct), other academic personnel working fulltime in law schools who are engaged in legal scholarship, practitioners who are engaging in legal scholarship, and professors who are teaching law in other schools yet are engaging in legal scholarship are invited to join this convening.
If you are interested in joining this community of legal scholars, please contact the Grunin Center (firstname.lastname@example.org) and we will send you more information about the June 7, 2018 Legal Scholars convening.
Helen Scott and Deborah Burand
Co-Directors, Grunin Center for Law and Social Entrepreneurship
New York University School of Law
245 Sullivan Street, 5th Floor
New York, NY 10012
Monday, November 20, 2017
The Oklahoma Law Review recently published an article I wrote for a symposium the law review sponsored last year at The University of Oklahoma College of Law. The symposium, “Confronting New Market Realities: Implications for Stockholder Rights to Vote, Sell, and Sue,” featured a variety of presentations from some really exciting teacher-scholars, some of which resulted in formal published pieces. The index for the related volume of the Oklahoma Law Review can be found here. I commend these articles to you.
The abstract for my article, "Selling Crowdfunded Equity: A New Frontier," follows.
This article briefly offers information and observations about federal securities law transfer restrictions imposed on holders of equity securities purchased in offerings that are exempt from federal registration under the CROWDFUND Act, Title III of the JOBS Act. The article first generally describes crowdfunding and the federal securities regulation regime governing offerings conducted through equity crowdfunding — most typically, the offer and sale of shares of common or preferred stock in a corporation over the Internet — in a transaction exempt from federal registration under the CROWDFUND Act and the related rules adopted by the U.S. Securities and Exchange Commission. This regime includes restrictions on transferring securities acquired through equity crowdfunding. The article then offers selected comments on both (1) ways in which the transfer restrictions imposed on stock acquired in equity crowdfunding transactions may affect or relate to shareholder financial and governance rights and (2) the regulatory and transactional environments in which those shareholder rights exist and may be important.
Ultimately, the long-term potential for suitable resale markets for crowdfunded equity — whether under the CROWDFUND Act or otherwise — is likely to be important to the generation of capital for small business firms (and especially start-ups and early-stage ventures). In that context, three important areas of reference will be shareholder exit rights, public offering regulation, and responsiveness to the uncertainty, information asymmetry, and agency costs inherent in this important capital-raising context. Only after a period of experience with resales under the CROWDFUND Act will we be able to judge whether the resale restrictions under that legislation are appropriate and optimally crafted.
Those familiar with the literature in the area will note from the abstract that I employ Ron Gilson's model from "Engineering a Venture Capital Market: Lessons from the American Experience" (55 Stan. L. Rev. 1067 (2003)) in my analysis.
I know others are also working in and around this space. I welcome their comments on the essay and related issues here and in other forums. I also know that we all will "learn as we go" as the still-new CROWDFUND Act experiment continues. Securities sold in the early days of effectiveness of the CROWDFUND Act (which became effective May 16, 2016) are just now broadly eligible for resale. Stay tuned for those lessons learned from the school of "real life."
Monday, October 16, 2017
Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets. Oh, My!
My UT Law colleague Jonathan Rohr has coauthored (with Aaron Wright) an important piece of scholarship on an of-the-moment topic--financial instrument offerings using distributed ledger technology. Even more fun? He and his co-author are interested in aspects of this topic at its intersection with the regulation of securities offerings. Totally cool.
Here is the extended abstract. I cannot wait to dig into this one. Can you? As of the time I authored this post, the article already had almost 700 downloads . . . . Join the crowd!
Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets
Jonathan Rohr & Aaron Wright
Best known for their role in the creation of cryptocurrencies like bitcoin, blockchains are revolutionizing the way tech entrepreneurs are financing their business enterprises. In 2017 alone, over $2.2 billion has been raised through the sale of blockchain-based digital tokens in what some are calling initial coin offerings or “ICOs,” with some sales lasting mere seconds. In a token sale, organizers of a project sell digital tokens to members of the public to finance the development of future technology. An active secondary market for tokens has emerged, with tokens being bought and sold on cryptocurrency exchanges scattered across the globe, with often wild price fluctuations.
The recent explosion of token sales could mark the beginning of a broader shift in public capital markets—one similar to the shift in media distribution that started several decades ago. Blockchains drastically reduce the cost of exchanging value and enable anyone to transmit digitized assets around the globe in a highly trusted manner, stoking dreams of truly global capital markets that leverage the power of a blockchain and the Internet to facilitate capital formation.
The spectacular growth of tokens sales has caused some to argue that these sales simply serve as new tools for hucksters and unscrupulous charlatans to fleece consumers, raising the attention of regulators across the globe. A more careful analysis, however, reveals that blockchain-based tokens represent a wide variety of assets that take a variety of forms. Some are obvious investment vehicles and entitle their holders to economic rights like a share of any profits generated by the project. Others carry with them the right to use and govern the technology that is being developed with funds generated by the token sale and may represent the beginning of a new way to build and fund powerful technological platforms.
Lacking homogeneity, the status of tokens under U.S. securities laws is anything but clear. The test under which security status is assessed—the Howey test—has uncertain application to blockchain-based tokens, particularly those that entitle the holder to use a particular technological service, because they also present the possibility of making a profit by selling the token on a secondary market. Although the SEC recently issued a Report of Investigation in which it found that one type of token qualified as a security, confusion surrounds the boundaries between the types of tokens that will be deemed securities and those that will not.
Blockchain-based tokens exhibit disparate features and have characteristics that make current registration exemptions a poor fit for token sales. In addition to including requirements that do not fit squarely with blockchain-based systems, the transfer restrictions that apply to the most popular exemptions would have the perverse effect of restricting the ability of U.S. consumers to access a new generation of digital technology. The result is an uncertain regulatory environment in which token sellers do not have a sensible path to compliance.
In this Article, we argue that the SEC and Congress should provide token sellers and the exchanges that facilitate token sales with additional certainty. Specifically, we propose that the SEC provide guidance on how it will apply the Howey test to digital tokens, particularly those that mix aspects of consumption and use with the potential for a profit. We also propose that lawmakers adopt both a compliance-driven safe harbor for online exchanges that list tokens with a reasonable belief that the public sale of such tokens is not a violation of Section 5 as well as an exemption to the Section 5 registration requirement that has been tailored to digital tokens.
Wednesday, October 11, 2017
From our friend and BLPB colleague, Anne Tucker, following is nice workshop opportunity for your consideration:
We (Rob Weber & Anne Tucker) are submitting a funding proposal to host a works-in-progress workshop for 4-8 scholars at Georgia State University College of Law, in Atlanta, Georgia in spring 2018 [between April 16th and May 8th]. Workshop participants will submit a 10-15 page treatment and read all participant papers prior to attending the workshop. If our proposal is accepted, we will have funding to sponsor travel and provide meals for participants. Interested parties should email email@example.com on or before November 15th with a short abstract (no more than 500 words) of your proposed contribution that is responsive to the description below. Please include your name, school, and whether you will require airfare, miles reimbursement and/or hotel. We will notify interested parties in late December regarding the funding of the workshop and acceptance of proposals. Please direct all inquiries to Rob Weber (mailto:firstname.lastname@example.org) or Anne Tucker (email@example.com).
Call for Proposals: Organizing, Deploying & Regulating Capital in the U.S.
Our topic description is intentionally broad reflecting our different areas of focus, and hoping to draw a diverse group of participants. Possible topics include, but are not limited to:
- The idea of financial intermediation: regulation of market failures, the continued relevance of the idea of financial intermediation as a framework for thinking about the financial system, and the legitimating role that the intermediation theme-frame plays in the political economy of financial regulation.
- Examining institutional investors as a vehicle for individual investments, block shareholders in the economy, a source of efficiency or inefficiency, an evolving industry with the rise of index funds and ETFs, and targets of SEC liquidity regulations.
- The role and regulation of private equity and hedge funds in U.S. capital markets looking at regulatory efforts, shadow banking concerns, influences in M&A trends, and other sector trends.
This workshop targets works-in-progress and is intended to jump-start your thinking and writing for the 2018 summer. Our goal is to provide comments, direction, and connections early in the writing and research phase rather than polishing completed or nearly completed pieces. Bring your early ideas and your next phase projects. We ask for a 10-15 page treatment of your thesis (three weeks before the workshop) and initial ideas to facilitate feedback, collaboration, and direction from participating in the workshop. Interested parties should email firstname.lastname@example.org on or before November 15th with a short abstract (no more than 500 words) of your proposed contribution that is responsive to the description below. Please include your name, school, and whether you will require airfare, miles reimbursement and/or hotel. We will notify interested parties in late December regarding the funding of the workshop and acceptance of proposals. Please direct all inquiries to Rob Weber (email@example.com) or Anne Tucker (firstname.lastname@example.org).
Anne & Rob
October 11, 2017 in Anne Tucker, Call for Papers, Corporate Finance, Financial Markets, Joshua P. Fershee, Law School, M&A, Research/Scholarhip, Securities Regulation, Writing | Permalink | Comments (0)
Wednesday, October 4, 2017
Yesterday, Professor Bainbridge posted "Is there a case for abolishing derivative litigation? He makes the case as follows:
A radical solution would be elimination of derivative litigation. For lawyers, the idea of a wrong without a legal remedy is so counter-intuitive that it scarcely can be contemplated. Yet, derivative litigation appears to have little if any beneficial accountability effects. On the other side of the equation, derivative litigation is a high cost constraint and infringement upon the board’s authority. If making corporate law consists mainly of balancing the competing claims of accountability and authority, the balance arguably tips against derivative litigation. Note, moreover, that eliminating derivative litigation does not eliminate director accountability. Directors would remain subject to various forms of market discipline, including the important markets for corporate control and employment, proxy contests, and shareholder litigation where the challenged misconduct gives rise to a direct cause of action.
If eliminating derivative litigation seems too extreme, why not allow firms to opt out of the derivative suit process by charter amendment? Virtually all states now allow corporations to adopt charter provisions limiting director and officer liability. If corporate law consists of a set of default rules the parties generally should be free to amend, as we claim, there seems little reason not to expand the liability limitation statutes to allow corporations to opt out of derivative litigation.
I think he makes a good point. And included in the market discipline and other measures that Bainbridge notes would remain in place to maintain director accountability, there would be the shareholder response to the market. That is, if shareholders value derivative litigation as an option ex ante, the entity can choose to include derivative litigation at the outset or to add it later if the directors determine the lack of a derivative suit option is impacting the entity's value.
Professor Bainbridge's post also reminded me of another option: arbitrating derivative suits. A friend of mine made just such a proposal several years ago while we were in law school:
There are a number of factors that make the arbitration of derivative suits desirable. First, the costs of an arbitration proceeding are usually lower than that of a judicial proceeding, due to the reduced discovery costs. By alleviating some of the concern that any D & O insurance coverage will be eaten-up by litigation costs, a corporation should have incentive to defend “frivolous” or “marginal” derivative claims more aggressively. Second, and directly related to litigation costs, attorneys' fees should be cut significantly via the use of arbitration, thus preserving a larger part of any pecuniary award that the corporation is awarded. Third, the reduced incentive of corporations to settle should discourage the initiation of “frivolous” or “marginal” derivative suits.
Andrew J. Sockol, A Natural Evolution: Compulsory Arbitration of Shareholder Derivative Suits in Publicly Traded Corporations, 77 Tul. L. Rev. 1095, 1114 (2003) (footnote omitted).
Given the usually modest benefit of derivative suits, early settlement of meritorious suits, and the ever-present risk of strike suits, these alternatives are well worth considering.
Friday, August 25, 2017
From an e-mail I recently received:
The University of Alabama School of Law seeks to fill multiple entry-level/junior-lateral tenure-track positions for the 2018-19 academic year. Candidates must have outstanding academic credentials, including a J.D. from an accredited law school or an equivalent degree (such as a Ph.D. in a related field). Entry-level candidates should demonstrate potential for strong teaching and scholarship; junior-lateral candidates should have an established record of excellent teaching and distinguished scholarship. Positions are not necessarily limited by subject. However, there is a particular need for applicants who study and/or teach business law (corporate finance, mergers & acquisitions, and business planning are of particular interest); criminal law; insurance law; and torts (including products liability). Family law and labor/employment are also areas of interest. We welcome applications from candidates who approach scholarship from a variety of perspectives and methods (including quantitative or qualitative empiricism, formal modeling, or historical or philosophical analysis).
The University embraces diversity in its faculty, students, and staff, and we welcome applications from those who would add to the diversity of our academic community. Interested candidates should apply online at facultyjobs.ua.edu. Salary, benefits, and research support will be nationally competitive. All applications are confidential to the extent permitted by state and federal law; the positions remain open until filled. Questions should be directed to Professor William Brewbaker, Chair of the Faculty Appointments Committee (email@example.com).
Sunday, August 6, 2017
My latest paper, The Inclusive Capitalism Shareholder Proposal, 17 U.C. Davis Bus. L.J. 147 (2017), is now available on Westlaw. Here is the abstract:
When it comes to the long-term well being of our society, it is difficult to overstate the importance of addressing poverty and economic inequality. In Capital in the Twenty-First Century, Thomas Piketty famously argued that growing economic inequality is inherent in capitalist systems because the return to capital inevitably exceeds the national growth rate. Proponents of “Inclusive Capitalism” can be understood to respond to this issue by advocating for broadening the distribution of the acquisition of capital with the earnings of capital. This paper advances the relevant discussion by explaining how shareholder proposals may be used to increase understanding of Inclusive Capitalism, and thereby further the likelihood that Inclusive Capitalism will be implemented. In addition, even if the suggested proposals are rejected, the shareholder proposal process can be expected to facilitate a better understanding of the strengths and weaknesses of Inclusive Capitalism, as well as foster useful new lines of communication for addressing both poverty and economic inequality.
August 6, 2017 in Corporate Finance, Corporate Governance, CSR, Financial Markets, Research/Scholarhip, Securities Regulation, Shareholders, Social Enterprise, Stefan J. Padfield | Permalink | Comments (0)
Wednesday, July 19, 2017
Last year, I was asked to contribute to a symposium on law and entrepreneurship hosted at the University of North Carolina. Although I had to Skype in for my presentation from Little Rock, Arkansas (where I had just given a separate, unrelated CLE presentation), the panel to which I was assigned was fabulous. Great scholars, with great ideas.
For my contribution to the symposium, I chose to reflect on the unfulfilled promise of the potentially mutually beneficial relationship between an entrepreneur and a business finance lawyer. I recently posted the published work memorializing my thoughts on the topic, featured this spring with several other articles from the symposium in a dedicated edition of the North Carolina Law Review. The brief abstract for my article follows:
Entrepreneurs have the capacity to add value to the economy and the community. Business lawyers—including business finance lawyers—want to help entrepreneurs achieve their objectives. Despite incentives to a symbiotic relationship, however, entrepreneurs and business finance lawyers are not always the best of friends. This Article offers several approaches to bridging this gap between entrepreneurs and business finance lawyers.
My hope in writing this article was to infuse some energy into conversations about the role of business finance and business finance lawyers in the start-up and small business environment. Too many principals of emergent businesses with whom I interact think that business entity choice and formation are divorced--wholly or in major part--from finance. Of course, governance and tax matters (as well as, e.g., intellectual property and employment law concerns) are key. But my personal view is that entrepreneurs and promoters of new businesses should map out their plan for financing firms from the start and take that plan into account in choosing the form of legal entity for those businesses. I may be fighting an uphill battle on this (for a variety of reasons, mostly relating to the limited resource environment in which start-ups and small businesses exist), but I hope the article gives both clients and lawyers in this space something to consider, at the very least.
Monday, July 17, 2017
Save the Date!
The Yale Law School Center for Private Law will host a Private Equity Conference on November 17, 2017. The conference will bring leading theorists from law, economics, finance, and sociology into dialogue with people with experience at the highest levels of private equity, including from law practice, financial firms, and institutional investors.
Oliver Hart, winner of the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, will give the keynote address.
Other speakers include:
Jon Ballis, Kirkland & Ellis
Rosemary Batt, Cornell University, ILR School
Neil Fligstein, UC Berkeley Sociology Department
Stephen Fraidin, Pershing Square Capital Management
Will Gaybrick, Stripe
Adam Goldstein, Princeton University Department of Sociology
Victoria Ivashina, Harvard Business School
Andrew Metrick, Yale School of Management
Meridee Moore, Watershed Asset Management
John Morley, Yale Law School
Alan Schwartz, Yale Law School
David Swensen, Chief Investment Officer, Yale University
Location: Yale Law School, 127 Wall St., New Haven, CT
Time: Approximately 9:45 a.m.-4:00 p.m.
Cost: There is no cost associated with this event, though pre-registration is required. Registration information will be available soon at this link.
The conference is sponsored by the Kirkland & Ellis Fund for the Study of Private Law.