Thursday, October 9, 2014

Do the results justify the costs of compliance for Dodd-Frank conflict minerals?

The numbers are in on SEC Dodd-Frank conflict minerals filings. According to a Tulane study, the average company spent over half a million dollars to comply. A review by law firm Schulte Roth & Zabel shows how meaningless (in my view), some of those filings were. Meanwhile, Canada failed to pass another conflict minerals bill and NGOs are pressuring the EU to step up to the plate for more rigorous regulation. I continue to believe that there has to be a better way to resolve a deadly human rights crisis, and that disclosure and due diligence in the supply chain are important but are not the solutions.

October 9, 2014 in Corporate Governance, CSR, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Tuesday, October 7, 2014

The Internal Affairs Doctrine, State Power, and Citizens United

Maryland State Senator and American University Washington College of Law professor Jamie B. Raskin recently wrote an opinion piece for the Washington Post, A shareholder solution to ‘Citizens United’. In the piece, he explains that 

Supreme Court Justice Anthony M. Kennedy’s majority opinion in Citizens United essentially invites a shareholder solution. The premise of the decision was that government cannot block corporate political spending because a corporation is simply an association of citizens with free-speech rights, “an association that has taken on the corporate form,” as Kennedy put it. But if that is true, it follows that corporate managers should not spend citizen-shareholders’ money on political campaigns without their consent.

Senator Raskin further notes that the Congress doesn't appear interested in moving forward with the Disclose Act, and the Securities and Exchange Commission has not pursued requiring campaign spending disclosures.  In response, the senator has a proposal:

Our best hope for change is with the state governments that regulate corporate entities throughout the year and receive regular filings from them. I am introducing legislation in January that will require managers of Maryland-registered corporations who wish to engage in political spending for their shareholders to post all political expenditures on company Web sites within 48 hours and confirm that any political spending fairly reflects the explicit preference of shareholders owning a majority interest in the company.

Further, if no “majority will” of the shareholders can form to spend money for political candidates — because most shares are owned by institutions forbidden to participate in partisan campaigns — then the corporation will be prohibited from using its resources on political campaigns.

Back in early 2010, as a guest blogger here, I wrote a post, Citizens United: States, where I noted my reaction to the case, which was that I wondered how states would react and that the case made the issue "an internal governance issue, which is a state-level issue." (Please click below to read more.)

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October 7, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Joshua P. Fershee | Permalink | Comments (0) | TrackBack (0)

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)

Friday, September 26, 2014

Yockey on The Compliance Case for Social Enterprise

Joseph Yockey (Iowa) has posted a new paper on social enterprise.  I have not read this one yet, but enjoyed his first article on the subject and have added this second one to my long "want to read" list.  The abstract is below.

Social enterprises generate revenue to solve social, humanitarian, and ecological problems. Their products are not a means to the end of profits, but rather profits are a means to the end of their production. This dynamic presents many of the same corporate governance issues facing other for-profit firms, including legal compliance. I contend, however, that traditional strategies for corporate compliance are incongruent to the social enterprise’s unique normative framework. Specifically, traditional compliance theory, with its prioritization of shareholder interests, stands at odds with the social enterprise’s mission-driven purpose. Attention to this distinction is essential for developing effective compliance and enforcement policies in the future. Indeed, arguably the greatest feature of the social enterprise is its potential to harness organizational characteristics that inspire the values and culture most closely linked with ethical behavior — without resort to more costly or intrusive measures.

 

September 26, 2014 in Business Associations, Corporate Governance, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Impact Investing Legal Symposium

The below is from an e-mail I received earlier this week about an impact investment legal symposium on October 2, 2014 from 8:30 a.m. to noon (eastern):

Bingham, in conjunction with the International Transactions Clinic of the University of Michigan Law School, Aspen Network of Development Entrepreneurs (ANDE) Legal Working Group and Impact Investing Legal Working Group, is proud to present a legal symposium on Building a Legal Community of Practice to Add Still More Value to Impact Investments.

The symposium will be held at Bingham McCutchen LLP's New York offices at 339 Park Avenue or you can attend virtually by registering here.

The panelists include Deborah Burand (Michigan), Jonathan Ng (Ashoka), Keren Raz (Paul Weiss), and many others.   

September 26, 2014 in Business Associations, Conferences, Corporate Governance, Entrepreneurship, Haskell Murray, Social Enterprise | 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, Marcia Narine, Merger & Acquisitions, Securities Regulation | Permalink | Comments (0)

Wednesday, September 24, 2014

Thomas and Van Horn on College Football Coaches' Salaries

Randall Thomas (Vanderbilt Law School) and Lawrence Van Horn (Owen Graduate School of Management, Vanderbilt University) have posted a new article entitled Are Football Coaches Overpaid? Evidence from Their Employment Contracts.

This is a rare article that appeals to both my academic interests and my interest in football. Rarely do these two set of interests overlap in my life, and the article has prompted me to think of ways I might incorporate my football knowledge into future academic articles. 

The article's abstract reads:

The commentators and the media pay particular attention to the compensation of high profile individuals. Whether these are corporate CEOs, or college football coaches, many critics question whether their levels of remuneration are appropriate. In contrast, corporate governance scholarship has asserted that as long as the compensation is tied to shareholder interests, it is the employment contract and incentives therein which should be the source of scrutiny, not the absolute level of pay itself. We employ this logic to study the compensation contracts of Division I FBS college football coaches during the period 2005-2013. Our analysis finds many commonalities between the structure and incentives of the employment contracts of CEOs and these football coaches. These contracts’ features are consistent with what economic theory would predict. As such we find no evidence that the structure of college football coach contracts is misaligned, or that they are overpaid.

September 24, 2014 in Corporate Governance, Haskell Murray, Sports | Permalink | Comments (1)

Tuesday, September 23, 2014

March of the Benefit Corporation: So Why Bother? Isn’t the Business Judgment Rule Alive and Well? (Part III)

(Note:  This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  The previous installments can be found here and here (NLPB) and here and here (BLPB).)

In prior posts we talked about what a benefit corporation is and is not.  In this post, we’ll cover whether the benefit corporation is really necessary at all. 

Under the Delaware General Corporation Code § 101(b), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes . . . .” Certainly there is nothing there that indicates a company must maximize profits or take risks or “monetize” anything. (Delaware law warrants inclusion in any discussion of corporate law because the state's law is so influential, even where it is not binding.) 

Back in 2010, Josh Fershee wrote a post questioning the need for such legislation shortly after Maryland passed the first benefit corporation legislation:

I am not sure what think about this benefit corporation legislation.  I can understand how expressly stating such public benefits goals might have value and provide both guidance and cover for a board of directors.  However, I am skeptical it was necessary. 

Not to overstate its binding effects today, but we learned from Dodge v. Ford that if you have a traditional corporation, formed under a traditional certificate of incorporation and bylaws, you are restricted in your ability to “share the wealth” with the general public for purposes of “philanthropic and altruistic” goals.  But that doesn't mean current law doesn't permit such actions in any situation, does it? 

The idea that a corporation could choose to adopt any of a wide range of corporate philosophies is supported by multiple concepts, such as director primacy in carrying out shareholder wealth maximization, the business judgment rule, and the mandate that directors be the ones to lead the entity.  Is it not reasonable for a group of directors to determine that the best way to create a long-term and profitable business is to build customer loyalty to the company via reasonable prices, high wages to employees, generous giving to charity, and thoughtful environmental stewardship?  Suppose that directors even stated in their certificate that the board of directors, in carrying out their duties, must consider the corporate purpose as part of exercising their business judgment. 

Please click below to read more.

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September 23, 2014 in Business Associations, Corporate Governance, Corporate Personality, Corporations, Ethics, Joshua P. Fershee, Religion, Social Enterprise | Permalink | Comments (4)

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)

Sunday, September 14, 2014

Hobby Lobby Redux: 7 Corporate Law/Theory Quotes

This coming Tuesday, I am scheduled to provide a brief overview of the corporate law/theory aspects of Hobby Lobby as part of the University of Akron’s Supreme Court Roundup.  What follows are the seven key quotes from the opinion that I plan to focus on (time permitting) in order to highlight what I see as the key relevant issues raised by the opinion. Comments are appreciated.

Issue 1: Did corporate theory play a role in Hobby Lobby?

While I believe the majority made a pitch for applying a pragmatic, anti-theoretical approach (“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of … people.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), the following quote strikes me as conveying an underlying aggregate view of corporations:

In holding that Conestoga, as a “secular, for-profit corporation,” lacks RFRA protection, the Third Circuit wrote as follows: “General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors.” 724 F.3d, at 385 (emphasis added). All of this is true—but quite beside the point. Corporations, “separate and apart from” the human beings who own, run, and are employed by them, cannot do anything at all.

134 S. Ct. at 2768.

 

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September 14, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Religion, Social Enterprise, Stefan J. Padfield, Unincorporated Entities | Permalink | Comments (2)

Friday, September 12, 2014

Delaware Judges and Law Review Articles

In 2007, J. W. Verret (George Mason) and then Chief Justice Myron Steele authored an article entitled Delaware's Guidance: Ensuring Equity for the Modern Witenagemot, which discussed "some of the extrajudicial activities in which members of the Delaware judiciary engage to minimize the systemic indeterminacy resulting from the resolution of economic disputes by a court of equity."

One of these extrajudicial activities is authoring or co-authoring law review articles.  In this post, I am not going to weigh in on whether Delaware judges should be authoring law review articles, but rather, I simply note that there are two recent law review articles and one recent book chapter by Delaware judges that warrant our attention. 

Vice Chancellor Travis Laster - Evidence-Based Corporate Law.

John Maynard Keynes is said to have observed, "When the facts change, I change my mind. What do you do, sir?" In Delaware's Choice, Professor Subramanian argues that the facts underlying the constitutionality of Section 203 have changed. Assuming his facts are correct, and the Professor says that no one has challenged his account to date, then they have implications for more than Section 203. They potentially extend to Delaware's jurisprudence regarding a board's ability to maintain a stockholder rights plan, which becomes a preclusive defense if a bidder cannot wage a proxy contest for control of the target board with a realistic possibility of success. Professor Subramanian's facts may call for rethinking not only the constitutionality of Section 203, but also the extent of a board's ability to maintain a rights plan.

Chief Justice Leo E. Strine, Jr. and Nicholas Walter (Yale), Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United.

One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival.

 

Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process.

Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.

Chief Justice Leo E. Strine, Jr. and Vice Chancellor Travis Laster, The Siren Song of Unlimited Contractual Freedom

One frequently cited distinction between alternative entities — such as limited liability companies and limited partnerships — and their corporate counterparts is the greater contractual freedom accorded alternative entities. Consistent with this vision, discussions of alternative entities tend to conjure up images of arms-length bargaining similar to what occurs between sophisticated parties negotiating a commercial agreement, such as a joint venture, with the parties successfully tailoring the contract to the unique features of their relationship.

As judges who collectively have over 20 years of experience deciding disputes involving alternative entities, we use this chapter to surface some questions regarding the extent to which this common understanding of alternative entities is sound. Based on the cases we have decided and our reading of many other cases decided by our judicial colleagues, we do not discern evidence of arms-length bargaining between sponsors and investors in the governing instruments of alternative entities. Furthermore, it seems that when investors try to evaluate contract terms, the expansive contractual freedom authorized by the alternative entity statutes hampers rather than helps. A lack of standardization prevails in the alternative entity arena, imposing material transaction costs on investors with corresponding effects for the cost of capital borne by sponsors, without generating offsetting benefits. Because contractual drafting is a difficult task, it is also not clear that even alternative entity managers are always well served by situational deviations from predictable defaults.

In light of these problems, it seems to us that a sensible set of standard fiduciary defaults might benefit all constituents of alternative entities. In this chapter, we propose a framework that would not threaten the two key benefits that motivated the rise of LPs and LLCs as alternatives to corporations: (i) the elimination of double taxation at the entity level and (ii) the ability to contract out of the corporate opportunity doctrine. For managers, this framework would provide more predictable rules of governance and a more reliable roadmap to fulfilling their duties in conflict-of-interest situations. The result arguably would be both fairer and more efficient than the current patchwork yielded by the unilateral drafting efforts of entity sponsors.

September 12, 2014 in Business Associations, Constitutional Law, Corporate Governance, Haskell Murray, LLCs, Partnership, Unincorporated Entities | Permalink | Comments (0)

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)

Monday, September 8, 2014

More on Political Leaders and Private Industry Leaders

Last week, I posted my observations (musings?) relating to a colloquy that I had with Tennessee Governor Bill Haslam at an event sponsored by the C. Warren Neel Corporate Governance Center on The University of Tennessee's Knoxville campus.  At almost the same time, and not at all related to my attendance at that event, I picked up a reprint of a recent article, CEOs and Presidents, authored by Tom Lin at Temple.  Tom and I often work in overlapping fields.  In particular, both of us have shown interest, from different perspectives, in substantially similar issues relating to corporate executives. 

I commend Tom's article to you.  It provides a lucid and engaging comparison of CEOs and Presidents (as the title suggests).  (His analysis is, of course,  significantly more rich and nuanced than the reflections I shared in my earlier post.)  But Tom's piece doesn't stop there.  It goes on to critique the desirability of the "President as CEO" model based on the harms posed to both corporations and democracies and also highlights some important lessons we can learn from his study.

I do want to challenge Tom on one provocative statement that he makes in the article, however.  After critically commenting on the dangers of (among other things) government reliance on private industry and values in the accomplishment of its objectives, he observes that "[g]overnment and corporations are not actual or conceptual substitutes for one another, but are complements of one another."  He lists examples and avows that both government and private industry are optimized when they collaborate.  

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September 8, 2014 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (0)

Friday, September 5, 2014

Fried on The Uneasy Case for Favoring Long-Term Shareholders

Last Monday, at Vanderbilt Law School, I attended a presentation by Jesse Fried (Harvard Law) on his new article, The Uneasy Case for Favoring Long-Term Shareholders (Yale Law Journal, forthcoming)

The paper’s abstract describes the thought-provoking thesis:

This paper challenges a persistent and pervasive view in corporate law and corporate governance: that a firm’s managers should favor long-term shareholders over short-term shareholders, and maximize long-term shareholders’ returns rather than the short-term stock price. Underlying this view is a strongly-held intuition that taking steps to increase long-term shareholder returns will generate a larger economic pie over time. But this intuition, I show, is flawed. Long-term shareholders, like short-term shareholders, can benefit from managers destroying value — even when the firm’s only residual claimants are its shareholders. Indeed, managers serving long-term shareholders may well destroy more value than managers serving short-term shareholders. Favoring the interests of long-term shareholders could thus reduce, rather than increase, the value generated by a firm over time.

I provide more information about the paper and offer a few thoughts after the break.

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September 5, 2014 in Business Associations, Corporate Governance, Haskell Murray | Permalink | Comments (2)

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)

Wednesday, September 3, 2014

The March of the Benefit Corporation: Next Up, West Virginia (PART II)

(Note:  This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  The previous installment can be found here (NLPB) and here (BLPB).)

What It Is:   So now that we’ve told you (in Part I) what the benefit corporation isn’t, we should probably tell you what it is.  The West Virginia statute is based on Model Benefit Corporation Legislation, which (according to B Lab’s website) was drafted originally by Bill Clark from Drinker, Biddle, & Reath LLP.  The statute, a copy of which can be found, not surprisingly, at B Lab’s website, “has evolved based on comments from corporate attorneys in the states in which the legislation has been passed or introduced.”  B Lab specifically states that part of its mission is to pass legislation, such as benefit corporation statutes.

As stated by the drafter’s “White Paper, The Need and Rationale for the Benefit Corporation: Why It is the Legal Form that Best Addresses the Needs of Social Entrepreneurs, Investors, and, Ultimately, the Public” (PDF here), the benefit corporation was designed to be “a new type of corporate legal entity.”  Despite this claim, it’s likely that the entity should be looked at as a modified version of traditional corporation rather than at a new entity. 

To read the rest of the post, please click below. 

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September 3, 2014 in Business Associations, Corporate Governance, Corporations, Entrepreneurship, Joshua P. Fershee, LLCs, Social Enterprise | Permalink | Comments (1)

Tuesday, September 2, 2014

Blessed Are the Meek Public Pension Funds

At the New York Times Dealbook, Andrew Ross Sorkin notes that public pension funds have been lately silent on the issue of corporate inversions. (See co-blogger Anne Tucker on inversions here and here.) Sorkin writes, "Public pension funds may be so meek on the issue of inversions because they are conflicted."

Maybe I am reading too much into his choice of words, but "meek" implies more to me than "moderate" or "mild" and instead conveys a value judgment that fund managers have an obligation to speak out. I am not pretty sure that's not true.

I definitely don't like companies heading offshore for mild gains, and I don't think I would support such a choice, but as a director, I'd sure analyze the option before deciding. Fund managers, too, have obligations to look out for their stakeholders, and unless I had a clear charge on this front or thought the inverting company was clearly wrong, I'd probably stay quiet, too.

Although the meek may inherit the earth, at least at this point, I might substitute "meek" with "cautious" or even "prudent."  But that's just me.

September 2, 2014 in Business Associations, Corporate Governance, Corporations, Current Affairs, Joshua P. Fershee, Merger & Acquisitions | Permalink | Comments (0)

Monday, September 1, 2014

More on Cunningham's Berkshire Beyond Buffett

Larry Cunningham has a further post on his forthcoming book, Berkshire Beyond Buffett: The Enduring Value of Values, over at Concurring Opinions.  The post includes an excerpt from Chapter 8 of the book, Autonomy, and links to the full text of the chapter, available on SSRN for free (!) download.  Larry's and my earlier posts on the book here on the BLPB can be found herehere, here, and here.

Here's a slice of the excerpt included in the Concurring Opinions post:

. . . Berkshire corporate policy strikes a balance between autonomy and authority. Buffett issues written instructions every two years that reflect the balance. The missive states the mandates Berkshire places on subsidiary CEOs: (1) guard Berkshire’s reputation; (2) report bad news early; (3) confer about post-retirement benefit changes and large capital expenditures (including acquisitions, which are encouraged); (4) adopt a fifty-year time horizon; (5) refer any opportunities for a Berkshire acquisition to Omaha; and (6) submit written successor recommendations. Otherwise, Berkshire stresses that managers were chosen because of their excellence and are urged to act on that excellence. 

Cool stuff . . . .

September 1, 2014 in Business Associations, Books, Corporate Governance, Corporations, Current Affairs, Joan Heminway, Weblogs | Permalink | Comments (0)

Government & Business: Is a Governor More Powerful Than a Corporate CEO?

On Friday, Bill Haslam, the Governor of the State of Tennessee, spoke at a session sponsored by the C. Warren Neel Corporate Governance Center on The University of Tennessee's Knoxville campus.  He is our former city mayor and a hometown favorite for many.  I always enjoy his talks.

His talk on Friday focused on how Tennessee is attracting businesses and jobs and how education--including higher education--plays a role.  But before he honed in on that topic, he asked an intriguing, albeit basic, question that operates on theoretical, political, and practical planes.  That question: How is government similar to and different from private enterprise?  He wanted audience participation.  I waited to see how everyone would react.  He got lots of good answers that cut across economics, management, finance, and governance.

Provocatively (at least for me), he characterized his gubernatorial role as akin to the role of a chief executive officer in a corporation.  He has served as a corporate manager (president of his family's firm and the CEO of a division of another firm), and his vision of the state gubernatorial role is clearly framed by that experience.  He actually called the legislature his "board of directors" in his role as governor. 

Well, after that analogy, I just had to contribute to the discussion with a comment.  I endorsed the governor's view of his position, but I also noted that the executive, as the head of a separate branch of a government of three branches, has power independent of the power afforded to the legislature.  That is when things got interesting, at least for me.

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September 1, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Joan Heminway | Permalink | Comments (2)

Wednesday, August 27, 2014

More on "Closely Held" in the Hobby Lobby Regulatory Context

Thanks for your informative post, Anne.  I started drafting this post as a comment to yours, and then I realized it was its own post.   [sigh]

It seems to me that the U.S. Department of HHS and any commentators must grapple with what has been a difficult, fact-based question in determining how to define “closely held” to effectuate the Supreme Court’s intent in as expressed in the Hobby Lobby opinion.  That question?  What "control" means in this context.

The Court said in the Hobby Lobby opinion:  “The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family, and no one has disputed the sincerity of their religious beliefs.”  More specifically, the Court notes that the Hahns (owners of shares in Conestoga) “control its board of directors and hold all of its voting shares” and notes that Hobby Lobby and Mardel “remain closely held, and David, Barbara, and their children retain exclusive control of both companies.”  [Emphasis has been added by me in each quote.]

The definition of “control” primarily has been a question of fact in business law, making the task of defining it here somewhat difficult.  Some questions and considerations to grapple with are set forth below the fold.  I am sure that others can come up with more.  I am posting these as a way of getting the collective juices flowing.

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August 27, 2014 in Business Associations, Anne Tucker, Corporate Governance, Corporations, Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (0)