Friday, October 2, 2015


Today I will present on a panel with colleagues that spent a week with me this summer in Guatemala meeting with indigenous peoples, village elders, NGOs, union leaders, the local arm of the Chamber of Commerce, a major law firm, government officials, human rights defenders, and those who had been victimized by mining companies. My talk concerns the role of corporate social responsibility in Guatemala, but I will also discuss the complex symbiotic relationship between state and non-state actors in weak states that are rich in resources but poor in governance. I plan to use two companies as case studies. 

The first corporate citizen, REPSA (part of the Olmeca firm), is a Guatemalan company that produces African palm oil. This oil is used in health and beauty products, ice cream, and biofuels, and because it causes massive deforestation and displacement of indigenous peoples it is also itself the subject of labeling legislation in the EU. REPSA is a signatory of the UN Global Compact, the world's largest CSR initiative. Despite its CSR credentials, some have linked REPSA with the assassination last month of a professor and activist who had publicly protested against the company's alleged pollution of rivers with pesticides. The "ecocide," that spread for hundreds of kilometers, caused 23 species of fish and 21 species of animals to die suddenly and made the water unsafe to drink. REPSA has denied all wrongdoing and has pledged full cooperation with authorities in the murder investigation. The murder occurred outside of a local court the day after the court ordered the closing of a REPSA factory. On the same day of the murder other human rights defenders were also allegedly kidnaped by REPSA operatives although they were later released. Guatemala's government is reportedly one of the most corrupt in the world-- the President resigned a few weeks ago and went to jail amidst a corruption scandal-- and thus it is no surprise that the government has allegedly done little to investigate either the ecocide or the murder.

The other case study concerns Tahoe, a Canadian mining company with a US subsidiary that used private security forces who shot seven protestors. Tahoe is facing trial in a Canadian court, a case that is being watched worldwide by the NGO community. Interestingly, the company's corporate social responsibility and the board's implementation are indirectly at issue in the case. Tahoe feels so strongly about CSR that it has a  CSR blog and quarterly report online touting its implementation of international CSR standards, including its compliance with the UN Guiding Principles on Business and Human Rights, the Voluntary Principles on Security and Human Rights, the Equator Principles (related to risk management for project finance in social risk projects), the IFC Performance Standards and a host of other initiatives related to grievance mechanisms for those seeking an access to remedy for human rights abuses. Tahoe is in fact a member of the CSR Committee of the International Bar Association. Nonetheless, despite these laudable achievements, none of the families that my colleagues and I met with in the mining town mentioned any of this nor talked about the "Cup of Coffee With the Mine" program promoted in the CSR report. Of course, it's possible that Tahoe has made significant reforms since the 2013 shootings and if so, then it should be applauded, but the families we met in June did not appear to give the company much credit. Instead they talked about the birth defects that their children have and the fact that they and their crops often go for days without water. They may not know the statistic, but some of the mining processes use the same amount of water in one hour that a family of four would use in 20 years.

Of note, the Guatemalan government only requires a 1% royalty for the minerals mined in the country rather than the 30% that other countries require, although legislation is pending to change this. Guatemala also provides its police and military as guards for the mines to protect the Canadian company from its own citizens. Guatemala probably helps shore up security because even though 98% of the local citizens voted against the mine, the mine commenced operations anyway despite both international and Guatemalan human rights law that requires free, prior, and informed consent (see here). 

Given this turmoil, perhaps it was actually the more risky climate of mining in Guatemala that caused Goldcorp to sell a 26% stake in Tahoe earlier this year rather than the stated goal of focusing on core assets. Norway's pension fund had already divested in January due to Tahoe's human rights record in Guatemala. Maybe these investors hadn't read the impressive Tahoe CSR report. With the background provided above, my abstract for my book chapter and today's talk is below. I welcome your thoughts in the comment section or by email at

North Americans and Europeans have come to expect even small and medium sized enterprises to engage in some sort of corporate social responsibility (CSR). Large companies regularly market their CSR programs in advertising and recruitment efforts, and indeed over twenty countries require companies to publicly report on their environmental, social and governance (ESG) efforts. Definitions differ, but some examples may be instructive for this Chapter. For example, the Danish government, which mandates ESG reporting, defines CSR as considerations for human rights, societal, environmental and climate conditions as well as combatting corruption in business strategy and corporate activities. The United States government, which focuses on responsible business conduct, has explained, CSR entails conduct consistent with applicable laws and internationally recognised standards. Based on the idea that you can do well while doing no harm, RBC is a broad concept that focuses on two aspects of the business-society relationship: 1) the positive contribution businesses can make to economic, environmental, and social progress with a view to achieving sustainable development, and 2) avoiding adverse impacts and addressing them when they do occur.

Business must not only have a legal license to operate in a country, they must also have a social license. In other words, the community members, employees, government officials, and those affected by the corporate activitiesthe stakeholdersmust believe that the business is legitimate. It is no longer enough to merely be legally allowed to conduct business. Corporate social responsibility activities can thus often add a veneer of legitimacy.

With this in mind, what role does business play in society in general and in a country as complex as Guatemala in particular? Guatemalan citizens, including over two dozen different indigenous groups, have gone from fighting a bloody 36-year civil war to fighting corrupt leadership that often appears to put the interests of local and multinational businesses above that of the people. For example, although the Canadian Trade Commission has an office with resources related to CSR in Guatemala, some of the most egregious allegations of human rights abuses relate to mining companies from that country. Similarly, many of the multinationals that proudly publish CSR reports and even use the buzzwords social license in slick videos on their websites are the same corporations accused in lawsuits by human rights and environmental defenders. How do these multinationals reconcile these acts? How and when will consumers and socially-responsible investors hold corporations accountable for these acts? Is the Guatemalan government abdicating its responsibility to its own people or is the government in fact complicit with the multinationals? And finally, do foreign governments bear any responsibility for the acts of multinationals acting abroad? This chapter will explore this continuum from corporate social responsibility to corporate accountability using the case study of Guatemala in general and the extractive and palm oil industries in particular.


October 2, 2015 in Commercial Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Litigation, Marcia Narine | Permalink | Comments (0)

Tuesday, September 29, 2015

I Disagree With My Own Argument That Corporation = Citizen = Person = LLC

The ABA has recommend amendment of 28 U.S.C. § 1332 through Resolution 103B, which 

urges Congress to amend 28 U.S.C. § 1332, to provide that any unincorporated business entity shall, for diversity jurisdiction purposes, be deemed a citizen of its state of organization and the state where the entity maintains its principal places of business.

I'm on record as saying a legislative fix is how this should happen because I don't think courts should read "incorporated" in the act to include any entities other than corporations.  I still believe that.  However, I have come up with an argument that supports the idea in a way I had not thought of.  I still disagree with the idea of a court adding entities other than corporations to 1332 absent legislative action, so I disagree with what follows, but I thought of an interesting argument that I almost find compelling , so I am putting it out there anyway.  

In Hobby Lobby decision, Justice Alito stated:

No known understanding of the term "person" includes some but not all corporations. The term "person" sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations.

The decision continues:

Under the Dictionary Act, "the wor[d] 'person' . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." 

Section 1332 provides district courts jurisdiction over "citizens of different States," and citizens are people.  Now, citizen is likely intended to mean natural persons, but 1332 says "a corporation shall be deemed to be a citizen of every State."  So entities can be citizens. And citizens are people.  And the Dictionary Act says LLCs are people, so one could argue that 1332's corporations clause is intended to include like entities. 

I still think that's wrong, but I admit it is a better argument than some I have heard.  

September 29, 2015 in Corporations, Joshua P. Fershee, LLCs | Permalink | Comments (1)

Friday, September 25, 2015

Majority Voting and Board Accountability

Stephen Choi (NYU), Jill Fisch (Penn), Marcel Kahan (NYU), and Ed Rock (Penn) have posted an interesting new paper entitled Does Majority Voting Improve Board Accountability?

The authors report the dramatic increase in majority voting provisions. In 2006, only 16% of the S&P 500 companies used majority voting, but by January of 2014, over 90% of the S&P 500 companies had adopted some form of majority voting. (pg. 6). As of 2012, 52% of mid-cap companies and 19% of small-cap companies had adopted majority voting provisions. (pg. 7)

For the most part, the spread of majority voting has not led to significant reduction in election of nominated directors. In over 24,000 director nominations from 2007 to 2013, at companies with majority voting provisions, "only eight (0.033%) [nominees] failed to receive a majority of 'for' votes." (pg.4)

The authors claim that their "most dramatic finding is":

a substantial difference between early and later adopters of majority voting. The early adopters of majority voting appear to be more shareholder-responsive than other firms. These firms seem to have adopted majority voting voluntarily, and the adoption of majority voting has made little difference in shareholder-responsiveness going forward. By contrast, later adopters, as a group, seem to have adopted majority voting only semi-voluntarily. Among this group, majority voting seems to have led to more shareholder-responsive behavior. (pg. 2)

As the authors suggest, their article "highlights the importance of segregating early and later adopters of the [corporate governance] innovations, because the reasons for and the effects of adoption may differ systematically between these groups." (pg. 44)

September 25, 2015 in Business Associations, Corporate Governance, Corporations, Haskell Murray, Research/Scholarhip, Shareholders | Permalink | Comments (0)

Thursday, September 24, 2015

Didn’t Volkswagen get the (Yates) Memo?

Last week I blogged about the Yates Memorandum, in which the DOJ announced that any company that expected leniency in corporate deals would need to sacrfice a corporate executive for prosecution. VW has been unusually public in its mea culpas apologizing for its wrongdoing in its emission scandal this week. VW’s German CEO has resigned, the US CEO is expected to resign tomorrow, and other executives are expected to follow.

It will be interesting to see whether any VW executives will serve as the first test case under the new less kind, less gentle DOJ. Selfishly, I’m hoping for a juicy shareholder derivatives suit by the time I get to that chapter to share with my business associations students. That may not be too far fetched given the number of suits the company already faces.

September 24, 2015 in Business Associations, Compliance, Corporate Governance, Corporations, Ethics, Marcia Narine, Shareholders | Permalink | Comments (0)

Tuesday, September 22, 2015

Diversity Jurisdiction and Terms of Art for Entities

This post is related to another great post from Tom Rutledge at the Kentucky Business Entity Law Blog, Diversity Jurisdiction and Jurisdictional Discovery: The Third Circuit Holds That “Hiding The Ball” Will Not Work. Tom's post is about Lincoln Benefit Life Company v. AEI Life, LLC, No. 14-2660, 2015 WL 5131423, ___ F.2d__ (3rd Cir. Sept. 2, 2015), which is available here

Lincoln Benefit allows a plaintiff, after a reasonable inquiry into the resources available (like court records and public documents), to allege complete diversity in good faith, if there is no reason to believe any LLC members share the same state of citizenship.  Thus, the diversity claim can be made on "information and belief."  Tom explains that

While it may do nothing to address the fact that diversity jurisdiction may be unavailable consequent to de minimis indirect ownership  . . .  it does limit the ability of a defendant to “hide the ball” as to its citizenship while objecting that the other side has not adequately pled citizenship and therefore diversity. 

This concern arises out of the fact that LLCs, as unincorporated associations, are treated like partnerships for purposes of federal diversity jurisdiction, meaning that an LLC is a citizen of every state in which it has a member. Thus, if an LLC has members that are partnerships or other LLCs, then a plaintiff would need to drill down all the way until they find get to natural people or corporations to know all the states in which the LLC is a citizen.  (As a reminder, under 28 U.S.C. § 1332,  federal diversity jurisdiction requires that the dispute both involve more than $75,000 and that there be complete diversity between all plaintiffs and all defendants.)  

For corporations, the statute provides: "a corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business . . . ."

Some may argue that LLCs, with the limited liability shield for all members, are just like corporations and should be treated as such for diversity purposes.  I think there is instant appeal to treating LLCs as corporations in that setting, but after further thought, I don't think it's as simple as it looks (at least, not for me). As one who continues to argue that LLCs and corporations are distinct entities, I think there is a real (and valid) difference between "incorporated" as required under § 1332 and the more general term, "formed."

I would agree that one can make a reasonable argument (though I think contrary to § 1332, and not my choice) that where limited liability applies to all unit holders (or members), then the corporation rule for diversity should apply to all entities that are formed (not just incorporated). If so, though, then that would likely include LPs and LLLPs, too, because any entity that requires filing, (i.e., all limited liability entities) could then reasonably be views as "formed" under state law. That is okay, if that's the desired policy, but it's not limited to LLCs in that case.

Still, there are those who would argue that one can interpret "incorporated" in § 1332 to mean "formed," but I think that's wrong.  "Formed" has its origins in partnership law. See, e.g., Uniform Partnership Act § 202 (1997) ("Formation of partnership."). Id.§ 202(c) ("In determining whether a partnership is formed, the following rules apply . . . .").   A legislature could make such a change, but it should be a legislative change. 

Despite the best efforts of thousands of courts, LLCs are formed, not "incorporated." See Uniform LLC Act § 202(d): "(1) A limited liability company is formed when the [Secretary of State] has filed the certificate of organization and the company has at least one member, unless the certificate states a delayed effective date pursuant to Section 205(c)." As such, under current law for federal diversity, "incorporated" applies to corporations only. 

Beyond that, as to LLCs specifically, I think there is a difference between member-managed LLCs and manager-managed LLCs in carrying out the corporate analogy. That is, a manager-managed LLC is (usually) quite comparable to a corporation and a member-managed LLC is more easily compared to a partnership. That raises the question: should there be a control test, if that's really the question, as to how diversity applies?  There is no control test for close corporations, either, I would note, and instead a bright line is applied by entity, not control or risk of liability. 

Furthermore, if it's just the concept of complete limited liability, I would argue that an LP with a corporate GP (that only operates for the purposes of that LP) is functionally similar to an LLC in terms of liability, yet there seems to be less of a question how we analyze the LP for diversity purposes. 

It seems to me Lincoln Benefit got the test right, under current law.  Let's see how that goes before we start conflating LLCs and corporations in yet another area.  

September 22, 2015 in Business Associations, Corporations, Joshua P. Fershee, Legislation, LLCs, Partnership | Permalink | Comments (1)

Friday, September 11, 2015

Puchniak and Lan on "Independent Directors"

Last week I ventured a few blocks from Belmont's campus to our neighbor Vanderbilt University Law School for their conference on The Future of International Corporate Governance

One of the many interesting papers presented was Independent Directors in Singapore: Puzzling Compliance Requiring Explanation by Dan Puchniak and Luh Luh Lan, both of the National University of Singapore.

The entire paper is worth reading, but I want to share three take-aways with our readers.

  1. "[O]nly a handful of jurisdictions [roughly 7%] have ever adopted the American concept of the independent director (i.e., where directors who are independent from management only— but not substantial shareholders—are deemed to be independent)." (pg. 6)

  2. Singapore adopted an American-style definition of "independent director" in 2001, which did not include independence from substantial shareholders. Despite this weaker definition of independence in a jurisdiction with much more concentrated shareholding than the U.S., Singapore enjoyed relative success through "functional substitutes" that limited the private benefits of control. According to the authors, these "functional substitutes" include social relationships in Family Controlled Firms ("FCFs")" and legally imposed limits on the controlling government shareholder in Government Linked Companies ("GLCs"). 

  3. Despite relative success with the American-style definition of "independent director," Singapore changed its definition "independent director" to require independence from management and 10%+ shareholders in their 2012 Corporate Code (effective at the start of 2015). This change seems prompted, at least in part, by scandals involving S-Chip companies (non-Singapore based companies that are listed on the Singapore Exchange.) The authors suggest that these S-Chip companies do not have the same "functional substitutes" as the FCFs and GLCs.

The article includes a helpful history of Singapore's recent corporate codes, and is a useful article for comparative corporate governance research. I do wonder if the "functional substitutes" explain quite as much as the authors suggest, but I highly recommend the article, especially for those interested in international corporate law.  

September 11, 2015 in Business Associations, Corporate Governance, Corporations, Family Business, Haskell Murray, International Business, International Law, Research/Scholarhip | Permalink | Comments (0)

Thursday, September 10, 2015

Are Crooked Executives Finally Going to Jail? DOJ’s New White Collar Criminal Guidelines and the Questions for Compliance Officers and In House Counsel

I think my life as a compliance officer would have been much easier had the DOJ issued its latest memo when I was still in house. As the New York Times reported yesterday, Attorney General Loretta Lynch has heard the criticism and knows that her agency may face increased scrutiny from the courts. Thus the DOJ has announced via the “Yates Memorandum” that it’s time for some executives to go to jail. Companies will no longer get favorable deferred or nonprosecution agreements unless they cooperate at the beginning of the investigation and provide information about culpable individuals.

This morning I provided a 7-minute interview to a reporter from my favorite morning show NPR’s Marketplace. My 11 seconds is here. Although it didn’t make it on air, I also discussed (and/or thought about) the fact that compliance officers spend a great deal of time training employees, developing policies, updating board members on their Caremark duties, scanning the front page of the Wall Street Journal to see what company had agreed to sign a deferred prosecution agreement, and generally hoping that they could find something horrific enough to deter their employees from going rogue so that they wouldn’t be on the front page of the Journal. Now that the Yates memo is out, compliance officers have a lot more ammunition.

On the other hand, the Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?

I for one think this is a good development, and I’m in good company. Some of the judges who have been most critical of deferred prosecution agreements have lauded today’s decision. But, actions speak louder than words, so a year from now, let’s see how many executives have gone on trial.

September 10, 2015 in Compliance, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Ethics, Financial Markets, Lawyering, Marcia Narine, Securities Regulation, White Collar Crime | Permalink | Comments (1)

Wednesday, September 9, 2015

Advice to Corporate Directors

A while back, the CLS Blue Sky Blog  featured a post by Michael Peregrine on an article authored by Delaware Supreme Court Chief Justice Leo Strine (Documenting The Deal: How Quality Control and Candor Can Improve Boardroom Decision-making and Reduce the Litigation Target Zone, 70 Bus. Law. 679 (2015)) offering pragmatic advice to corporate directors in deal-oriented decision making.  Michael's post summarizes points made by Justice Strine in his article, including (of particular importance to legal counsel) those set forth below.

  • "Counsel can play an important role in assuring the engagement of the strongest possible independent financial advisor, and structuring the engagement to confirm the provision of the full breadth of deal-related financial advice to the board; not simply the delivery of a fairness opinion or similar document."
  • "[I]n the M&A process, it is critical to be clear in the minutes themselves about what method is being used, and why."
  • "Lawyers and governance support personnel should be particularly attentive to documenting in meeting minutes the advice provided by financial advisors about critical fairness considerations or other transaction terms, and the directors’ reaction to that advice."
  • "[P]laintiffs’ lawyers are showing an increasing interest in seeking discovery of electronic information that may evidence the attentiveness of individual directors to materials posted on the board portal."

Michael concludes by noting the thrust of Justice Strine's points--that "a more thoughtful approach to the fundamental elements of the M&A process will enhance exercise of business judgment by disinterested board members, and their ability to rely on the advice of impartial experts."  All of the points made reflect observations of the Chief Justice emanating from Delaware jurisprudence.  Michael also notes that the points made by Justice Strine have application to decision making in other forms of business association as well as the corporation.

I could not agree more with the thesis of the post and the article.  Maybe it's just my self-centered, egotistical, former-M&A-lawyer self talking, but good lawyering can make a difference in M&A deals and the (seemingly inevitable) litigation that accompanies them.  I wrote about this in my article, A More Critical Use of Fairness Opinions as a Practical Approach to the Behavioral Economics of Mergers and Acquisitions, commenting on Don Langevoort's article, The Behavioral Economics of Mergers and Acquisitions.  We should be teaching this in the classroom as we frame the lawyer's role in M&A transactions.  I use a quote from Steve Bainbridge to introduce this matter to my Business Associations, Corporate Finance, and Cross-Border M&A students:

Successful transactional lawyers build their practice by perceptibly adding value to their clients’ transactions. From this perspective, the education of a transactional lawyer is a matter of learning where the value in a given transaction comes from and how the lawyer might add even more value to the deal.

Stephen M. Bainbridge, Mergers and Acquisitions 4 (2003).  Great stuff, imv.  I am sure this quote or one like it is in the current version of this book somewhere, too.  But I do not have that with me as I write this.  Perhaps if Steve reads this he will add the current cite to the comments . . . ?

At any rate, I want to make a pitch for highlighting the role of the lawyer in guiding the client through the legal minefields--territory that only we can help clients navigate most efficaciously.  As business law educators, we have a podium that enables us to do this with law students who are lawyers-in-training about to emerge from the cocoon-like academic environment into the cold, cruel world in which fiduciary duty (derivative and direct) and securities class action litigation is around every transactional corner.  Let's give them some pointers on why and how to take on this task!

September 9, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Delaware, Joan Heminway, M&A | Permalink | Comments (0)

Tuesday, September 8, 2015

Wrong: U.S. Supreme Court & 4575 Other Cases Say an LLC is a Corporation

Limited liability companies (LLCs) are often viewed as some sort of a modified corporation.  This is wrong, as LLCs are unique entities (as are, for example, limited partnerships), but that has not stopped lawyers and courts, including this nation's highest court, from conflating LLCs and corporations.  

About four and a half years ago, in a short Harvard Business Law Review Online article, I focused on this oddity, noting that many courts

seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).

I have been writing about this subject again recently, so I decided to revisit the question of just how many courts call LLCs “limited liability corporations instead of “limited liability companies.”  I returned to Westlaw, though this time it's WestlawNext, to do the search of cases for the term "limited liability corp!". (Exclamation point is to include corp., corporation, and corporations in my search, not to show excitement at the prospect.)

The result: 4575 cases use the phrase at least once.  

That means that, since May 2011, 1802 additional cases have incorrectly identified the definition of an LLC.   (I concede that some cases may have used the term to note it was wrong, but I didn't find any in a brief look.)

Even the United States Supreme Court published one case using the incorrect phrase, and it was decided around three years after my article was published.  See Daimler AG v. Bauman, 134 S. Ct. 746, 752, 187 L. Ed. 2d 624 (2014) ("MBUSA, an indirect subsidiary of Daimler, is a Delaware limited liability corporation.").  (Author's note: ARRRRGH!)  The court also stated, "Jurisdiction over the lawsuit was predicated on the California contacts of Mercedes–Benz USA, LLC (MBUSA), a subsidiary of Daimler incorporated in Delaware with its principal place of business in New Jersey." Id. (emphasis added). (Author's Note: Really?)

This opinion was written by Justice Ginsberg, and joined by Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas, Breyer, Alito, and Kagan. Justice Sotomayor filed a concurring opinion that did not, unfortunately, concur in judgment but disagree with the characterization of the LLC. The entire court at least acquiesced in the incorrect characterization of the LLC! 

It appears things have to get worse before they can get better, but I will remain vigilant.  I’m working on an article that builds on this, and it will hopefully help courts and practitioners keep LLCs and corporations distinct.  

In the meantime, I humbly submit to Chief Justice Roberts, and the rest of the Court, that there are already some useful things in law reviews

September 8, 2015 in Business Associations, Case Law, Corporations, Joshua P. Fershee, Law Reviews, Lawyering, LLCs, Partnership, Research/Scholarhip, Unincorporated Entities | Permalink | Comments (2)

Thursday, September 3, 2015

Wal-Mart and the Social License to Operate

Has Wal-Mart reformed? Last week I blogged about whether conscious consumers or class actions can really change corporate behavior, especially in the areas of corporate social responsibility or human rights. I ended that post by asking whether Wal-Mart, the nation’s largest gun dealer, had bowed down to pressure from activist groups when it announced that it would stop selling assault rifles despite the fact that gun sales are rising (not falling as Wal-Mart claims). Fellow blogger Ann Lipton did a great post about the company’s victory over shareholder Trinity over a proposal related to the sale of dangerous products (guns with high capacity magazines). There doesn’t appear to be anything in the 2015 proxy that would necessitate even the consideration of a change that Wal-Mart fought through the Third Circuit to avoid.

So why the change? Is it due to the growing public weariness over mass shootings? Did they feel the sting after Senator Chris Murphy praised them for ceasing the sale of Confederate flags but called them out on their gun sales? Even the demands of a Senator won’t overcome the apparent lack of political will to enact more strict gun control, so fear of legislation is not a likely factor either. Selling guns doesn't even conflict with the very specific initiatives in their comprehensive GRI-referenced global responsibility report.

Maybe the CEO just wants to do what he believes is the right thing. After all, he announced to great fanfare in February that the retailer would be raising minimum wages for associates. But just this week the chain announced that it would be cutting back on worker hours in many stores. Was the pay raise a “cruel PR stunt” as some have complained or it good business sense for a company that has failed to live up to investor expectations and needs to retain good talent and reduce turnover?

A few weeks ago when I did a crash course in US corporate law and governance in Panama, I had a lengthy debate with the head of CSR for a Latin American company. I (cynically) told her that in my ideal(ist) world, companies should adopt a stakeholder view and look beyond profit maximization. However, I believed that most large companies in fact implemented CSR programs to enhance reputation, avoid onerous legislation, and mitigate enterprise risks. The company that builds the school or the drinking well in a remote area of a third-world country does good for the community but it also has workers who can send their children to school, educates the next generation of employees, and makes sure that the community has potable water so that workers don't get sick. Its CSR builds good will in the community that can be worth more than gold. The smart company makes sure that it has a social license to operate as well as legal license.

So back to Wal-Mart. Does the retailer need a social license to boost sagging sales or does it just need different merchandise?  In other words is the retailer trying to get more customers by stopping the sale of assault rifles? Was that announcement timed to blunt the effect of the announcement about cutting back hours? Or is Doug McMillon simply doing what he believes makes sense for the shareholders and the stakeholders? The cynic in me says that there’s a business reason other than low sales for the change in position on guns and that there was always a business reason for the rise in wages.

September 3, 2015 in Ann Lipton, Commercial Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Legislation, Marcia Narine, Shareholders | Permalink | Comments (1)

Wednesday, September 2, 2015

Calling All M&A Instructors: Request for Practical Teaching Tools

As many readers already know, I teach Corporate Finance in the fall semester as a three-credit-hour planning and drafting seminar.  The course is designed to teach students various contexts in which valuations are used in the legal practice of corporate finance, the key features of simple financial instruments, and legal issues common to basic corporate finance transactions (including M&A).  In the process of teaching this substance, I introduce the students to various practice tips and tools.

As part of teaching M&A in this course and in my Advanced Business Associations course, I briefly cover the anatomy of an M&A transaction and the structure of a typical M&A agreement.  For outside reading on these topics, I am always looking for great practical summaries.  For example, Summary of Acquisition Agreements, 51 U. Miami L. Rev. 779 (1997), written by my former Skadden colleagues Lou Kling and Eileen Nugent (together with then law student, Michael Goldman)  has been a standard-bearer for me.  In recent years, practice summaries available through Bloomberg, LexisNexis, and Westlaw (Practical Law Company) have been great supplements to the Miami Law Review article.  In our transaction simulation course, which is more advanced, I often assign part of Anatomy of a Merger, written many moons ago by another former Skadden colleague, Jim Freund.  Just this past week, I came across a new, short blog post on the anatomy of a stock purchase agreement on The M&A Lawyer Blog.  Although I haven't yet given the post a review for teaching purposes, it is a nice summary in many respects and makes some points not made in other similar resources.

I will be revisiting my approach to the M&A part of my Corporate Finance course in the coming weeks.  I am curious about how others teach M&A in a context like this--where the topic must be covered in about three-to-five class hours and include practice points, as well as a review of doctrine, theory, and policy.  I am always interested in new materials and approaches that may reach more students better.  I invite responses in the comments that may be useful to me and others.

September 2, 2015 in Business Associations, Corporate Finance, Corporations, Joan Heminway, Lawyering, M&A | Permalink | Comments (6)

Friday, August 28, 2015

Can Conscious Consumers or Class Action Lawsuits Change Corporate Behavior?

I’m the socially-conscious consumer that regulators and NGOs think about when they write disclosure legislation like the Dodd-Frank conflict minerals law that I discussed last week. I drive a hybrid, spend too much money at Whole Foods for sustainable, locally-farmed, ethically-sourced goods, make my own soda at home so I minimize impacts to the environment with cans and plastic bottles, and love to use the canvas bags I get at conferences when I shop at the grocery store. As I (tongue in cheek) pat myself on the back for all the good I hope to do in the world, I realize that I may be a huge hypocrite. I know from my research that consumers generally tell survey takers that they want ethically sourced goods, but they in fact buy on quality, price, and convenience.

I thought about that research when I read the New York Times expose and CEO Jeff Bezos’ response about Amazon’s work environment. As a former defense-side employment lawyer and BigLaw associate for many years, I wasn’t in any way surprised by the allegations (and I have no reason to believe they are either true or false). I have both provided legal defenses and lived the life alleged by some former and current Amazonians. But now that I research and teach on corporate social responsibility and strive to be more socially conscious myself, can I in fact shop at Amazon? I considered this because I ordered almost a dozen packages to be delivered to me over the past weeks. I was literally about to click “order now”  for another delivery when I was reading the article. And then I clicked anyway.

I confess that I may be the consumer discussed in an article I cite in my research entitled “Sweatshop Labor is Wrong Unless the Shoes are Cute: Cognition Can Both Help and Hurt Moral Motivated Reasoning.” As the authors point out, “Our findings show that consumers will actually change what they believe if they strongly desire a product … As long as companies continue to create value and maintain loyalty, it is likely store shelves won’t see ‘sweatshop-free’ products.”

I’ve argued that for that reason, consumers generally don’t have as much impact as people think. While hashtag activism in an era of slacktivism may raise awareness in social movements, I’m not sure that it does much to change company behavior, with the notable exception of SeaWorld, which has seen a drop in attendance after a CNN story about treatment of killer whales and subsequent calls for boycott.

Maybe I’m wrong. I look forward to seeing what, if anything, Costco shoppers do when/if they learn about the putative class action lawsuit filed this week in California claiming that Costco knowingly sold shrimp farmed by Thai slaves and misled consumers. According to the complaint (which has graphic pictures), “this case arises from the devaluing of human life. Plaintiff and other California consumers care about the origin of the products they purchase and the conditions under which the products are farmed, harvested or manufactured. Slavery, forced labor and human trafficking are all practices which are considered to be abhorrent, morally indefensible and acts against the interests of all humanity.” The complaint also cites Costco’s supplier code of conduct and notes that its practices are inconsistent with its statement of compliance with the California Transparency in Supply Chain Act, another name and shame disclosure law meant to root out slavery and human trafficking. This is the first US lawsuit related to these kinds of disclosures, but may not be the last.

Costco was supposed to be one of the good guys with its fair wages and benefits compared to its competitors and  its “reasonable” CEO salary. This favorable PR has likely cloaked Costco with the CSR halo effect, where consumers believe that when a company does something good for workers, for example, the company also cares about the environment, even though there may be no relationship between the two. This may cause them to spend more money with the company, and some believe, may cause regulators to look more favorably upon a firm.

Will socially conscious consumers stop buying at Costco? Will they stand their ground and rush over to Whole Foods? Although I don’t have a Costco card, I admit I have considered it because I liked the labor practices and for years have refused to shop in another big box retailer because of its treatment of workers. I’m also interested to see what investors think of Costco. What will the shareholders resolutions look like next year? In 2015, the only shareholder proposal in the proxy concerned “reducing director entrenchment.” How will this lawsuit affect the stock price, if at all?

Next week I will explore the Wal-Mart decision to stop selling assault rifles. Did Trinity and other socially-responsible investors get their way after all?? Wal-Mart’s CEO says no, but I’m not so sure.





August 28, 2015 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Legislation, Marcia Narine, Shareholders | Permalink | Comments (1)

Planet Fitness: Business Plan and IPO

Back in January, I joined Planet Fitness. The $10/month membership seemed too good to be true. Most gyms I had joined in the past had cost 3-5X that amount, and the equipment looked pretty similar. Also, the advertisement of No Commitment* Join Now & Save! (small font – *Commitments may vary per location) gave me pause.

Like a good lawyer, I read all the fine print in the membership contract, looking for a catch. There wasn’t really a catch – except for a small, one-time annual fee (~$30), if I did not cancel before October.

I signed up, enjoyed the gym, and canceled a few months later, as soon as the weather outside improved. (When I exercise, which is not as consistently as some of my co-bloggers, it is mostly just running, and I prefer to run outside if the weather is decent).

So, in total, I paid around $30 for three months of access to a single location of a decent gym.

This deal is still somewhat puzzling to me. If Planet Fitness’ business model makes sense, why aren’t more competitors coming close to the $10/month price point?

Here are some of my guesses (based on my brief experience at one location and pure speculation):

  • Planet Fitness may have a lower cost structure than some gyms. While I thought the equipment was fine, most of the equipment seemed to be of the “no frills variety.” For example, none of the treadmills at my location had color screens and most of the machines appeared to be base models. I did, however, appreciate that Planet Fitness seemed to pay attention to what machines members use regularly – like treadmills, bikes, and ellipticals –  and devoted most of their space to those machines.
  • Planet Fitness may be taking a page from the behavioral economist’s playbook. Planet Fitness made signing up extremely easy and automatically deducted the fee from the member's checking account each month. Canceling was slightly more difficult. You had to physically come into the gym to sign cancellation paperwork, or you could snail mail your cancellation. You also had to give a bit of notice, prior to cancellation, to avoid getting charged for the following month.  The slight difficulty canceling, coupled with the very low monthly fee might result in some folks forgetting about their membership for a while, simply taking a while to cancel, or purposefully avoid canceling, in hopes they would return to working out. I will say that I did not find canceling at Planet Fitness terribly difficult. However, when I was a member of LA Fitness a number of years ago, I remember their cancellation process, through certified “snail-mail” letter, being a pain. 
  • Planet Fitness may have been offering $10/month as a "teaser rate" to attract members, with plans to increase rates once members had developed habits of going to their gyms.  My gym has already increased the “no commitment” membership to $15/month, while the $10/month membership now comes with a 1-year commitment.
  • Judging from these complaints, many members may not understand the annual fee, the commitments (on some plans), and the cancellation requirements. Perhaps these parts of the contracts are helping off-set the low monthly price.
  • Planet Fitness may have been trying to increase their membership numbers in advance of their IPO this summer.

This last bullet-point, regarding increasing membership numbers to help their IPO, is the one I find most interesting. If the valuation of certain tech-companies, like Instagram, can be based on, at least in part, “number of users,” I think it is reasonable to assume that “number of members” is an important metric for the valuation of gyms.

On August 5, The Wall Street Journal reported that Planet Fitness priced its IPO at $16/share and raised $216 million. Planet Fitness disappointed in early trading (See here and here), then rose to just under $20/share, and is now back around its IPO price. Given the prevalence of IPO under-pricing, I imagine early investors hoped for better. That said, I plan to follow Planet Fitness and see if their business model is one that works in the long-term. If they have continued success, I imagine other companies will attempt to imitate. 

Update: Will Foster (Arkansas) passed along this interesting public radio podcast on gym memberships, which discusses Planet Fitness. Basically, it suggests that many gyms seek members who will not show up regularly (or at all). Maybe this is a key to Planet Fitness' business model; Planet Fitness advertises itself as a "no judgment" gym and even has a "lunk alarm" that it rings on weightlifters who grunt or drop weights. Members seeking "no judgment" may come to the gym much less frequently than serious weightlifters. In fact, at the Planet Fitness featured, 50% never even showed up once. That location has ~6000 members, but a capacity of ~300. Also, this podcast makes sense of why Planet Fitness has free candy, bagels, mixers, massage chairs, and pizza parties - again this attracts less serious gym members and it also gives some value to those who come to the gym only to socialize and eat. Listen to the whole thing. 

August 28, 2015 in Business Associations, Corporate Finance, Corporations, Haskell Murray | Permalink | Comments (3)

Wednesday, August 26, 2015

Important 30th Anniversaries

Yesterday, my husband and I celebrated our 30th wedding anniversary.  I am married to the best husband and dad in the entire world.  (Sorry to slight all of my many male family members and friends who are spouses or fathers, but I am knowingly and seriously playing favorites here!)  My husband and I bought the anniversary memento pictured below a few years ago, and it just seems to be getting closer and closer to the reality of us as a couple (somewhat endearing, but aging) as time passes . . . .


Of course, our wedding was not the only important event in 1985.  There's so much more to celebrate about that year!  In fact, it was a banner year in business law.  Here are a few of the significant happenings, in no particular order.  Most relate to M&A doctrine and practice.  I am not sure whether the list is slanted that way because I (a dyed-in-the-wool M&A/Securities lawyer) created it or whether the M&A heyday of the 1980s just spawned a lot of key activity in 1985.

  1. Smith v. Van Gorkom was decided.  It was my 3L year at NYU Law.  I remember the opinion being faxed to my Mergers & Acquisitions instructor during our class and being delivered--a big stack of those goofy curly thermal fax paper sheets--to the table in the seminar room where we met.  Cool stuff.  As I entered practice, business transactional lawyers were altering their advisory practices and their board scripts to take account of the decision.

  2. Unocal v. Mesa Petroleum was decided.  The Delaware Supreme Court established its now famous two-part standard of review for takeover defenses, finding that "there was directorial power to oppose the Mesa tender offer, and to undertake a selective stock exchange made in good faith and upon a reasonable investigation pursuant to a clear duty to protect the corporate enterprise. Further, the selective stock repurchase plan chosen by Unocal is reasonable in relation to the threat that the board rationally and reasonably believed was posed."  (The italics were added by me.)  More changes to transactional practice . . . .

  3. Moran v. Household International was decided.  As a result, I spent a large part of my first five years of law practice promoting and writing poison pills that innovated off the anti-takeover tool validated in this case.  The firm I worked for was on the losing side of the Moran case, so we determined to build a better legal mousetrap, which then became the gold standard.

  4. The Revised Uniform Limited Partnership Act (RULPA) was amended by the Uniform Law Commission.  Among the 1985 changes was an evolution of the rules relating to the liability of limited partners for partnership obligations.  The 2001 version of the RULPA took those evolutions to their logical end point, allowing limited partners to enjoy limited liability for partnership obligations even if the limited partners exercise management authority over the partnership.

  5. Landreth Timber Co. v. Landreth was decided.  Stock is a security under the Securities Act of 1933, as amended, unless the context otherwise requires.  The Court determined that instruments labeled stock that have the essential attributes of stock should be treated as stock in an offering context, even when the stock is transferred to sell a business.  Bye-bye "sale of business" doctrine . . . .

That's enough on 30th anniversaries  for this post.  I am sure you all will think of more 30th anniversaries in business law that we can celebrate in 2015.  Feel free to leave those additional 1985 memories in the comments.

August 26, 2015 in Business Associations, Corporate Governance, Corporations, Delaware, Joan Heminway, M&A, Teaching | Permalink | Comments (10)

Tuesday, August 25, 2015

LLCs Still Don't Have Corporate Veils. Really.

I know I am Johnny One Note on this, but while researching another project, I decided to check again if litigators (and courts) are still referring to veil piercing of LLCs as "corporate veil piercing." As I have noted before, for LLCs, it should be "piercing the LLC veil" or, more generally, "piercing the limited liability veil."  Or "PLLV," as I like to call it. (Not as catchy is "PCV," but it is far more universally accurate.)

Sure enough, last week, a New York court refused to denied the defendants' motion to dismiss the plaintiff's third amended complaint, deciding that "Plaintiff has adequately pled facts sufficient to defeat the Individual Defendant's motion to dismiss Plaintiff's claim for piercing the corporate veil." Capital Inv. Funding, LLC v. Lancaster Grp. LLC, No. CIV.A. 8-4714 JLL, 2015 WL 4915464, at *7 (D.N.J. Aug. 18, 2015).  But Plaintiff is seeking to piercing the veil of an LLC.  As such, I think they need a fourth amended complaint.  

Also last week, in an unpublished opinion, a Minnesota court upheld a decision to pierce the limited liability veil of Alpha Law Firm, LLC.  The court found the court below "did not abuse its discretion by piercing Alpha's corporate veil." Guava LLC v. Merkel, No. A15-0254, 2015 WL 4877851, at *8 (Minn. Ct. App. Aug. 17, 2015). Again, though, the LLC did not have such a veil because it was not a corporation.  

This should be easier to keep straight in Minnesota than most places. Minnesota has a statute the specifically allows for LLC veil piercing, and states that the corporate law concept applies to the LLC.  But it also calls it "piercing the veil" in the LLC statute, which means the veil is an LLC veil, and not a corporate one.  The statute: 

MINN. STAT. ANN. § 322B.303(2)

. . . .

Subd. 2.Piercing the veil. The case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies.

I am sympathetic (to a point).  As Guava points out, when a statute brings corporate veil piercing into the LLC world, it can be awkward.  Another excerpt from Guava makes that obvious:

Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Gunderson, 632 N.W.2d at 705.
Guava, 2015 WL 4877851, at *6.
LLCs don't have shareholders, they have members, so that's a little confusing.  And note how the courts operates back and forth between corporate and LLC concepts.  It can be complex. Still, I'd really like a court in every state to take the time to set the standard and separate the concepts, so that future courts can always have a place to cite.  Consider this as an alternative paragraph for Guava
Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Id. at 705. Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). Thus, a court may pierce the veil of an LLC when there is fraud or when the member is the “alter ego” of the LLC. See Minn.Stat. § 322B.303, subd. 2 (2014); Gunderson, 632 N.W.2d at 705.
Just a thought. 

August 25, 2015 in Corporations, Joshua P. Fershee, LLCs, Shareholders | Permalink | Comments (4)

Friday, August 21, 2015

The Conflict over Conflict Minerals and Other Social Governance Disclosures

Today’s post will discuss the DC Circuit’s recent ruling striking down portions of Dodd-Frank conflict minerals rule on First Amendment grounds for the second time. Judge Randolph, writing for the majority, clearly enjoyed penning this opinion. He quoted Charles Dickens, Arthur Kostler, and George Orwell while finding that the SEC rule requiring companies to declare whether their products are “DRC Conflict Free” fails strict scrutiny analysis. But I won’t engage in any constitutional analysis here. I leave that to the fine blogs and articles that have delved into that area of the law. See here, here here, here, here, and more.  The NGOs that have vigorously fought for the right of consumers to learn how companies are sourcing their tin, tungsten, tantalum and gold have had understandably strong reactions. One considers the ruling a dangerous precedent on corporate personhood. Global Witness, a well respected NGO, calls it a dangerous and damaging ruling.

Regular readers of this blog know that I filed an amicus brief arguing that the law meant to defund the rebels raping and pillaging in the Democratic Republic of Congo was more likely to harm than help the intended recipients—the Congolese people.  I have written probably a dozen blog posts on Dodd-Frank 1502 and won’t list them all but for more information see some of my most recent posts here, here, and here. The goal of this name and shame law is to ensure that consumers and investors know which companies are sourcing minerals from mines that are controlled by rebels. The theory is that consumers, armed with disclosures, will pressure companies to make sure that they use only “conflict-free” minerals in their cameras, cell phones, toothpaste, diapers, jewelry and component parts. I assume that the SEC will seek a full re-hearing or some other relief even though Chair May Jo White has said, “seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share … [b]ut, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”

I agree with Chair White even though I applaud the efforts of companies like Apple and Intel to comply with this flawed law. Indeed, the Enough Project, which with others has led the fight for this and other laws, now reports that there are 140 “conflict-free” smelters. But the violence continues as just this week the press reports that the Congolese government announced that it is investigating its own peacekeeprs/soldiers for rape in the neighboring Central African Republic and the UN acknowledged that fighting between armed militias is still a problem and that they are still resisting state authority. News reports indicated two days ago that clinics are closing because of fear of attack by Ugandan rebels.  This hits particularly close to me because my connection with DRC and the conflict mineral fight stems from the work that an NGO that I work with has done training doctors and midwives in the heart of the conflict zone there.

I don’t know how effective Dodd-Frank will be if the issuers don’t have to disclose what the court has called the Scarlet letter of “non DRC-conflict free.” But more important, as I argue in my writings, I don’t think that consumers’ buying habits match what they say when surveyed about ethical sourcing. In my most recent article (which I will post once the editors are done), I point out the following:

A recent survey used to support the new UK Modern Slavery Act indicates that two-thirds of UK consumers would stop buying a product if they found out that slaves were involved in the manufacturing process and that they would be willing to pay up to 10% more for slave-free products…The numbers are similar but slightly lower for those surveyed in the United States. But note, “when asked if they would be willing to pay more for their favourite products if this ensured they were produced without the use of modern slavery: 52% of American consumers said they would pay more to ensure products were produced without modern slavery; 27% were not sure; 21% said they would not pay more.” This means that at least 20% and possibly almost half of informed consumers would not likely change their buying habits. (italics added).

I’m probably more informed than most about the situation in the DRC because I have been there and read almost every report, blog post, article, hearing committee transcript and tweet about conflict minerals. I have seen children digging gold out of the ground while armed rebels stood guard. I have met the village chiefs in the conflict zones. I have been detained by the UN peacekeepers who wanted to know what I was researching and then warned me not to visit the mines because of the five dead bodies (which I saw) lying in the road from a rebel attack the night before. I have stayed in monasteries guarded by men with machine guns and been warned that if I left after dark I was just as likely to be raped by a police officer as a rebel. I have met with many women who were gang raped by rebels and members of the Congolese army. I have had dinner with Nobel nominee Dr. Denis Mukwege, who back in 2011 wanted to know why the US wasn’t stopping the atrocities. I know the situation is terrible. But it won't change and hasn’t changed because of a corporate governance disclosure that most average consumers won’t read (even if the SEC had prevailed) and won’t necessarily act on if they did read it.

Next week I will post about my personal conflict with disclosures. Should I, who refuses to shop at a certain big box retailer, still shop at Amazon now that an expose has revealed a very harsh workplace? What about Costco and others? Stay tuned.


August 21, 2015 in Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Human Rights, International Business, International Law, Legislation, Marcia Narine, Nonprofits, Securities Regulation | Permalink | Comments (1)

Thursday, August 13, 2015

Jon Stewart and Stephen Colbert on Corporations

Apparently the corporate tax inversion crackdown by the Obama administration is not working. The Financial Times reported this week that three companies have announced plans to redomicile in Europe in just one week. I’m not sure that I will have time to discuss inversions in any detail in my Business Associations class, but I have talked about it in civil procedure, when we discuss personal jurisdiction.

From my recent survey monkey results of my incoming students, I know that some of my students received their business news from the Daily Show. In the past I have used Jon Stewart, John Oliver, and Stephen Colbert to illustrate certain concepts to my millennial students. Here are some humorous takes on the inversion issue that I may use this year in class. Warning- there is some profanity and obviously they are pretty one-sided. But I have found that humor is a great way to start a debate on some of these issues that would otherwise seem dry to students. 

1)   Steve Colbert on corporate inversions-1- note the discussion on fiduciary duties

2)    Steve Colbert on corporate inversions interviews Allan Sloan

3)   Jon Stewart- inversion of the money snatchers and on corporate personhood toward the end.

For those of you who are political junkies like me, I thought I would share a video that I showed when I taught a seminar on corporate governance, compliance, and social responsibility. This video focuses on political campaigns, and for a number of reasons, this campaign season seems to be in full gear already. Indeed, Professor Larry Lessig from Harvard is mulling a run for president in part to highlight the need for reform in campaign financing. Below is Stephen Colbert’s take on SuperPACs and political financing.

1) Colbert's shell corporation- note the discussion of the incorporation in Delaware and the meeting of the board of directors

Enjoy, and best of luck for those starting classes next week.

August 13, 2015 in Business Associations, Compliance, Corporate Governance, Corporate Personality, Corporations, Current Affairs, International Business, Law School, Marcia Narine, Teaching, Television | Permalink | Comments (0)

Wednesday, August 12, 2015

What Do International Business Lawyers Need to Know About US Corporate Law?

This weekend I will be in Panama filling in at the last minute for the corporate law session for an executive LLM progam. My students are practicing lawyers from Nicaragua, El Salvador, Costa Rica and Paraguay and have a variety of legal backgrounds. My challenge is to fit key corporate topics (other than corporate governance, compliance, M & A, finance, and accounting) into twelve hours over two days for people with different knowledge levels and experiences. The other faculty members hail from law schools here and abroad as well as BigLaw partners from the United States and other countries.

Prior to joining academia I spent several weeks a year training/teaching my internal clients about legal and compliance matters for my corporation. This required an understanding of US and host country concepts. I have also taught in executive MBA programs and I really enjoyed the rich discussion that comes from students with real-world practical experience. I know that I will have that experience again this weekend even though I will probably come back too brain dead to be coherent for my civil procedure and business associations classes on Tuesday.

I have put together a draft list of topics with the help of my co-bloggers and based in part on conversations with some of our LLM and international students who have practiced law elsewhere but who now seek a US degree: 

Agency- What are the different kinds of authority and how does that affect liability? 

Business forms:             

Key issues for entity selection

- ease of formation

-  ownership and control

- tax issues

-  asset protection/liability to third parties for obligations of the business /piercing the veil of limited liability

-  attractiveness to investors

-  continuity and transferability

Main types of business forms in the United States

-Sole Proprietorship

-Partnership/General and Limited

- Corporation

                     - C Corporation

                     - S Corporation

- Limited Liability Company

 Fiduciary Duties/The Business Judgment Rule

 Basic Securities Regulation/Key issues for Initial Public Offering/Basic Disclosures (students will examine the filings for an annual report and an IPO)

Insider Trading

The Legal System in the United States

                    -how do companies defend themselves in lawsuits brought in the United States?

                     -key Clauses to Consider when drafting dispute resolution clauses in cross border contracts

Corporate Social Responsibility- Business and Human Rights 

Enterprise Risk Management/What are executives of multinationals worried about? 

Yes, this is an ambitious (crazy) list but the goal of the program is to help these experienced lawyers become better business advisors. Throughout the sessions we will have interactive exercises to apply what they have learned (and to keep them awake). So what am I missing? I would love your thoughts on what you think international lawyers need to know about corporate law in the US. Feel free to comment below or to email me at Adios!

August 12, 2015 in Business Associations, Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Human Rights, International Business, International Law, Lawyering, Litigation, LLCs, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Tuesday, August 4, 2015

More Summer Reading: The Henry Ford Legacy Beyond Dodge v. Ford

Readers of this blog know I am fond of writing about Henry Ford and the Dodge v. Ford case (PDF here).  This summer, I am still working my way through Fordlandia, by Greg Grandin.  It's a really interesting read.  

Henry Ford had plans to build a town in the Amazon that would run like an ideal American town.  The industry would be rubber for car tires, and he was sure he could make a town that produced rubber AND moral people.  He was wrong.  

The book provides more about Ford than just his Amazon city planning. It highlights all sorts of what I will call "interesting" ideas Ford had (many of the quite appalling), and it provides context for a person who was far more interesting and disruptive than many people appreciate.  A good summary of the book is available from NPR here, where the author explains:

"Ford basically tried to impose mass industrial production on the diversity of the jungle," Grandin says. But the Amazon is one of the most complex ecological systems in the world — and didn't fit into Ford's plan. "Nowhere was this more obvious and more acute than when it came to rubber production," Grandin says.

Ford was so distrustful of experts that he never even consulted one about rubber trees. If he had, Grandin says, he would have learned that plantation rubber can't be grown in the Amazon. "The pests and the fungi and the blight that feed off of rubber are native to the Amazon. Basically, when you put trees close together in the Amazon, what you in effect do is create an incubator — but Ford insisted."

As Grandin explains, Ford's plans are a lasting disaster: 

[T]he most profound irony is currently on display at the very site of Ford’s most ambitious attempt to realize his pastoralist vision. In the Tapajós valley, three prominent elements of Ford’s vision—lumber, which he hoped to profit from while at the same time finding ways to conserve nature; roads, which he believed would knit small towns together and create sustainable markets; and soybeans, in which he invested millions, hoping that the industrial crop would revive rural life—have become the primary agents of the Amazon’s ruin, not just of its flora and fauna but of many of its communities.

Despite my love of the business judgment rule, it's hardly surprising that Ford was one of the folks who didn't get its protection. Stories like this give us some idea why.  

August 4, 2015 in Corporate Governance, Corporations, Joshua P. Fershee, Social Enterprise | Permalink | Comments (0)

Saturday, August 1, 2015

Hey! We're Hiring at The University of Tennessee

As you may have seen elsewhere already (but just to make it abundantly clear):

THE UNIVERSITY OF TENNESSEE COLLEGE OF LAW invites applications from both entry-level and lateral candidates for as many as two full-time, tenure-track faculty positions to commence in the Fall Semester 2016. The College is particularly interested in the subject areas of business law, including business associations and contracts; gratuitous transfers/trusts and estates; and health law. Other areas of interest include legal writing, torts, and property.

A J.D. or equivalent law degree is required. Successful applicants must have a strong academic background. Significant professional experience is desirable. Candidates also must have a strong commitment to excellence in teaching, scholarship, and service.

In furtherance of the University’s and the College’s fundamental commitment to diversity among our faculty, students body, and staff, we strongly encourage applications from people of color, persons with disabilities, women, and others whose background, experience, and viewpoints would contribute to a diverse law school environment.

The Faculty Appointments Committee will interview applicants who are registered in the 2015 Faculty Appointments Register of the Association of American Law Schools at the AALS Faculty Recruitment Conference in Washington, D.C. Applicants who are not registered in the AALS Faculty Appointments Register are advised to send a letter of interest, resume, and the names and contact information of three references by September 30, 2015 to:

Sean Gunter
On behalf of Becky Jacobs and Michael Higdon
Co-Chairs, Faculty Appointments Committee
The University of Tennessee College of Law
1505 W. Cumberland Avenue
Knoxville, TN 37996-1810

All qualified applicants will receive equal consideration for employment and admissions without regard to race, color, national origin, religion, sex, pregnancy, marital status, sexual orientation, gender identity, age, physical or mental disability, or covered veteran status. Eligibility and other terms and conditions of employment benefits at The University of Tennessee are governed by laws and regulations of the State of Tennessee, and this non-discrimination statement is intended to be consistent with those laws and regulations. In accordance with the requirements of Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, Section 504 of the Rehabilitation Act of 1973, and the Americans with Disabilities Act of 1990, The University of Tennessee affirmatively states that it does not discriminate on the basis of race, sex, or disability in its education programs and activities, and this policy extends to employment by the University. Inquiries and charges of violation of Title VI (race, color, and national origin), Title IX (sex), Section 504 (disability), ADA (disability), Age Discrimination in Employment Act (age), sexual orientation, or veteran status should be directed to the Office of Equity and Diversity (OED), 1840 Melrose Avenue, Knoxville, TN 37996-3560, telephone (865) 974-2498. Requests for accommodation of a disability should be directed to the ADA Coordinator at the Office of Equity and Diversity.

I hope a number of our readers will be interested in applying.  Feel free to contact me if you have questions or need more information (although please note that I am not on the Faculty Appointments Committee).

August 1, 2015 in Business Associations, Corporations, Joan Heminway, Jobs, Law School, Unincorporated Entities | Permalink | Comments (0)