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 (0)

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 . . . .

IMG_0872

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 mnarine@stu.edu. 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)

Friday, July 31, 2015

Khan, Serafeim, & Yoon on Corporate Sustainability and Materiality

Mozaffar Khan, George Serafeim, and Aaron Yoon of Harvard Business School have posted an interesting working paper entitled Corporate Sustainability: First Evidence on Materiality. The abstract follows:

An increasing number of companies make sustainability investments, and an increasing number of investors integrate sustainability performance data in their capital allocation decisions. To date however, the prior academic literature has not distinguished between investments in material versus immaterial sustainability issues. We develop a novel dataset by hand-mapping data on sustainability investments classified as material for each industry into firm-specific performance data on a variety of sustainability investments. This allows us to present new evidence on the value implications of sustainability investments. Using calendar-time portfolio stock return regressions we find that firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing. Further, firms with good performance on sustainability issues not classified as material do not underperform firms with poor performance on these same issues, suggesting investments in sustainability issues are at a minimum not value-destroying. Finally, firms with good performance on material issues and concurrently poor performance on immaterial issues perform the best. These results speak to the efficiency of firms’ sustainability investments, and also have implications for asset managers who have committed to the integration of sustainability factors in their capital allocation decisions.

The authors' materiality determination is based on industry-specific guidance from the Sustainability Accounting Standards Board (SASB). I have been following SASB’s work for some time now, but would still like to learn more about the organization if any of our readers have more detail than is available online. 

July 31, 2015 in Corporate Governance, Corporations, CSR, Haskell Murray | Permalink | Comments (0)

Thursday, July 30, 2015

Funding Tips from Angel Investors and Venture Capitalists

Last week I attended a panel discussion with angel investors and venture capitalists hosted by Refresh Miami. Almost two hundred entrepreneurs and tech professionals attended the summer startup series to learn the inside scoop on fundraising from panelists Ed Boland, Principal Scout Ventures; Stony Baptiste, Co-Founder & Principal, Urban.Us, Venture Fund; Brad Liff, Founder & CEO, Fitting Room Social, Private Equity Expert; and (the smartest person under 30 I have ever met) Herwig Konings, Co-Founder & CEO of Accredify, Crowd Funding Expert. Because I was typing so fast on my iPhone, I didn’t have time to attribute my notes to the speakers. Therefore, in no particular order, here are the nuggets I managed to glean from the panel.

1) In the seed stage, it’s more than an idea but less than a business. If it’s before true market validation you are in the seed round. At the early stage, there has been some form of validation, but the business is not yet sustainable. Everything else beyond that is the growth stage.

2) The friend and family round is typically the first $50-75,000. Angels come in the early stage and typically invest up to $500,000.

3) The seed rounds often overlap with angels and businesses can raise from $500,000 to $1,000,000. If you have a validated part of a business model but are not self funding then you are at Series A investment stage.  You still need outside capital despite validation. The Series A round often nets between $3-5 million and then there are subsequent rounds for growth until the liquidity event which is either the IPO or acquisition.

4) Venture capitalists are investing their LPs' money and often the LP will co-invest with the VC. Their ultimate goal is for the company to get acquired or go public.

5) At the early stages some VCs will show a deal to other investors if it looks good. Later stage VCs will become more competitive and will keep the information and good deals to themselves.

6) It’s important to find a lead investor or lead angel to champion your idea.

7) Not all funding is helpful. Some panelists discussed the concepts of “fallen angels” or “devils,” which were once helpful but now are not providing value but still take up time and energy that could be better spent focusing on building the business. “False angels” are those who could never have been helpful in the first place.

8) You don’t want to be the first or the last check the angel is writing. You want to get references on the angel investor and see where they have invested and what their plan is for you.

9) There is smart money and dumb money. Smart money gives money and additional resources or value. Dumb money just gives money and nothing else. It’s passive and doesn’t jump into the business (note the panelists disagreed as to whether this was a good or bad thing). Another panelist noted the distinction between helpful and harmful money. Harmful people think they are helpful and give advice when they don’t have a lot to add but take up a lot of time. Sometimes helpful money just gives a check and then gets out of the way. It’s the people in between that can cause the problems.

10) VCs and angels invest in teams as well as ideas. They look for the right fit and a mix of veteran entrepreneurs, a team/product fit, a mix of technical and nontechnical people, professionals whose reputations and resumes can be verified. They want to know whether the people they are investing in have been in a competitive environment and have learned from success or failure.

11) Crowdfunding can be complicated because investors don’t meet the entrepreneurs. They see everything on the web so the reputation and the need for a good team is even more important.

12) Convertible notes are the “gold standard” according to one speaker and it’s the workhorse for funding. There was some discussion of safe notes, but most panelists didn't have a lot of experience with them and that was echoed this week by attorney David Salmon, who advises small businesses and holds his own monthly meetups. One panelist said that the sole purpose of safe notes was to avoid landmines that can blow up the company. Another panelist indicated that from an investor standpoint it’s like a blackhole because it’s so new and people don’t know what happens if something goes wrong.

13) The panelists indicated that businesses need to watch out for: the maturity date for their debt (how long is the runway); when can the investors call the note and possibly bankrupt the company; how will quirky covenants affect the next round of financing and where later investors will fall in line; and covenants that are easy to violate.

14) There was very little discussion of Regulation A+ but it did raise some interest and the possibility to raise even more funds from non-accredited investors. Only 3% of the eight million who can invest through crowdfunding actually do, so Reg A+ may help with that.

16) All of the panelists agreed that entities may start out as LLCs but they will have to convert to a C Corp to get any VC funding.

There was a lot more discussion but this post is already too long. Because I've never been an angel nor sought such funding, I don’t plan to provide any analysis on what I’ve typed above. My goal in attending this and the other monthly events like this was to learn from the questions that entrepreneurs ask and how the investors answer. Admittedly, most of my students won’t be dealing with these kind of issues, but I still introduce them to these concepts so they are at least familiar with the parlance if not all of the nuances.

July 30, 2015 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Entrepreneurship, Financial Markets, International Business, Law School, Legislation, LLCs, Securities Regulation, Teaching | Permalink | Comments (0)

Wednesday, July 29, 2015

Comparative Corporate Law - Important New Teaching Text

My friend and corporate law colleague Marco Ventoruzzo (Penn State Law and Bocconi University) recently let me know that he and several others--Pierre-Henri Conac, Gen Goto, Sebastian Mock, Mario Notari, and Arad Reisberg--have published a coauthored teaching text entitled (and focused on) Comparative Corporate Law.  As someone who has taught that subject (as well as comparative and cross-border mergers and acquisitions) in the past, I have been very interested in taking a look at the book--the first of its kind, as far as I know.  Luckily, I was able to grab a review copy from the publisher, West Academic Publishing (American Casebook Series), at the Southeastern Association of Law Schools (SEALS) conference, which I am attending this week.  This post shares a bit about the book (based on a relatively quick examination--peeking more closely into some chapters than others) and my ideas for teaching from it.  

I recommend the book and would use it in a course I would teach on the subject matter.  The content is really wonderful.  Nearly everything I need as a foundation for a course in comparative or cross-border corporate law is included.  However, I have a few general criticisms, primarily based on my personal teaching perspective, that I will note in this post.

Continue reading

July 29, 2015 in Books, Business Associations, Corporations, Joan Heminway, Teaching | Permalink | Comments (0)

Tuesday, July 28, 2015

Activist Shareholder and Law Prof: Robin Hood or Charles Pillsbury?

A lawyer representing Fordham Law School Professor (and Riverbed Technology shareholder) Sean Griffith argued in Delaware court that a class action settlement related to Riverbed Technology's  $3.6 billion sale to private equity firm Thoma Bravo was bad for shareholders and good for the lawyers involved, Reuters reports.  

Prof. Griffith told Reuters that "he has been buying stock of companies that have announced merger deals and intends to object to settlements if he feels the litigation is not serving stockholders." He asserts that the shareholders' attorneys "are in cahoots" to reach a settlement, without regard to value.  

This raises some interesting questions of law and policy with regard to the Professor's role here.  As a shareholder, Griffith has the right to object (assuming his time of ownership satisfies the applicable statute).  But how should a court assess the objection of a shareholder who has admitted that he bought stock for the purpose of objecting to settlements not in the interests of shareholders, when that shareholder has expressed ideological concern about the value of all disclosure-only settlements? 

Is Prof. Griffith's desire to protect shareholders a desire to enhance short- or long-term wealth of the entity from greedy lawyers and bad managers? Or is it a desire to punish those who abuse class action lawsuits to their own ends? Both would be reasonable motivations (though, for now, I reserve judgment on whether either assessment is accurate), but it seems that the law might view such motivations differently. 

Take, for example, Pillsbury v. Honeywell, Inc., 191 N.W.2d 406 (1971), which strikes me as similar in concept, if not law.  In that case, the court rejected Charles Pillsbury's request to access the company shareholder list and review books and records of Honeywell.  The request was expressly related to Pillsbury's anti-war efforts, and Pillsbury made clear that he sought the records because he thought Honeywell's activities in weapons were immoral.  The court denied access stating that 

petitioner had already formed strong opinions on the immorality and the social and economic wastefulness of war long before he bought stock in Honeywell. His sole motivation was to change Honeywell's course of business because that course was incompatible with his political views. If unsuccessful, petitioner indicated that he would sell the Honeywell stock.

We do not mean to imply that a shareholder with a bona fide investment interest could not bring this suit if motivated by concern with the long- or short-term economic effects on Honeywell resulting from the production of war munitions. Similarly, this suit might be appropriate when a shareholder has a bona fide concern about the adverse effects of abstention from profitable war contracts on his investment in Honeywell.

If Prof. Griffith is looking to protect the long-term interests of all companies by protecting merging companies from harmful class action settlements, and his mechanism is buying shares in companies that he has reason to believe will merge, then perhaps his Robin Hood-like actions (in that the actions seek to return funds to the rightful owners) have value for shareholder wealth maximization and entity wealth maximization. The fact that he holds out the possibility that he won't object to settlements where the litigation serves the purposes of the shareholder suggests he might be in this camp.  

But what if he will object to all settlement proposals? Or perhaps all disclosure-only settlement proposals, even where such settlements are allowable under the law?  Does this convert his actions to more of a Charles Pillsbury-like feel in that his actions are about opposing class actions settlements, regardless of whether settlement is in the best interest of the parties? 

Of course, his motivations don't necessarily matter under current law in this area, but I can't help but think the motivations will influence how a court views (and eventually decides upon) Prof. Griffith's objections. And I think they should.  If, in any given case, Prof. Griffith is right that the settlement is not in the best interest of the shareholders, the court should uphold his objections. But, under current law, it's possible that a disclosure-only settlement might still be the most efficient outcome.  It's the court's job to assess that in each case.

July 28, 2015 in Corporate Governance, Corporations, Delaware, Joshua P. Fershee, Securities Regulation | Permalink | Comments (0)

Monday, July 27, 2015

Monestier on Foreign Corporation Registration Statutes and Personal Jurisdiction

As the summer progresses, I have been slowly catching up on all the giant electronic reading pile I slowly built up during the school year. I recently read a very interesting article on personal jurisdiction, of all things. It’s Tanya J. Monestier, Registration Statutes, General Jurisdiction, and the Fallacy of Consent, 36 Cardozo L. Rev. 1343 (2015), available on SSRN here. It's definitely worth reading, whether you're a corporate litigator or just interested in corporate law.

Here’s the abstract, which explains the article much better than I could:

In early 2014, the Supreme Court issued a game-changing decision that will likely put corporate registration as a basis for personal jurisdiction center stage in the years to come. In Daimler AG v. Bauman, the Court dramatically reined in general jurisdiction for corporations. The Court in Daimler held that a corporation is subject to general jurisdiction only in situations where it has continuous and systematic general business contacts with the forum such that it is “at home” there. Except in rare circumstances, a corporation is “at home” only in its state of incorporation and the state of its principal place of business. Plaintiffs who are foreclosed by Daimler from arguing continuous and systematic contacts with the forum as a basis for jurisdiction will now look to registration statutes to provide the relevant hook to ground personal jurisdiction over corporations.
 
Each of the fifty states has a registration statute that requires a corporation doing business in the state to register with the state and appoint an agent for service of process. A considerable number of states interpret their registration statutes as conferring general, or all-purpose, jurisdiction over any corporation that has registered to do business under the state statute. Those states that regard registration as permitting the exercise of general jurisdiction usually justify the assertion of jurisdiction on the basis of consent. That is, by knowingly and voluntarily registering to do business in a state, a corporation has consented to the exercise of all-purpose jurisdiction over it.
 
Registration to do business as a basis for general jurisdiction, however, rests on dubious constitutional footing. Commentators have approached the analysis from a variety of perspectives over the years. The analysis tends to focus on how courts have misread historical precedent and failed to account for the modernization of jurisdictional theory post-International Shoe Co. v. Washington. Largely unexplored, however, is the premise underlying registration-based general jurisdiction: that registration equals consent. In this Article, I argue that general jurisdiction based on registration to do business violates the Due Process Clause because such registration does not actually amount to “consent” as that term is understood in personal jurisdiction jurisprudence. I comprehensively explore why it is that registration cannot fairly be regarded as express (or even implied) consent to personal jurisdiction. First, I look at other forms of consent in the jurisdictional context — forum selection clauses and submission — and analyze the salient differences between these and registration. Second, I examine the nature of the consent that is said to form the basis for general jurisdiction and argue that it is essentially coercive or extorted. Coerced consent, an oxymoron, cannot legitimately form the basis for the assertion of general jurisdiction over a corporation. From there, I situate registration statutes in a larger conversation about general jurisdiction. I maintain that registration-based jurisdiction does not fit well into the landscape of general jurisdiction: it could eliminate the need for minimum contacts altogether; it results in universal and exorbitant jurisdiction; it is conceptually misaligned with doing business as a ground for jurisdiction; and it promotes forum shopping.

The subject is not one that I would be naturally attracted to. I don’t teach civil procedure and I don’t spend a lot of my professional time focusing on litigation issues. But I found Professor Monestier’s article very interesting and enjoyable. Even if you, like me, aren't a civil procedure junkie, it's worth checking out.

July 27, 2015 in Business Associations, C. Steven Bradford, Corporations, Litigation | Permalink | Comments (0)

Wednesday, July 22, 2015

The Powers and Perils of Using Group Oral Midterm Examinations in Business Associations

For a number of years now, I have been using group (3-person teams) oral midterm examinations in my Business Associations course.  I have found these examinations to be an effective and rewarding assessment tool based on my teaching and learning objectives for this course.  At the invitation of the Saint Louis University Law Journal, as part of a featured edition of the journal on teaching business associations law, I prepared a short article giving folks the "why, how, and what" of my experience in taking this approach to midterm assessment.  The article was recently published, and I have posted it to SSRN.  The abstract reads as follows:

I focus in this Article on a particular way to assess student learning in a Business Associations course. Those of us involved in legal education for the past few years know that “assessment” has been a buzzword . . . or a bugaboo . . . or both. The American Bar Association (ABA) has focused law schools on assessment (institutional and pedagogical), and that focus is not, in my view, misplaced. Until relatively recently, much of student assessment in law school doctrinal courses was rote behavior, seemingly driven by heuristics and resulting in something constituting (or at least resembling) information cascades or other herding behaviors.

In the fall of 2011, I began offering an oral midterm examination to students in my Business Associations course as an additional assessment tool. This Article explains why I started (and have continued) down that path, how I designed that examination, and what I have learned by using this assessment method for three years. Although some (probably most) will not want to do in their Business Associations courses exactly what I have done in mine (as to the midterm examination or any other aspects of the course described in this Article), I am providing this information to give readers ideas for, or courage to make positive changes in, their own teaching (for a course on business associations or anything else).

You may think I am crazy (even--or especially--after reading this article).  Regardless, I do hope the article sparks something positive in you regarding your teaching in Business Associations or some other course.  Since I am working on finishing a long-overdue book on teaching business associations for Aspen this summer, I would welcome your honest reactions to the article and your additional thoughts on assessment or other aspects of teaching Business Associations.

July 22, 2015 in Business Associations, Corporate Governance, Corporations, Joan Heminway, LLCs, Teaching | Permalink | Comments (0)

Tuesday, July 21, 2015

Is Veil Piercing (State) Constitutional?

The West Virginia Constitution provides for corporations in Article XI, and states the traditional understanding related to liability: 

11-2.  Corporate liability for indebtedness.

      The stockholders of all corporations and joint-stock companies, except banks and banking institutions, created by laws of this state, shall be liable for the indebtedness of such corporations to the amount of their stock subscribed and unpaid, and no more. 

So, suppose that one seeks to pierce the corporate veil.  Does this provision allow for that? Typically, common law allowed veil piercing and constitutions often provide that something that existed in common law remains (which appears to be the case here).  I guess, then, veil piercing is okay, though I think one could argue that a constitutional basis for limited liability should be stronger than a statutory one. 

The better argument, I think, is that veil piercing disregards the entity.  Thus, the constitutional protection does not connect, because there is no corporation.  If we thought of things this way, we'd probably be more reluctant to veil pierce, because it would be a judicial statement that the corporation that was purportedly formed does not exist because of the failures of those in charge of the entity.

Where the shareholders truly don't intend to have an entity, I am okay with this, but that's really the rarity.  Where there is fraud, prove fraud. Where there is a constitutional protection for limited liability, the respect for the entity should be exceedingly strong.  Stronger than the common law standard.

I am not arguing that a constitutional right to limited liability is a good idea -- I'm currently agnostic on that.  I'm questioning whether constitutional corporate status changing the veil piercing calculation.  I am thinking yes, but I am not sure to what degree.   I plan to give this some more thought, but I welcome comments on how constitutional limited liability status (once it exists) should change veil piercing analysis.   

 

July 21, 2015 in Corporate Personality, Corporations, Joshua P. Fershee | Permalink | Comments (0)

Friday, July 17, 2015

Social Responsibility: Metrics or Narrative?

Aspen

Earlier this week, I listened to The Aspen Institute's Does Maximizing Shareholder Value Endanger America’s Great Companies, featuring Lynn Stout (Cornell Law), Tom Donaldson (Penn-Wharton), Howard Schultz (Starbucks), and Shelly Lazarus (director of Merck & GE).

The panel discussion is over a year old, but still relevant. Among other things, I found the exchange between a Georgetown professor in the audience and Howard Schultz of Starbucks to be interesting (starting at 46 minutes).

Georgetown Professor: [Asks a roughly 2-minute long question about creating and choosing appropriate metrics for measuring social responsibility.]

Howard Schultz: "I certainly understand that you are a professor and you want a metric, but this is not the real world. We don't sit in a room and measure metrics. Let me tell you a very brief story...[tells a story about Starbucks' company meeting of parents of employees in China]...you can't put a metric on that; there is no metric....it is a narrative..." 

Personally, I think Schultz was a bit too quick to dismiss the need for social metrics, and, in practice, I am sure Starbucks has some social metrics that it uses. Without any social metrics, however, even the best intentioned management can deceive itself and the stakeholders. That said, Schultz's basic point is a fair one. Social responsibility is notoriously difficult to measure, and stories are likely needed to give a full sense of the impact. Also, carefully measuring and disclosing social impact can be costly. Using social metrics may even be counter-productive, if the measuring takes focus off of high-impact practices that are more difficult to measure, and moves the focus to other, lower-impact (but easily quantifiable) practices. 

One of my summer projects centers around benefit corporation reporting, so I am thinking about social reporting a good bit and welcome any thoughts. Currently, while I fully recognize the limitations and dangers of social metrics, I don't think abandoning metrics altogether is wise due to the possibility of self-deceit and stakeholder-deceit.

In short, with social responsibility, I don't think it is metrics or narrative; I think it is metrics and narrative. Deciding the balance, and the appropriate metrics, however, is quite difficult.  

July 17, 2015 in Corporations, CSR, Haskell Murray | Permalink | Comments (1)

Thursday, July 16, 2015

Has President Obama helped or hurt American business? Ten questions

Love him or hate him, you can’t deny that President Obama has had an impact on this country. Tomorrow, I will be a panelist on the local public affairs show for the PBS affiliate to talk about the President’s accomplishments and/or failings. The producer asked the panelists to consider this article as a jumping off point. One of the panelists worked for the Obama campaign and another worked for Jeb Bush. Both are practicing lawyers. The other panelist is an educator and sustainability expert. And then there’s me.

I’ve been struggling all week with how to articulate my views because there’s a lot to discuss about this “lame duck” president. Full disclosure—I went to law school with Barack Obama. I was class of ’92 and he was class of ’91 but we weren’t close friends. I was too busy doing sit-ins outside of the dean’s house as a radical protester railing against the lack of women and minority faculty members. Barack Obama did his part for the movement to support departing Professor Derrick Bell by speaking (at minute 6:31) at one of the protests. I remember thinking then and during other times when Barack spoke publicly that he would run for higher office. At the time a black man being elected to the president of the Harvard Law Review actually made national news. I, like many students of all races, really respected that accomplishment particularly in light of the significant racial tensions on campus during our tenure.

During my stint in corporate America, I was responsible for our company’s political action committee. I still get more literature from Republican candidates than from any other due to my attendance at so many fundraisers. I met with members of Congress and the SEC on more than one occasion to discuss how a given piece of legislation could affect my company and our thousands of business customers. My background gives me what I hope will be a more balanced set of talking points than some of the other panelists. In addition to my thoughts about civil rights, gay marriage, gun control, immigration reform, Guantanamo, etc., I will be thinking of the following business-related points for tomorrow’s show: 

1) Was the trade deal good or bad for American workers, businesses and/or those in the affected countries? A number of people have had concerns about human rights and IP issues that weren’t widely discussed in the popular press.

2) Dodd-Frank turns five next week. What did it accomplish? Did it go too far in some ways and not far enough in others? Lawmakers announced today that they are working on some fixes. Meanwhile, much of the bill hasn’t even been implemented yet. Will we face another financial crisis before the ink is dried on the final piece of implementing legislation? Should more people have gone to jail as a result of the last two financial crises?

3) Did the President waste his political capital by starting off with health care reform instead of focusing on jobs and infrastructure?

4) Did the President’s early rhetoric against the business community make it more difficult for him to get things done?

5) How will the changes in minimum wage for federal contractors and the proposed changes to the white collar exemptions under the FLSA affect job growth? Will relief in income inequality mean more consumers for the housing, auto and consumer goods markets? Or has too little been done?

6) Has the President done enough or too much as it relates to climate change? The business groups and environmentalists have very differing views on scope and constitutionality.

7) What will the lifting of sanctions on Cuba and Iran mean for business? Both countries were sworn mortal enemies and may now become trading partners unless Congress stands in the way.

8) Do we have the right people looking after the financial system? Is there too much  regulatory capture? Has the President tried to change it or has he perpetuated the status quo?

9) What kind of Supreme Court nominee will he pick if he has the chance? The Roberts court has been helpful to him thus far. If he gets a pick it could affect business cases for a generation.

10) Although many complain that he has overused his executive order authority, is there more that he should do? 

I don’t know if I will have answers to these questions by tomorrow but I certainly have a lot to think about before I go on air. If you have any thoughts before 8:30 am, please post below or feel free to email me privately at mnarine@stu.edu.

July 16, 2015 in Constitutional Law, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, International Business, Marcia Narine, Securities Regulation, Television, White Collar Crime | Permalink | Comments (0)

Wednesday, July 15, 2015

Reading Recommendation: How Framing Shapes Our Conduct

Scott Killingsworth, a corporate attorney at Bryan Cave who specializes in compliance and technology matters and is a prolific writer (especially for one who still has billable hour constraints!) recently wrote a short and thought-provoking article: How Framing Shapes Our Conduct. The article focuses the link between framing business issues and our ethical choices and motivations noting the harm in thinking of hard choices as merely "business" decisions, viewing governing rules and regulations as a "game" or viewing business as "war."  Consider these poignant excerpts:

We know, for example, that merely framing an issue as a “business matter” can invoke narrow rules of decision that shove non-business considerations, including ethical concerns, out of the picture. Tragic examples of this 'strictly business' framing include Ford’s cost/benefit-driven decision to pay damages rather than recall explosion-prone Pintos, and the ill-fated launch of space shuttle Challenger after engineers’ safety objections were overruled with a simple 'We have to make a management decision.' (emphasis added)

Framing business as a game belittles the legitimacy of the rules, the gravity of the stakes, and the effect of violations on the lives of others. By minimizing these factors, the game metaphor takes the myopic “strictly business” framing a step further, into a domain of bendable rules, acceptable transgressions, and limited accountability. (emphasis added)

The war metaphor conditions our thinking in a way distinct from the game frame, but complementary to it. War is a matter of survival: the stakes are enormous, the mission urgent, and all’s fair. Exigent pressures grant us wide moral license, releasing us from adherence to everyday rules and justifying extreme tactics in pursuit of a higher goal; we must, after all, kill or be killed. If business is war, survival is at stake, and competitors, customers, suppliers, rivals or authorities are our enemies, then not only may we do whatever it takes to win, it’s our duty to do so. (emphasis added)

The full article is available here.

In light of the new ABA regulations on Learning Outcomes and Assessment, including the requirement that students have competency in exercising "proper professional and ethical responsibilities to clients and the legal system" this article seems like a great addition to a business organizations/corporations course line up.  I know that I will be including it in my corporate governance seminar this coming year.  And if I were responsible for new associate training, this would definitely merit inclusion in the materials.

-Anne Tucker

July 15, 2015 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Ethics, Law School | Permalink | Comments (1)

Tuesday, July 14, 2015

CVS, Business Judgment, & Noisy Withdrawal from the Chamber of Commerce

A while back, I wrote about CVS's choice to eliminate tobacco products from its stores.  I noted that it seemed clear to me that CVS could make that choice, even thought it would mean lower short-term profits, because it was a decision that is clearly protected (or should be) by the business judgment rule. 

Today, according to an LA Times piece, 

[CVS] stood up for its principles.

The pharmacy giant announced it was quitting the U.S. Chamber of Commerce after reports that the influential business organization was lobbying against anti-smoking laws around the world.

CVS bolted because of the Chamber's views on tobacco sales.  In 2009, Apple and Nike made waves with the Chamber of its policy position on climate change. I find this interesting, and I have no reason to doubt that all of these companies are following their corporate values, though I also think they see public relations value in the noisy withdrawal.  

That some big companies have stepped away from the Chamber is less surprising to me than the fact that the Chamber has maintained such strength with small business owners, while advocating for many big business positions that don't help, and may hurt, small businesses.  I can't help but wonder if the Chamber's success it not so much in promoting policies that benefit of member businesses, and instead that it promotes policies that are consistent with the ideologies of many who work for or own businesses.

If the latter is the case, as I suspect it is, that's a good business model for the Chamber, but not necessarily for the entities it represents.  Of course, if business owners, officers, and directors remain aligned with the Chamber, despite a lack of clear benefit to the entity, well, that too is protected by the business judgment rule. 

July 14, 2015 in Business Associations, Corporate Personality, Corporations, Current Affairs, Joshua P. Fershee | Permalink | Comments (1)