Friday, April 13, 2018
Greetings from the ABA Business Law Meeting in sunny Orlando, Florida. Today, I attended an excellent program on Protecting Human Rights in Supply Chains; Moving from Policy to Action. I plan to blog more about the meeting next week, highlighting the work surrounding draft human rights clauses for supplier contracts. The project was spearheaded by David Snyder of American University and corporate lawyer Susan Maslow. In this post, I want to address one of the topics Susan Maslow discussed-- the recent spate of lawsuits brought by consumers who allege unfair trade practices based on what companies say (or don’t say) about their human rights records.
I’ve blogged (incessantly for the past five years) and written longer articles about the various ESG disclosure regimes. I’ve argued that in theory, disclosure is a good thing. But without meaningful financial penalties from regulators for violations, many corporations won’t do anything more than the bare minimum for human rights, even with the threat of (often short-lived) consumer boycotts. Further, most consumers suffer from disclosure overload or don’t understand or remember what they read.
The disclosure issue has now reached the courts. In 2015, a law firm filed cases in California under unfair competition and false advertising laws against the Hershey Company, Mars, and Nestle. The firm likely chose those causes of action because there’s no private right of action under the California Transparency in Supply Chain Act. The suits claimed, among other things that:
- in violation of California law, Hershey’s, Mars and Nestle failed to disclose that their suppliers in the Ivory Coast relied on child laborers and profitted from the child labor that supplies the chocolate sold to American consumers,
- the children subjected to the forced labor are victims of hazardous work involving dangerous tools, transport of heavy loads and exposure to toxic substances, and,
- “sometimes extremely poor people sell their own children into slavery for as little as $30. Children that are sometimes not even 10 years old carry huge sacks that are so big that they cause them serious physical harm. Much of the world’s chocolate is quite literally brought to us by the back-breaking labor of child slaves.”
Plaintiffs lost those cases because the court found that these companies had no legal duty to disclose on their labels that African child slaves might have been involved in manufacturing their cocoa. Had the plaintiffs won, I imagine that the First Amendment argument that prevailed in the Dodd-Frank conflicts minerals litigation would have played a prominent role in the appeal.
Fast forward a few years and the same law firm has now filed a similar class action lawsuit against Hershey in Massachusetts. This claim alleges unjust enrichment in violation of the state’s consumer protection law. According to plaintiffs, “much of the world’s chocolate is quite literally brought to us by the back-breaking labor of children, in many cases under conditions of slavery.” Moreover, they claim, “Hershey’s material omissions and failure to disclose at the point of sale [are] all the more appalling considering that Hershey’s Corporate Social Responsibility Report state[s] that ‘Hershey has zero tolerance for the worst forms of child labor in its supply chain.’ But Hershey does not live up to its own ideals.”
Hershey, like many companies, produces a CSR report showcasing its efforts and progress in accordance with the Global Reporting initiative, the gold standard for CSR. Companies like Hershey also report on their CSR initiatives in good faith with the knowledge that their statements are generally not legally binding, at least not in the United States. I’ll be following this case closely. If the court grants class certification, this could have a chilling effect on what companies say in their CSR reports, and that would be a shame.
Monday, April 2, 2018
This timely post comes to us from Jeremy R. McClane, Associate Professor of Law and Cornelius J. Scanlon Research Scholar at the University of Connecticut School of Law. Jeremy can be reached at email@example.com.
Spotify, the Swedish music streaming company known for disrupting the music market might do the same thing this week to the equity capital markets. On April 3, Spotify plans to go public but in an unusual way. Instead of issuing new stock and enlisting an underwriter to build a book of orders and provide liquidity, Spotify plans to cut out the middleman and list stock held by existing shareholders directly on the New York Stock Exchange.
This will be an interesting experiment that will test some prevailing assumptions that about how firms must raise capital from the public.
The Importance of Bookbuilding. First, we will see just how important bookbuilding is to ensuring a successful IPO. When most companies go public, they hire an underwriter to market the shares in what is known as a “firm commitment” underwriting. The investment banks commit to finding buyers for all of the shares, or purchasing any unsold shares themselves if they cannot find buyers (an occurrence which never happens in practice). The process involves visiting institutional investors and building a book of orders, which are then used to gauge demand and set a price at which to float the stock. The benefit of this process is risk management – the issuing company and its underwriters try to ensure that the offering will be a success (and the price won’t plummet or experience volatile ups and downs) by setting a price at a level that they know market demand will bear, and ensuring that there are orders for all of the shares even before they are sold into the market.
Without underwriters or bookbuilding, Spotify is taking a risk that its share price will be set at the wrong level and become unstable. In Spotify’s case, however there is already relatively active trading of shares in private transactions, which gives the company some indication of what the right price should be. Nonetheless, that indication of price is volatile, in part because the securities laws limit the market for its shares by restricting the number of pre-IPO shareholders to 2,000, at least in the US. In 2017 for example, the price of Spotify’s shares traded in private transactions ranging from $37.50 to $125.00, according to the company’s Form F-1 registration statement.
Friday, March 30, 2018
Corporate Boycotts, A Change of Heart from CEOs, and H & M's Diversity Initiative- A Roundup of The Week's News Stories
Within the past 24 hours, I've seen at least three news article that led me to reflect on my past blog posts. Rather than write a full post on each article, I've decided to note some observations.
The Tweet That Launched A Boycott (And Maybe a Buycott)
I've been skeptical in the past about whether boycotts work. Perhaps times are changing. This week, Parkland shooting survivor David Hogg tweeted that advertisers on Laura Ingraham's cable show should pull out after she tweeted, "David Hogg Rejected By Four Colleges To Which He Applied and whines about it. (Dinged by UCLA with a 4.1 GPA...totally predictable given acceptance rates.) https://www.dailywire.com/news/28770/gun-rights-provocateur-david-hogg-rejected-four-joseph-curl …" On March 28th, the 17-year old activist responded with "Soooo
@IngrahamAngle what are your biggest advertisers ... Asking for a friend. #BoycottIngramAdverts." He then provided a list of her top twelve sponsors.
As of 8:00 p.m. tonight, the following companies dumped the Fox show, eleven after the talk show host had apologized, stating “On reflection, in the spirit of Holy Week, I apologize for any upset or hurt my tweet caused him or any of the brave victims of Parkland... For the record, I believe my show was the first to feature David immediately after that horrific shooting and even noted how ‘poised’ he was given the tragedy ... As always, he’s welcome to return to the show anytime for a productive discussion.”
The companies that have pulled their advertising include Nutrish, Office Depot, Jenny Craig, Hulu, TripAdvisor, Expedia, Wayfair, Stitch Fix, Nestlé, Johnson & Johnson, Jos A Bank, Miracle Ear, Liberty Mutual and Principal. But will they ever return to the show after the attention moves to something else? Will the sponsors face a "buycott," where Ingraham's fans boycott the boycotters or increase their support of the advertisers that Hogg specifically named but have chosen to stay with Ingraham? Time will tell.
Silicon Valley CEOs Warm to President Trump
Last year, I posted about various CEOs choosing to distance themselves from President Trump by resigning from advisory councils because they disagreed with his actions or positions on everything from immigration to his reaction to the events in Charlottesville. Today, the New York Times reported that some of the same CEOs that bemoaned Trump's election and/or publicly condemned him have now had a change of heart. Apparently, they have more common ground than they thought on areas of tax reform, infrastructure, and looser regulation. I look forward to seeing whether any of these companies or CEOs refrain from criticizing him in the future or, more tellingly, whether they choose to use PAC money or personal funds to support his re-election.
H & M Asks One of Its Lawyers To Lead Diversity Initiative
H & M has lots of problems from underperforming designs (billions in unsold clothes) to continued fallout from its "coolest monkey in the jungle" hoodie. As you may recall, in January, a number of consumers, public figures, and other called for a boycott of the company after a young black boy advertised a green hoodie with the word "monkey." H & M even had to close its store in South Africa. The fast fashion company has now turned to one of its in-house lawyers to lead a 4-person team to focus on diversity and inclusiveness. The lawyer will report directly to the CEO in Stockholm. Notably, the board is all white. Should the board diversify as well? It's hard to say. While I support diversity in the executive ranks and the boardroom, there is no evidence that the monkey hoodie led to the 62% drop in operating profit in Q1. Instead, experts note that consumers just didn't like the selections, even at steep discounts. Further, the average H & M customer probably has no idea about this new diversity initiative and even if the customer knew, it'sdoubtful that would change buying habits. Even so, I applaud H & M for taking concrete steps. The company already produces a compelling Sustainability Report. I look forward to seeing if the company can return to profitabiity while keeping its commitment to diversity.
Monday, March 12, 2018
As I read recent news reports (starting a bit over a week ago and exemplified by stories here, here, here, and here--with the original story featured here) about Carl Icahn's well-timed sale of Manitowoc Company, Inc. stock, I could not help but associate the Icahn/Manitowoc intrigue with the Stewart/ImClone affair from back in the early days of the new millennium--more than 15 years ago. As many of you know, I spent a fair bit of time researching and writing on Martha Stewart's legal troubles relating to her December 2001 sale of ImClone Systems, Inc. stock. Eventually, I coauthored and edited a law teaching text focusing on some of the key issues. A bit of my Martha Stewart work is featured in that book; much of the rest can be found on my SSRN author page. For those who may not recall or know about the Stewart/ImClone matter, the SEC's press release relating to its insider trading enforcement action against Stewart is here, and it supplies some relevant background. (Btw, ImClone apparently is now a privately held subsidiary of Eli Lilly and Company organized as an LLC.)
In reading about Icahn's Manitowoc stock sale, my thoughts drifted back to Stewart's ImClone stock sale because of salient parallels in the early public revelations. Just as Icahn had personal and professional connections with U.S. government officials who were aware of material nonpublic information regarding the later-announced imposition of steel tariffs, Martha Stewart had personal and professional connections with at least one member of ImClone management who was aware of impending negative news from the U.S. Food and Drug Administration regarding ImClone's flagship product. We know from the law itself and Stewart/ImClone fiasco not to jump to conclusions about insider trading liability from such scant facts. Stewart's insider trading case ended up being settled. (No, that's not why she went to jail . . . .) And I have argued in a book chapter (Chapter 4 of this book) that the facts associated with Stewart's stock sale may well have revealed that she did not violate U.S. insider trading prohibitions under Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934, as amended.
The Supreme Court's decisions in Dirks v. SEC and Salman v. United States advise us that a tippee trading while in possession of material nonpublic information only violates U.S. insider trading prohibitions under Section 10(b) and Rule 10b-5 if:
- disclosure of the material nonpublic information in the tippee's possession breached a duty of trust and confidence because it was shared (directly or indirectly) with the tippee improperly--typically (although perhaps not always--as I note and argue in a forthcoming essay) because the duty-bearing tipper benefitted in some way from disclosure of the information; and
- the tippee knew or should have known that the tipper breached his or her duty of trust and confidence.
See, e.g., Dirks v. SEC, 463 U.S. 646, 660 (1983).
Thus, there is much more to tease out in terms of the facts of the Icahn/Manitowoc scenario before we can even begin to assert potential insider trading liability. Among the unanswered questions:
- what Icahn knew and when he knew it;
- whether any information disclosed to Icahn was material and nonpublic;
- who disclosed the information to Icahn and whether anyone directly or indirectly making disclosures to him had a fiduciary or fiduciary-like duty of trust and confidence;
- whether any disclosures directly or indirectly made to Icahn were inappropriate and, therefore, breached the tipper's fiduciary or fiduciary-like duty of trust and confidence; and
- whether Icahn knew or should have known that the information he received was disclosed in breach of a fiduciary or fiduciary-like duty of trust and confidence.
Icahn denies having any information about the Trump administration's imposition of tariffs on the steel industry. (See, e.g., here.) And the nature of the duties of trust and confidence owed by government officials is somewhat contended (although Donna Nagy's work in this area holds great sway with me). Regardless, it is simply too soon to tell whether Icahn has any U.S. insider trading liability exposure based on current news reports. I assume ongoing inquiries will result in more facts being adduced and made public. This post may serve as a guide for the digestion of those additoonal facts as they are revealed. In the mean time, feel free to leave your observations and questions in the comments.
Friday, March 2, 2018
I live in South Florida and have friends who live in Parkland, Florida, the site of the most recent school shooting. Like many, I've found solace and inspiration in the young survivors and their families who have taken to the streets and visited Washington, D.C. to demand action to prevent the next tragedy. Who knows whether they will succeed where others have failed. I certainly hope so.
I'm more surprised though, with the reactions of major companies such as WalMart, Dicks, REI, United Airlines, Hertz, Symantec and others that have cut ties with the National Rifle Association or have changed their sales practices. Skeptics have observed that corporations take "controversial" stances only when it's cheap or easy and that this stance against the NRA isn't even that controversial. But, it certainly hasn't been "cheap" for Delta Airlines. Notwithstanding the fact that the airline employs 33,000 people in the state, Georgia has passed a bill to eliminate a proposed $50 million tax break because Delta announced plans to end its discount for NRA members.
The gun control issue is the latest in a string of public policy debates that have divided corporations over the past year. CEOs have taken positions on the travel ban, Charlottesville, the NFL protests, the Paris Climate Accord, transgender bathroom laws, and immigration. Some of these positions are more closely tied to their core business than others, and some have been driven by social media activism.
Cautious companies have guidance and momentum on their side when deciding whether to weigh in on social issues. According to the Conscious Capitalism credo, “.. business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it can elevate our existence and it is heroic because it lifts people out of poverty and creates prosperity. Free enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to even more.” This movement focuses on a higher purpose than generating profits; a stakeholder orientation; leaders that cultivate a culture of care and consciousness; and a conscious culture that permeates the people, purpose, and process.
Blackrock, with $1.7 trillion under management, made that even more clear in its January 2018 letter to CEOs, which stated, among other things:
Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth...
Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?
What does this mean for the future? Is corporate social responsibility more of a business imperative than ever? Boards are now entering proxy season. Will shareholders demand more? Will state and federal governments use their power, as Georgia has, to send a message to the C-Suite? Will consumers engage in boycotts or buycotts? (See here, here, here, here) for my views on boycotts). I look forward to seeing how whether the corporations sustain this conscious capitalism over the long term even when it is no longer "cheap" and "easy."
Friday, February 23, 2018
I love the Kardashians. I don't watch the reality show, but I do keep up with them because I use them in hypotheticals in class and in exams for entity selection questions. The students roll their eyes, but invariably most of them admit to knowing everything about them. When the students can relate to the topic, it makes my job easier. That's why I used the SNAP IPO last year as our case study on basic securities law. Every year I pick a "hot" offering to go through some of the key principles and documents, and Snap was the logical choice because the vast majority of the students love(d) the Snapchat app. The company explained as its first risk factor "... the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement." I used myself as an example to explain that risk factor in class. I have over 100 apps on my smartphone, and I have a son in the target demographic, but I never open Snapchat unless my six-year-old goddaughter sends me something. I just don't get the appeal even though millions of celebrities and even mainline companies use it for marketing. My students were aghast when I told them that I wouldn't invest in any stock that depended on the vagaries of their ever-changing taste.
Enter Kylie Kardashian. She's the youngest Kardashian (20 years old), is worth at least $50 million, runs a cosmetics empire on track to earn a billion dollars, has 95 million followers on Instagram, and has 24 million followers on Twitter.
After she offhandedly tweeted that she doesn't really open Snapchat anymore yesterday, Snap lost $1.3 billion (6%) in value. This plunge added to an already bad week for Snap after Citi issued a sell rating and the company confirmed to 1.2 million change.org petition signers that its new redesign was here to stay. But it was Kylie's tweet that caused the real damage. Perhaps one of Kylie's lawyers or business managers alerted her to the fallout because she later tweeted out, "still love you tho snap... my first love." Kylie probably forgot how much power she really has. When she released a video about her pregnancy and childbirth, 24 million people watched in less than 24 hours because she had refused to allow any of her followers to see pictures of her belly. She knows marketing.
Meanwhile, after seeing Kylie's first tweet, cosmetics competitor Maybelline went on Twitter to ask its users if it should stay on Snapchat, noting that its Snapchat views had dropped dramatically. The company later deleted the tweet, but users had already voted 81% to 19% to leave on the Twitter poll.
Snap appears determined to stick to its unpopular redesign, and its CEO received a $637 million bonus last year after the IPO. Perhaps the CEO should use some of that money to pay for a new Kylie tweet. In 2016, when Kylie earned only $18 million, 20% of that haul came from social media endorsements. It looks like the President isn't the only one who can move markets with a tweet.
Friday, February 16, 2018
Corporate Governance, Compliance, Social Responsibility, and Enterprise Risk Management in the Trump/Pence Era
This may be obsolete by the time you read this post, but here are my thoughts on Corporate Governance, Compliance, Social Responsibility, and Enterprise Risk Management in the Trump/Pence Era. Thank you, Joan Heminway and the wonderful law review editors of Transactions: The Tennessee Journal of Business Law. The abstract is below:
With Republicans controlling Congress, a Republican CEO as President, a “czar” appointed to oversee deregulation, and billionaires leading key Cabinet posts, corporate America had reason for optimism following President Trump’s unexpected election in 2016. However, the first year of the Trump Administration has not yielded the kinds of results that many business people had originally anticipated. This Essay will thus outline how general counsel, boards, compliance officers, and institutional investors should think about risk during this increasingly volatile administration.
Specifically, I will discuss key corporate governance, compliance, and social responsibility issues facing U.S. public companies, although some of the remarks will also apply to the smaller companies that serve as their vendors, suppliers, and customers. In Part I, I will discuss the importance of enterprise risk management and some of the prevailing standards that govern it. In Part II, I will focus on the changing role of counsel and compliance officers as risk managers and will discuss recent surveys on the key risk factors that companies face under any political administration, but particularly under President Trump. Part III will outline some of the substantive issues related to compliance, specifically the enforcement priorities of various regulatory agencies. Part IV will discuss an issue that may pose a dilemma for companies under Trump— environmental issues, and specifically shareholder proposals and climate change disclosures in light of the conflict between the current EPA’s position regarding climate change, the U.S. withdrawal from the Paris Climate Accord, and corporate commitments to sustainability. Part V will conclude by posing questions and proposing recommendations using the COSO ERM framework and adopting a stakeholder rather than a shareholder maximization perspective. I submit that companies that choose to pull back on CSR or sustainability programs in response to the President’s purported pro-business agenda will actually hurt both shareholders and stakeholders.
February 16, 2018 in Compliance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Employment Law, Marcia Narine Weldon, Securities Regulation, Shareholders | Permalink | Comments (0)
Tuesday, February 13, 2018
I suspect click-bait headline tactics don't work for business law topics, but I guess now we will see. This post is really just to announce that I have a new paper out in Transactions: The Tennessee Journal of Business Law related to our First Annual (I hope) Business Law Prof Blog Conference co-blogger Joan Heminway discussed here. The paper, The End of Responsible Growth and Governance?: The Risks Posed by Social Enterprise Enabling Statutes and the Demise of Director Primacy, is now available here.
To be clear, my argument is not that I don't like social enterprise. My argument is that as well-intentioned as social enterprise entity types are, they are not likely to facilitate social enterprise, and they may actually get in the way of social-enterprise goals. I have been blogging about this specifically since at least 2014 (and more generally before that), and last year I made this very argument on a much smaller scale. Anyway, I hope you'll forgive the self-promotion and give the paper a look. Here's the abstract:
Social benefit entities, such as benefit corporations and low-profit limited liability companies (or L3Cs) were designed to support and encourage socially responsible business. Unfortunately, instead of helping, the emergence of social enterprise enabling statutes and the demise of director primacy run the risk of derailing large-scale socially responsible business decisions. This could have the parallel impacts of limiting business leader creativity and risk taking. In addition to reducing socially responsible business activities, this could also serve to limit economic growth. Now that many states have alternative social enterprise entity structures, there is an increased risk that traditional entities will be viewed (by both courts and directors) as pure profit vehicles, eliminating directors’ ability to make choices with the public benefit in mind, even where the public benefit is also good for business (at least in the long term). Narrowing directors’ decision making in this way limits the options for innovation, building goodwill, and maintaining an engaged workforce, all to the detriment of employees, society, and, yes, shareholders.
The potential harm from social benefit entities and eroding director primacy is not inevitable, and the challenges are not insurmountable. This essay is designed to highlight and explain these risks with the hope that identifying and explaining the risks will help courts avoid them. This essay first discusses the role and purpose of limited liability entities and explains the foundational concept of director primacy and the risks associated with eroding that norm. Next, the essay describes the emergence of social benefit entities and describes how the mere existence of such entities can serve to further erode director primacy and limit business leader discretion, leading to lost social benefit and reduced profit making. Finally, the essay makes a recommendation about how courts can help avoid these harms.
February 13, 2018 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joshua P. Fershee, Law and Economics, Lawyering, Legislation, LLCs, Management, Research/Scholarhip, Shareholders, Social Enterprise, Unincorporated Entities | Permalink | Comments (0)
Saturday, February 3, 2018
Time's Up for Board Members: Sexual Misconduct Allegations Against CEOs of Wynn and the Humane Society Should Send a Message
Perhaps I'm a cynic, but I have to admit that I was stunned when the news of hotelier Steve Wynn's harassment allegations at the end of January caused a double-digit drop in stock price. What began as an unseemly story of a $7.5 million settlement to a manicurist at one his of his resorts later morphed into a story about his resignation as head of the finance chair of the Republican National Committee. Not only did he lose that job, he also lost at least $412 million (the company at one point lost over $3 billion in value). His actions have also led regulators in two states to scrutinize his business dealings and settlements to determine whether he has violated "suitability standards." Nonetheless, Wynn has asked his 25,000 employees to stand by him and think of him as their father. The question is, will the board stand by him as it faces potential liability for breach of fiduciary duty?
The Wynn board members should take a close look at what happened with the Humane Society yesterday. That board chose to retain the CEO after ending an investigation into harassment allegations. A swift backlash ensued. Major donors threatened to pull funding, causing the CEO to resign. A number of board members also reportedly resigned. However, not all of the board members resigned out of principle. One female director resigned after stating, " Which red-blooded male hasn’t sexually harassed somebody? ... [w]omen should be able to take care of themselves.” Unfortunately, the reaction of this board member did not surprise me. She's in her 80s and in my twenty years practicing employment law on the defense side, I've heard similar sentiments from many (but not all) men and women of that generation. Indeed, French actress Catherine Deneuve initially joined other women in denouncing the #MeToo movement before bowing to public pressure to apologize. We have five generations of people in the workplace now, and as I have explained here, companies need to reexamine the boundaries. What may seem harmless or "normal" for some may be traumatic or legally actionable to someone else.
As the Wynn and the Humane Society situations illustrate, the sexual harassment issue is now front and center for boards so general counsels need to put the issue on the next board agenda. As I wrote here, boards must scrutinize current executives as well as those they are reviewing as part of their succession planning roles to ensure that the executives have not committed inappropriate conduct. Because definitions differ, companies must clarify the gray areas and ensure everyone knows what's acceptable and what's terminable (even if it's not per se illegal).This means having the head of human resources report to the board that company policies and training don't just check a box. In fact, board members need to ask about the effectiveness of policies and training in the same way that they ask about training on bribery, money laundering, and other highly regulated compliance areas. Boards as part of their oversight obligation must also ensure that there are no uninvestigated allegations against senior executives. Prudent companies will review the adequacy of investigations into misconduct that were closed prematurely or without corroboration.Companies must spend the time and the money with qualified, credible legal counsel to investigate claims that they may not have taken seriously in the past. Because the #MeToo movement shows no signs of abating, boards need to engage in these uncomfortable, messy conversations. If they don't, regulators, plaintiffs' counsel, and shareholders will make sure that they do.
Monday, January 29, 2018
At The University of Tennessee College of Law, we have a four-credit-hour, four-module course called Representing Enterprises that is one of three capstone course offerings in our Concentration in Business Transactions. In Representing Enterprises, each course module focuses on a different aspect of transactional business law, often a specific transaction or task. We try to both ask the enrolled students to apply law that they have learned in other courses (doctrinal and experiential) and also introduce the students to applied practice in areas of law to which they have not or may not yet have been exposed.
I have been teaching the first module over the past few weeks. We finish up tomorrow. My module focuses on disclosure regulation. I have five class meetings, two hours for each meeting, to cover this topic. Each class engages students with a hypothetical that raises disclosure questions.
The first class focused on general rule identification regarding the applicable laws governing disclosure in connection with the purchase of limited liability membership interests. Specifically, our client had bought out his fellow members of a member-managed Tennessee limited liability company at a nominal price and without giving them full information about a reality television opportunity our client had with his wife. As things turned out, the television show was picked up and popularized the brand name of the limited liability company, making the husband and wife, over the next few years, significant income. Now, of course, the former limited liability company members are contending that, had they known the complete facts, they would have demanded a higher price for their limited liability membership interests from our client. The students did some nice, creative thinking here in identifying applicable legal rules, pointing to Tennessee limited liability company fiduciary duty law (although they missed our closely held limited liability company doctrine), federal and state securities law, business torts, potential contract law issues, etc.
Subsequent class meetings broke disclosure law down into component pieces commonly seen in a business transactional law context. The second class centered on work for another client, a Delaware corporation, concerning fiduciary duty disclosure issues under Delaware corporate law in connection with a merger. The third class focused on a client's obligations under mandatory disclosure and antifraud elements of the federal securities laws. The fourth class involved a hypothetical that raises specialized disclosure regulation questions for a talent agency that is an indirect subsidiary of a New York Stock Exchange ("NYSE") listed company. I may post later about the fifth class meeting, which will take place tomorrow. It involves Uber's recently publicized data security breach and related disclosure matters.
I want to focus today on the fourth class meeting. In that class, one of the things the students had to wrestle with was determining how the parent's status and regulation as a NYSE-listed firm might impact or be impacted by disclosure compliance at the subsidiary level. The NYSE Listed Company Manual provides, e.g.,
The market activity of a company's securities should be closely watched at a time when consideration is being given to significant corporate matters. If rumors or unusual market activity indicate that information on impending developments has leaked out, a frank and explicit announcement is clearly required. If rumors are in fact false or inaccurate, they should be promptly denied or clarified. A statement to the effect that the company knows of no corporate developments to account for the unusual market activity can have a salutary effect. It is obvious that if such a public statement is contemplated, management should be checked prior to any public comment so as to avoid any embarrassment or potential criticism. If rumors are correct or there are developments, an immediate candid statement to the public as to the state of negotiations or of development of corporate plans in the rumored area must be made directly and openly. Such statements are essential despite the business inconvenience which may be caused and even though the matter may not as yet have been presented to the company's Board of Directors for consideration. . . .
Having identified this and other related rules, we posited situations in which operations or activities at the subsidiary level might require disclosure by the parent company under the NYSE listed company rules. We dug in most specifically on what might lead to market rumors or cause unusual market activity. Having just discussed in the prior class meeting disclosure standards under the federal securities laws, the students understood that materiality was a distinct, separate disclosure-triggering standard and that the parent firm might have different--even conflicting--disclosure obligations under the federal securities laws and the NYSE listed company rules. With these observations as a foundation, I asked the students what types of conduct or information at the subsidiary level might generate market rumors or unusual market activity.
Given that the firm was a talent agency, I was not surprised when one of the first answers referenced the allegations against Harvey Weinstein. The disparate pay issues relating to the Mark Wahlberg/Michelle Williams affair that I wrote about in a different context a few weeks ago (w/r/t which the same talent agency advised both actors) also came up. In each case we tried to envision what the subsidiary should be disclosing to the parent, and when, to enable the parent to satisfy its NYSE obligations. Among other things, we discussed the financial and non-financial impacts of the facts we were generating on the trading price and volume of parent's stock. It was a great brainstorming session, imv. By the end of class, we could see that a communication-oriented compliance plan for the subsidiary seemed to be in order.
Interestingly, the Steve Wynn story then broke the next day. I was pleased in the aftermath to see this article in The New York Times that validated the nature of our discussion and the complexity involved in assessing market risk in these kinds of situations.
The question, though, is what specifically investors are now pricing in. One risk is that regulators make it difficult for Wynn Resorts to expand. The Massachusetts gaming watchdog said on Friday that it would review plans for a new casino in Boston.
The threat of parting ways with an influential executive, until now a reasonable steward of shareholder value, is also potent. Over the past decade, Wynn Resorts’ average 10.5 percent shareholder return is a shade higher than that of the Standard & Poor’s 500-stock index — despite a slump in 2014 after China toughened rules on holiday gamblers.
Investors’ strong response to the reports is now the problem of Wynn Resorts’ 10-person board, which contains just one woman. Others surely will learn from how the Wynn board responds.
My students did identify regulatory risk (and the rest of the class was spent talking about California and New York laws regulating talent agencies, which are regulated and require licensure) and the risks associated with an iconic founder or chief executive at the heart of a controversy. I love it when current events dovetail with classroom activities!
Have any of you taught a course or course component like this before? I would be interested to know. I found it hard to teach the securities regulation issues to the students who were not interested in securities regulation work. I tried to break the legal foundations down into relatively small policy and doctrinal chunks, and I told them that every business lawyer needs to know a little bit about securities regulation, whether advising or litigating in connection with business transactions. But those who had not taken and were not taking our Securities Regulation course (a majority of the class) seemed to mentally almost shut down. Some of that may be 3L-itis. But I am rethinking how to engage students more happily with this part of the course. I will be asking the students for help on this. But any thoughts you have from your own experience (or otherwise) would be a great help to me as I think this through.
Indiana University legal studies professor Abbey Stemler sent along this description of an article she co-wrote with Harvard Business School Professor Ben Edelman. They recently posted the article to SSRN and would love any feedback you may have, in the comments or via e-mail.
Perhaps the most beloved twenty-six words in tech law, Section 230 of the Communications Decency Act of 1996 has been heralded as a “masterpiece” and the “law that gave us the modern Internet.” While it was originally designed to protect online companies from defamation claims for third-party speech (think message boards and AOL chat rooms), over the years Section 230 has been used to protect online firms from all kinds of regulation—including civil rights and consumer protection laws. As a result, it is now the first line of defense used by online marketplaces to shield them from state and local regulation.
In our article recently posted to SSRN, From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces, we challenge existing interpretations of Section 230 and highlight how it and other federal laws interfere with state and local government’s ability to regulate online marketplaces—particularly those that dramatically shape our physical realities such as Uber and Airbnb. We realize that the CDA is sacred to many, but as Congress pays renewed attention to this law, we hope our paper will support a richer discussion about what the CDA should and should not be expected to do.
Friday, January 26, 2018
On Wednesday, I spoke with Kimberly Adams, a reporter for NPR Marketplace regarding CSX's decision to require its CEO to disclose health information to the board. I don't have a link to post, sorry. As you may know, CSX suffered a significant stock drop in December when its former CEO died shortly after taking a medical leave of absence and after refusing to disclose information about his health issues. CSX has chosen the drastic step of requiring an annual CEO physical in response to a shareholder proposal filed on December 21st stating, “RESOLVED, that the CEO of the CSX Corporation will be required to have an annual comprehensive physical, performed by a medical provider chosen by the CSX Board, and that results of said physical(s) will be provided to the Board of Directors of the CSX Corporation by the medical provider.” Adams asked my thoughts about a Wall Street Journal article that outlined the company's plans.
I'm not aware of any other company that asks a CEO to provide the results of an annual physical to the board. As I informed Adams, I hope the board has good counsel to avoid running afoul of the Americans with Disabilities Act, HIPAA, the Genetic Information Nondiscrimination Act of 2008, and other state and federal health and privacy laws. While I believe that the board must ensure that it takes its role of succession planning seriously, I question whether this is the best means to achieve that. I also remarked that although a CEO would know in advance that this is a condition of employment and would negotiate with the aid of counsel what the parameters would be, I was concerned about the potential slippery slope. How often would the CEO have to update the board on his/her health condition? Who else would have access to the information? Will this deter talented executives from seeking the top spot at a corporation?
One could argue that the health of the CEO is material information. But if that's the case, why haven't more shareholders made similar proposals? Perhaps there haven't been more of these proposals because the CSX situation was extreme. Shareholders were asked to bless the $84 million compensation package of a man who was so ill that he required a portable oxygen tank but who refused to disclose his condition or prognosis. Hopefully, other companies won't take the same approach.
Friday, January 19, 2018
On a previous post about Etsy dropping its B corp. certification, because of the B Lab requirement to convert to a public benefit corporation, I received the following comments:
- "I simply believe that, in most ways, being a public benefit entity is more about a marketing strategy than a business plan." (Tom N.)
- "I had my students read the NY Times articles on Etsy as a part of their last class in my clinic this semester (thanks to my fellow Joe Pileri who alerted me to the article). We represent social enterprises in the clinic so this was a perfect wrap-up. The questions that I posed to my students: what social enterprise isn't a soft target like Etsy? Won't they all eventually cave to profit maximization?" (Alicia Plerhopes)
- "I agree with To[m] N ... Also, no theory of CSR actually requires an explicit weighting of the various stakeholders of a firm, so in reality, if the interests of shareholders are receiving the greatest weight, then Milton Friedman was right all along!" (Enrique)
I wanted to respond to these thoughtful comments, briefly, above the line.
Tom, I think the marketing benefits of becoming a PBC, currently, are weak. How many of your non-lawyer friends know what a public benefit corporation is? Even among lawyers, if they know what the form is, their knowledge is usually limited, and they are usually quite skeptical. But I agree, that simply becoming a PBC, without more, does not get you very far and will not substitute for a good business plan. Becoming a PBC, however, may help in takeover situations and it may help change the shareholder wealth maximization norm among directors.
Alicia, You are right, I think, that publicly traded benefit corporations would often be soft targets. That said, their PBC status, in connection with other takeover defenses, could help them fend off unwanted advances. Given the history of social enterprise sell-outs, however, one does wonder how long these companies, public or private, can stay on mission.
Enrique, You may be correct on most theories of CSR not requiring an explicit weighting of stakeholder interests, but the benefit corporation statutes do generally require “consideration” or “balancing” of stakeholder interests. You are right, however, that the statutes do not give instructions on how much weight is to be given to each stakeholder group. The benefit corporation statutes do generally say that the purpose of benefit corporations must be to materially benefit “society and the environment;” and some of the statutes say/suggest that shareholders can not be the predominant interest.
While I am not a big proponent of the current benefit corporation statutes, I do commend the drafters for moving the conversation forward and taking action. And hopefully we can agree that something needs to be done about the current state and focus of many American businesses. This holiday season confirmed to me how cheaply most things are made these days and how poor customer service has become. Toys from my childhood era are outlasting most of the toys my wife and I buy our children. Appliances now seem to last 1/5 of the time they lasted a generation ago. Ignoring or mistreating the customer has become the rule. Even Apple, which I think of as one of the positive exceptions, is now being accused on planned obsolescence, and their customer service has declined over the years, in my view. Maybe the above makes sense from a purely financial perspective; maybe customers buy mainly on price. But I would argue that what made Apple great was holding themselves to an even higher standard of quality and innovation than their customers did initially. I am not sure if benefit corporation law will help businesses make more quality products, and treat their employees and customers better, but I do think we should give businesses the latitude to explore.
Monday, January 15, 2018
William Morris Endeavor and the Wahlberg/Williams Pay Disparity: A Role for Agency Law in Equality and Justice?
“Injustice anywhere is a threat to justice everywhere.”
Martin Luther King, Jr., Letter from Birmingham Jail, Alabama, 16 April 1963, in Atlantic Monthly August 1963
I had wanted to post a tribute to Dr. King here early on Monday. However, after posting the Emory conference announcement, I moved on to other work, and that work filled up the available time in the day. So, this late post including the quote above will have to suffice.
As I read meaningful quotes from Dr. King on social media and elsewhere all day on Monday, I found myself thinking of examples of inequality and injustice. Many are compelling; many are meaningful. Some are current events; and some of those involve business law questions.
For a number of days now (since before MLK Day) we have been showered with news stories relating to the compensation disparity between Mark Wahlberg and Michelle Williams for reshooting scenes from All the Money in the World in the wake of Kevin Spacey's replacement in the film resulting from allegations of sexual misconduct. (See here, among other places.) Most folks who follow Hollywood business issues know that gender discrimination is common. My sister, a visual effects producer (her current movie is Downsizing, which I enjoyed and recommend), has suffered the effects.
But I found myself focusing on the role of William Morris Endeavor Entertainment LLC (WME), the talent agency that represented both Wahlberg and Williams. Talent agents are regulated by guilds and unions as well as under California law (as represented here). But they also have fiduciary duties. Why did Wahlberg's contract not include a reshoot covenant (giving him the leverage to negotiate an outsized reshoot fee) while Williams's contract did? Did WME fail to act in a manner consistent with any applicable duty of care--or maybe loyalty--as an experienced agent representing both actors--with knowledge of an overall gender pay gap? Of course, there are many other possible explanations for the difference, and we are not privy to the terms of the two actors' talent contracts with WME (including any enforceable private ordering around agency law rules or confidentiality or privacy clauses). But the related questions seem worth asking.
Specifically, we might ask whether there is a question of WME's care, competence, or diligence under Section 8.08 of the Restatement (Third) of Agency. And, among other things, Section 8.11 of the Restatement (Third) of Agency imposes a duty of candor on agents that may be applicable here. And were there differences in the benefits that WME got out of each agreement that may have affected the firm's ability to act loyally for the principal's benefit under Section 8.01 of the Restatement (Third) of Agency? We may never know.
Intermediation likely cannot cure the evils of inequality and injustice. But where intermediaries are agents or otherwise owe fiduciary duties to their clients, those fiduciary duties may cause--or at least incentivize--the intermediaries to use their experience and knowledge to correct gender, racial, and other inequities where they exist. This is something I will continue to ponder.
Friday, January 12, 2018
Over the break, I watched the documentary Overnighters on Netflix.
In short, the documentary chronicles the story of a pastor who opens the church to migrant workers in North Dakota during the energy boom in that state. The pastor faces pushback from his congregation, neighbors, and city officials who do not appreciate having these men - some with criminal records - housed so close.
In my opinion, the pastor is right, and the congregants are wrong, about the purpose of a church. The church should be in a community to serve, especially its needy neighbors. That said, the logistics of how to serve may be up for debate. Also, it is at least arguable that by serving the migrant workers the church strayed from serving its congregation. It would have been helpful if the church had a clear statement on its purpose and priorities. Many social enterprises have extremely vague purpose statements, which I do not think are very helpful. Benefit corporations are often required by statue to "benefit society and the environment." A purpose statement like that would not have helped the church in Overnighters much at all. A statement that showed that those in need would be prioritized over the comfort of the congregants (or vice-versa) would have been more helpful.
The more valid complaint from the congregation, is the claim that an appropriate process for initiating the housing program was not followed. Sometimes even if stakeholders agree on the ultimate action taken by the organization, the stakeholders will still be upset if they are not included, or listened to, in the decision making process. I think this complaint is likely also found in businesses. Assuring the proper processes are set forth and followed can be quite important for businesses, especially in closely-held and family run businesses, where the stakeholders are deeply invested.
The documentary is depressing and does not paint a pretty picture of human nature, but I do think things would have worked out a bit better for most of those involved if purpose, priorities, and process were paid more attention. Of course, that is much easier written than done.
Wednesday, January 10, 2018
Swedish clothing giant H & M caused a huge stir this week with an ad campaign depicting a young black boy in a sweatshirt that proclaimed him the "Coolest Monkey In the Jungle." The company's misstep is surprising given the public condemnations of the use of the word "monkey" in Europe over the past few years when soccer fans have used it as a slur against black players. Notwithstanding H & M's many apologies, several megastars have denounced the company and some have even pulled their fashion collaborations. As usual, several have called for boycotts of the retailer. But will all of this really matter? The sweatshirt was still for sale in the UK days for days after the controversy erupted, and the Weeknd, one of the megastars who vowed to never work with H & M, still has his 18-piece H & M collection available online and available for purchase on the store's U.S. portal.
I'm headed out of the country tomorrow and in my quest for a new sweater, I glanced in the H & M store in my local mall earlier today. The store was packed and likely with fans of the artists who called for a boycott. No one was walking with picket signs outside. But as I have written about here, here, here, here and at other times on this blog, I'm not sure that young American consumers--H & M's fast fashion demographic--have the staying power to sustain a boycott. Perhaps the star power behind this boycott will make a difference (but I doubt it).Wall Street hasn't punished the store either. The stock did not take a major hit. Moreover, CNBC has reported that in December, the company reported its biggest quarterly drop in ten years. This means that H & M's pre-existing financial woes will make it even more difficult to determine whether a boycott actually affected the bottom line.
Time will tell regarding the success of this latest boycott effort but in the age of hashtag activism, I don't have much confidence in this latest boycott effort.
Friday, January 5, 2018
In 2017, I was 25 out of 34 (73.5%). (Yes, I set 34 resolutions; I may be crazy).
The biggest realization I had this year was that I struggled with resolutions that required daily/weekly tracking. A daily/weekly resolution has at least three issues: (1) if screw up once, you’ve blown the resolution for the year, (2) just tracking the resolution takes habit formation and daily/weekly time, and (3) creating a daily/weekly habit is generally difficult.
So, instead of a resolution to run 5x a week, I had better luck with an achievement goal like “run a mile under 5 minutes by the end of the year.” If the achievement goal was tough enough to require roughly 5x a week running then the achievement goal could get you to basically the same place as the weekly goal without the meticulous tracking requirement and with allowing occasional time off. The bigger achievement goals, however, may need to be broken into smaller steps.
My toughest resolution for 2018, and I “only” have 22 resolutions this year, will probably be “at least 15 minutes of quiet/reflection/prayer before any screens (computer, TV, phone, etc.)” I think I had to structure this one as a daily goal, as its importance is tied up in getting each day off to a good start. We will see how it goes - so far so go, but we are only 5 days deep in 2018. It is possible that I will not do this every day, but the “stick” is that I don’t get any internet use that day either.
Best of luck to all in 2018, whether you choose to make resolutions for the year or not.
Wednesday, January 3, 2018
At a time when many boards may be thinking of tax planning and possible M & A deals, they may have to start focusing more on the unseemly topic of their executives' sex lives because the flood of terminations and resignations due to sexual misconduct shows no signs of slowing down. One of the most shocking but underreported terminations in 2017 related to VISA. The CEO, one year into the role, chose to terminate one of his most valuable executives after an anonymous tip about sexual misconduct. He wanted his employees to know that the corporate culture and values mattered. Board members should look closely at the VISA example.
We will continue to see the rise of the #MeToo movement spurred on in part by the messaging from a star-studded task force formed to address Hollywood issues and the establishment of a multimillion-dollar legal defense fund to help blue-collar workers. Even Supreme Court Chief Justice Roberts addressed sexual harassment in the court system in his Year-End Report on the Federal Judiciary. More people than ever may now choose to come forward with claims of harassment or assault. Whether companies choose to terminate wrongdoers or the accused choose to resign "to spend more time with their families," it's a new day. As I've written here, companies will need to re-evaluate policies and training to navigate these landmines.
Board members will need to step up too. Boards of any size institution (including nonprofits) need to take the job of CEO succession planning seriously because the chief executive could leave, retire, or die. Boards must not only consider the possibility of a harassment scandal in the C-Suite but they must also worry about their fellow board members. Unfortunately, a KPMG study revealed that only 14% of board members believe they have a detailed succession plan for themselves. Members of the C-suite will also need to think more clearly about succession planning in the lower ranks. HR may have to redouble efforts to ensure that high-potential employees have no skeletons in the closet that have been swept under the rug.
In the meantime, I and other former members of the Department of Labor Whistleblower Protection Advisory Committee have written an op-ed in the Boston Globe. Even if I had not co-authored the piece, as a former defense-side employment lawyer and compliance officer, I would recommend that company leaders take a look at it. Some of our recommendations for strengthening corporate culture are below:
1) have a trustworthy, independent system, with multiple reporting mechanisms, staffed with the proper skills to conduct swift, full, and fair investigations and to carry them to a just resolution, observing principles of confidentiality and discretion, and including ongoing protection of those who report;
2) make sure that there is a clear, credible anti-retaliation policy that protects accusers and witnesses who come forward in good faith;
3) require strong accountability for all levels of management for reporting and responding to complaints;
4) implement specific policies that direct bonuses, raises, and other incentives and opportunities to those who, in addition to meeting business targets, actively prevent and respond appropriately to harassment, retaliation, and other compliance problems. Consider clawbacks if unsupportive behavior later comes to light. Call out injurious behavior (without necessarily naming names) and credit exemplary behaviors;
5) periodically assess the culture and require an independent outside entity to confidentially administer anonymous surveys and interviews. The best of these use benchmarked and validated questions that can provide insight into the effectiveness of the compliance program and whether employees trust the system; and
6) make sure to involve unions and other formal and informal employee groups in developing new policies.
I wish all of our readers a happy and healthy new year. I wish board members and company executives good luck.
Thursday, December 21, 2017
Earlier this week, President Trump gave his annual speech on national security. As in the past, he failed to stress human rights (unlike his predecessors) but did allude to cooperation, even with China and Russia, when warranted by geopolitical interests. Over the last several months, he has touted bilateral trade agreements. Coincidentally, my latest law review article on a potential bilateral investment treaty with Cuba came out the same day. As you may recall, Trump recently reversed some Obama-era policies on Cuba over human rights. My article may help his administration reconcile some of the apparent contradictions in his policies. The abstract is below.
You Say Embargo, I Say Bloqueo—A Policy Recommendation for Promoting Foreign Direct Investment and Safeguarding Human Rights In Cuba
The United States is the only major industrialized nation that restricts
trade with Cuba. Although President Obama issued several executive orders
that have facilitated limited trade (and President Trump has scaled some
back), an embargo remains in place, and by law, Congress cannot lift it until,
among other things, the Cuban government commits to democratization and
human rights reform. Unfortunately, the Cuban and U.S. governments
fundamentally disagree on the definition of “human rights,” and neither side
has shown a willingness to compromise. Meanwhile, although some U.S.
investors clamor to join their European and Canadian counterparts in
expanding operations in Cuba, many have an understandable concern
regarding the rule of law and expropriation in a communist country. Bilateral
investment treaties aim to address those concerns.
After discussing the legal and political barriers to lifting the embargo, I
propose a partial solution to the stalemate on human rights, which will: (1)
facilitate foreign direct investment in Cuba; (2) protect investor interests
through a bilateral investment treaty; and (3) require an examination of
human rights impacts on the lives of Cuban citizens before investors can
receive the protection of the treaty.
Specifically, I recommend the inclusion of human rights clauses in bilateral
investment treaties (BITs) and investor-state dispute mechanisms as a condition precedent
to lifting the embargo. My solution also requires “clean hands” so that investors seeking relief must
provide proof that their business interests have not exacerbated or been
complicit in human rights abuses, rebut claims from stakeholders that their
business interests have not exacerbated or been complicit in human rights
abuses, or both. Finally, I propose revisions to the 2016 U.S. National Action
Plan on Responsible Business Conduct to incorporate human rights
requirements in future BITs and other investment vehicles going forward.
Anyone with connections to Rex Tillerson is free to pass it on. Happy Holidays to all.
Tuesday, December 19, 2017
A recent case in Washington state introduced me to some interesting facets of Washington's recreational marijuana law. The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as "limited liability corporations." The case opens:
In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”1 Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.2
(b) No license of any kind may be issued to:. . . .(iii) A partnership, employee cooperative, association, nonprofit corporation, or corporation unless formed under the laws of this state, and unless all of the members thereof are qualified to obtain a license as provided in this section;
True party of interest: Persons to be qualified
Sole proprietorship: Sole proprietor and spouse.General partnership: All partners and spouses.Limited partnership, limited liability partnership, or limited liability limited partnership: All general partners and their spouses and all limited partners and spouses.Limited liability company: All members and their spouses and all managers and their spouses.Privately held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.Publicly held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.
Multilevel ownership structures: All persons and entities that make up the ownership structure (and their spouses).
(1) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.(2) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.(3) The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.(4) The same individual may simultaneously hold more than one office in a corporation.
Requirement for and duties of board of directors.
(1) Each corporation must have a board of directors, except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.(2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:(a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and(b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.
(4) Persons who exercise control of business - The WSLCB will conduct an investigation of any person or entity who exercises any control over the applicant's business operations. This may include both a financial investigation and/or a criminal history background.
December 19, 2017 in Corporations, Current Affairs, Entrepreneurship, Family Business, Joshua P. Fershee, Legislation, Licensing, LLCs, Management, Nonprofits, Partnership, Shareholders, Unincorporated Entities | Permalink | Comments (0)