Thursday, July 2, 2015

Tips for Those Who Know Almost Nothing About Business (aka some of my incoming students)

It's barely July and I have received a surprising number of emails from my incoming business association students about how they can learn more about business before class starts. To provide some context, I have about 70 students registered and most will go on to work for small firms and/or government. BA is required at my school. Very few of my graduates will work for BigLaw, although I have some interning at the SEC. I always do a survey monkey before the semester starts, which gives me an idea of how many students are "terrified" of the idea of business or numbers and how many have any actual experience in the field so my tips are geared to my specific student base. I also focus my class on the kinds of issues that I believe they may face after graduation dealing with small businesses and entrepreneurs and not solely on the bar tested subjects. After I admonished the students to ignore my email and to relax at the beach during the summer, I sent the following tips:

If you know absolutely NOTHING about business or you want to learn a little more, try some of the following tips to get more comfortable with the language of business:

1) Watch CNBC, Bloomberg Business, or Fox Business. Some shows are better than others. Once we get into publicly traded companies, we will start watching clips from CNBC at the beginning of every class in the "BA in the News" section. You will start to see how the vocabulary we are learning is used in real life.

2) Read/skim the Wall Street Journal, NY Times Business Section or Daily Business Review. You can also read the business section of the Miami Herald but the others are better. If you plan to stay local, the DBR is key, especially the law and real estate sections.

3) Subscribe to the Investopedia word of the day- it's free. You can also download the free app.

4) Watch Shark Tank or The Profit (both are a little unrealistic but helpful for when we talk about profit & loss, cash flow statement etc). The show American Greed won't teach you a lot about what we will deal with in BA but if you're going to work for the SEC, DOJ or be a defense lawyer dealing with securities fraud you will see these kinds of cases.

5) Listen to the first or second season of The Start Up podcast available on ITunes.

6) Watch Silicon Valley on HBO- it provides a view of the world of  re venture capitalists and funding rounds for start ups.

7) Read anything by Michael Lewis related to business.

8) Watch anything on 60 Minutes or PBS' Frontline related to the financial crisis. We will not have a lot of time to cover the crisis but you need to know what led up to Sarbanes-Oxley and Dodd-Frank.

9 Watch the Oscar-winning documentary "Inside Job," which  is available on Netflix.

10) Listen to Planet Money on NPR on the weekends.

11) Listen to Marketplace on NPR (it's on weekday evenings around 6 pm).

12) Read Inc, Entrepreneur, or Fast Company magazines. 

13) Follow certain companies that you care about (or hate) or government agencies on Twitter. Key agencies include the IRS, SEC, DOJ, FCC, FTC etc. If you have certain passions such as social enterprise try #socent; for corporate social responsibility try #csr, for human rights and business try #bizhumanrights. For entrepreneurs try #startups. 

14) Join LinkedIn and find groups related to companies or business areas that interest you and monitor the discussions so you can keep current. Do the same with blogs. 

As I have blogged before, I also send them selected YouTube videos and suggest CALI lessons throughout the year. Any other tips that I should suggest? I look forward to hearing from you in the comments section or at mnarine@stu.edu.

July 2, 2015 in Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Film, Financial Markets, Law School, Marcia Narine, Technology | Permalink | Comments (1)

Wednesday, July 1, 2015

Section 13(d) Reporting: A Securities Regulation Hot Mess?

As I earlier noted, on June 23rd, I moderated a teleconference on proposals to shorten the Section 13(d) reporting period, currently fixed by statute and regulation at 10 days.  If you don't mind registering with Proxy Mosaic, you can listen to the program.  The link is here.

The discussion was lively--as you might well imagine, given that one of the participants represents activist shareholders and the other represents public companies.  A number of interesting things emerged in the discussion, many (most) of which also have been raised in other public forums on Schedule 13D, including those referenced and summarized here, here, and here, among other places.

  • Exactly how does the Section 1d(d) reporting requirement protect investors or maintain market integrity or encourage capital formation?  Or is it just a hat-tipping system to warn issuers about potential hostile changes of control, chilling the potential for the market for corporate control to run its natural course?  Of course, the answer to many questions about Section 13(d) depends on our understanding of the policy interests being served.  It's hard to tinker with the reporting  system if we cannot agree on the objectives it seeks to achieve . . . .  (Read the remaining bullets with this in mind.)
  • We're not in the 1960s, 1970s, or 1980s any more.  If market accumulations are deemed to present dangers to investors today (and that case needs to be made), why are they not just an accepted risk of public market participation?  Shouldn't every investor know that market accumulations are a risk of owning publicly traded securities?  And how does the reporting requirement really protect them from harm?  Is this just over-regulation that treats investors as nitwits?
  • Not all activist investors are the same.   Some act or desire to act as a Section 13(d) group; others don't.   Some seek effective or actual control of an issuer; some don't.
  • Provisions within the Section 13(d) filing requirements interact.  So, can we really talk about decreasing disclosure time periods without also talking about triggering thresholds and mandatory disclosure requirements?
  • Why is 5% beneficial ownership the triggering threshold for reporting?  What's the magic in that number--and if it were to be changed, should it be lower or higher?
  • Schedule 13D is a disclosure form fraught with complexity.   Many important judgment calls may have to be made in completing the required disclosures accurately and completely, depending on the circumstances.  Is all this complexity needed?  In particular, can the Item 4 disclosure requirement be simplified?  And is the group concept necessary?
  • What is the value, if any, in looking at the issue from a comparative global regulatory viewpoint?  Toward the end of the call, international comparisons were increasingly being made and used as evidence that a change in U.S. regulation is needed or desirable.  But are other markets and systems of regulation enough like ours for these comparisons to work?  E.g., although other countries require Schedule 13D-like filings fewer days after attainment of a triggering threshold of ownership, does that mean we also should reduce the time period for mandatory disclosure here in the U.S.?

Lots of questions; I am beginning to think through answers.  Regardless there's much food for thought here.  Any reactions?  What do you think, and why?

July 1, 2015 in Corporate Finance, Current Affairs, Joan Heminway, Legislation, Securities Regulation | Permalink | Comments (0)

Thursday, June 25, 2015

The Cuba Corporate Governance Conundrum

It’s always nice to blog and research about a hot topic. Last week I wrote about compliance challenges for those who would like to rush down to do business in Cuba- the topic of this summer’s research. Yesterday, Corporate Counsel Magazine wrote about the FCPA issues; one of my concerns. Earlier this week, I attended a meeting with the Greater Miami Chamber of Commerce and the United States International Trade Commission. Apparently, on December 17th, the very same day that President Obama made his surprise announcement that he wanted to re-open relations with Cuba, Senator Ron Wyden coincidentally sent a request to the USITC asking for an investigation and report on trade with Cuba and an analysis of restrictions. Accordingly, the nonpartisan USITC has been traveling around the country speaking to lawyers and business professionals conducting fact-finding meetings, in order to prepare a report that will be issued to the public in September 2015. Tomorrow the Miami Finance Forum is holding an event titled the New Cuba Revolution.

This will be my third and final post on business and Cuba and in this post I will discuss the focus of my second potential law review article topic. My working thesis is as follows: As relations between the United States and Cuba thaw, American businesses have begun exploring opportunities on the island. Cuba, however, remains a communist nation with a human rights record criticized by exiles, NGOs, and even members of the United States Congress. The EU has taken a "common position" on Cuba stating that the objective of the European Union in its relations with Cuba is to encourage a process of transition to a pluralist democracy, require a respect for human rights and fundamental freedoms, as well as sustainable recovery and improvement in the living standards of the Cuban people." Individual EU member states are free to conduct business with Cuba and many European companies have joined Canadian firms in investing through joint ventures and other state-sanctioned vehicles. This Article will examine whether the US should follow the EU's model in trying to spur reform or whether allowing American firms to do business in Cuba without human rights concessions will in fact perpetuate the status quo.

As I discussed in last week’s blog post, one reason that the U.S. is unlikely to lift the embargo is the nearly 7 billion in claims for confiscated US property. Another reason is Cuba’s human rights record. For example, the island is notorious for violations of rights to freedom of press, association, assembly, and imprisonment of political protesters. The Cuban government continues to control all media limiting the access to information on the Internet due to content-based restrictions and technical limitations. Independent journalists are systematically subjected to harassment, intimidation, and detention for reporting information that was not sanctioned by the state apparatus. My colleague Jason Poblete writes often and critically about the Obama administration’s rapprochement with Cuba. (I highly recommend him for legal advice about Cuba by the way).

Depending on whom you talk to the embargo will be lifted next year, in five year or in ten years. Personally, I don't know that the EU Common Position has been particularly effective in pressuring the Castro brothers to make human rights reforms. I don’t think the U.S. government will be any more successful either. The embargo is Exhibit A.

Most of my academic research thus far has been on what drives corporations to act in the absence of legal obligations vis a vis human rights. With that in mind, I plan to examine a few options related to Cuba. First, I am researching the effect of bilateral investment treaties. A bilateral investment treaty is an "agreement between two countries for the reciprocal encouragement, promotion and protection of investments in each other's territories by companies based in either country.” These typically grant significant rights to foreign investors, provide safeguards to investments against foreign governments, and allow foreign investors to have investment disputes adjudicated outside of the country, which will be critical for those investing in Cuba. The problem is that these BITS rarely have human rights conditions. Accordingly, some scholars have recommended that they require adherence to the Universal Declaration of Human Rights, the United Nations International Covenant on Civil and Political Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the United Nations Convention Against Corruption, the and the Rio Declaration on Environment and Development. I would also recommend reference to the UN Guiding Principles on Business and Human Rights and the OECD Guidance.

Another option is to condition any renewal of a development bank such as the US’s Ex-Im Bank on requiring human rights impact assessments. The Ex-Im bank is the official export credit agency of the US. It’s used when private sector lenders are unable or unwilling to provide financing to companies entering politically or commercially risky countries. Its charter is set to expire on June 30th although its supporters claim that it financed billions in exports, which supported 200 thousand jobs last year. Opponents claim that it financed exports in countries with abysmal human rights records and/or that it supports corporate welfare. I propose that Ex-Im and other lenders follow the lead of many European financers that require human rights disclosures. I (naively?) believe labor may be the only human right remotely and partially in the control of US companies operating in Cuba in the future.

I have some other ideas but those will have to wait for the upcoming article. In the meantime, if you have some thoughts or critiques of these early ideas, please comment below or send me an email at mnarine@stu.edu. I’m off to Guatemala on Saturday for a week with a group of academics studying business and human rights (another research topic for this summer). We will be exploring climate change, the extractive industries, maquiladoras, corporate social responsibility, and the effects on the rights of indigenous peoples. You can be sure I will be writing about that in a future post.

 

June 25, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Law Reviews, Legislation, Marcia Narine, Research, Travel | Permalink | Comments (0)

Thursday, June 18, 2015

The Cuba Conundrum Part II- Compliance Challenges for US Companies

Last week I posted the first of three posts regarding doing business in Cuba. In my initial post I discussed some concerns that observers have regarding Cuba’s readiness for investors, the lack of infrastructure, and the rule of law issues, particularly as it relates to Cuba’s respect for contracts and debts. Indeed today, Congress heard testimony on the future of property rights in Cuba and the claims for US parties who have had billions in property confiscated by the Castro government- a sticking point for lifting the embargo. (In 1959, Americans and US businesses owned or controlled an estimated 75-80% of Cuban land and resources). Clearly there is quite a bit to be done before US businesses can rush back in, even if the embargo were lifted tomorrow. This evening, PBS speculated about what life would be like post-embargo for both countries. Today I will briefly discuss the Cuban legal system and then focus the potential compliance and ethical challenges for companies considering doing business on the island.

Cuba, like many countries, does not have a jury system. Cuba’s court system has a number of levels but they have both professional judges with legal training, and non-professional judges who are lay people nominated by trade unions and others. Cubans have compulsory service to the country, including military service for males. Many law graduates serve part of their compulsory service as judges (or prosecutors) and then step down when they are able. The lay judges serve for five years and receive a full month off from their employer to serve at full pay. Although there is a commercial court, only businesses may litigate there and are then they are at the mercy of the lay judges, who have equal power to the professional jurists. This lay judge system exists even at the appellate level. Most lawyers and law firms are controlled by the Cuban government, unless they work for a non agcricultural cooperative. More important, although I have received differing opinions from counsel, it is possible that hiring and paying a local lawyer there could violate US law related to doing business in Cuba. Notwithstanding these obstacles, many companies are trying to get an OFAC license to do business in Cuba right away or are planning for the eventual life of the embargo. In my view, getting there is the easy part. The hard part will be complying with US law, not because Cuba is in a nascent state of legal and economic development, but because of the sheer complexity of doing business with a foreign government.

The first challenge that immediately comes to mind is compliance with the Foreign Corrupt Practices Act, which makes it illegal for a person or company to make “corrupt payments” or provide “anything of value” to a foreign official in order to obtain or retain business. Since almost everything is a state-owned enterprise or a joint venture with a state owned enterprise, US firms take a real risk entering into contracts or trying to get permits. There is no de minimis exception and facilitation payments- otherwise known as grease payments to speed things along- while customary in many countries- are illegal too. Legal fees and fines for FCPA violations are prohibitively expensive, and those companies doing business in Cuba will surely be targets.

Another concern for publicly-traded US companies is compliance with the Sarbanes-Oxley and Dodd-Frank whistleblower rules. Unless the law changes, most US companies will have to follow the model of Canadian and EU companies and enter into joint ventures or some contractual relationship with the Cuban government or a Cuban company (which may be controlled by the government). Most US employees are afraid to report on their own private employers in the US. How comfortable will a Cuban employee be using a hotline or some other mechanism to report wrongdoing when his employer is in some measure controlled by or affiliated with the Cuban government? As I will discuss next week, the biggest criticism of Cuba is its human rights record related to those who dissent. I have personally dealt with the challenge establishing and working with hotlines in China and in other countries where speaking out and reporting wrongdoing is not the cultural norm. I can imagine that in Cuba this could be a herculean task.

The last concern I will raise in this post relates to compliance with a company’s own code of conduct. If a company has a supplier code of conduct that mirrors its own, and those codes discuss freedom of association and workers’ rights that may be out of step with the Cuban law or culture, should the US firm conform to local rules? Even if that is legal, is it ethical? Google's code is famous for its “don’t be evil”credo and it has received criticism in the past from NGOs who question how it can do business in China. But Google was in Cuba last week testing the waters. Perhaps if Google is able to broaden access to the internet and the outside world, this will be a huge step for Cubans. (Of note, Cubans do not see the same TV as the tourists in their hotels and there are no TV commercials or billboards for advertisements).

There are a number of other compliance and ethics challenges but I will save that for my law review article. Next week’s post will deal with the role of foreign direct investment in spurring human rights reform or perpetuating the status quo in Cuba.

June 18, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Legislation, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Tuesday, June 16, 2015

Polls and the Dumbification of America: Energy Policy & Beyond

Public opinion polls often make news, but they don't necessarily improve discourse or policy decisions.  This is true in business and politics, at least where the polls are created primarily for news purposes. Not all polls are bad, of course, and groups like Pew and some others can offer useful starting points for policy discussions. Still we should be skeptical of public opinion polls. 

A new poll released today provides a good example of how unhelpful polls can be. Robert Morris University (RMU) today issued a press release (about a new poll) that says Pennsylvanians "expressed both overwhelming support and strong environmental misgivings, about" hydraulic fracturing (fracking). This framing of the poll does not seem to reveal any inherent inconsistencies. It would be entirely reasonable for people to recognize the potential value fracking for oil and gas can have, while at the same time being worried about the environmental risks that come with fracking (or any other industrial process).  

In fact, I have argued that this is the proper way to consider risks and benefits to help ensure oil and gas operations are as environmentally sound as possible to ensure sustainable development. Unfortunately, the poll indicates some internal inconsistencies among those polled that suggest people don't really understand either: (1) the questions or (2) how the world works.   Here are some of the results of the poll: 

  • Support fracking: 57.1% (PA) & 56% (U.S.)
  • Think fracking will help the U.S. economy: 74.2% (PA) & 73% (U.S.)
  • Say fracking will move U.S. toward Energy Independence: 69.9% (PA)

These numbers suggest reasonable-to-strong support for the drilling process. Okay so far, but here's the kicker: 60.1%  strongly or somewhat agree with this: “The environmental impact of gas drilling outweighs any resulting reduced energy costs or energy independence.

How can one agree with this statement at all and still support fracking, as it at appears at least 17% of those polled did?1 If you think that the environmental impacts outweigh "any" of those benefits, why would you support any drilling process? I'm confused. (Editor's note: a reader suggested that perhaps some people think that jobs or royalties might make the environmental impacts worth it, but not lower energy costs or energy independence.  Maybe, though I find that hard to believe, and if true, it doesn't make me feel any better about what the poll suggests.) 

Again, it makes sense to me that someone might support the drilling process, and still express reservations or concerns about it. It just doesn't make sense to me that, in the same poll, presumably within a few moments of answering the question about supporting fracking, that someone would turn around and say, essentially, "I support fracking, but some key potential benefits don't outweigh the risks."  This is seems like a John Kerry moment for those being polled: "I was for it, before I was against it." 

As I have noted before, there are studies that suggest polls like this make us dumb. As a Joe Carter article explained about a 2011 public opinion poll relating to President Obama's performance: 

On the vast majority of the items tested (8 of 11) the public expresses disapproval of Obama’s job performance and yet the overall result implies that they approve of the job he is doing. How does that make any sense? It doesn’t. By the alchemical process of applied statistics, the pollsters have turned our disapproval into approval. Unfortunately, such distortions are a common failing of opinion polls.

I'm not sure if the fracking poll makes us dumber, or just shows we tend to be dumb. Probably both, and it's not very encouraging. As Mr. Carter explains, public opinion polls "are nothing more than public perceptions produced by pollsters, mere aggregations of our ignorance. And we all become dumber by treating them seriously." The results of the RMU poll suggest he's right.  

1 From the release, the most sensible explanation of the data presented is as follows: if 60.1% of people agreed to some degree with the statement, then 39.9% did not agree. Those 39.9% of people are presumably pro-fracking relative to the 60.1%. At the same time, 57.1% of those polled stated that they support fracking, and 57.1% minus 39.9% is 17.2%, suggesting that 17.2% of of those polled said they support fracking but don't think the risks outweigh the benefits.  Admittedly, the poll answers would not likely break down this cleanly, but in that case the data makes even less sense.  

 

June 16, 2015 in Current Affairs, Joshua P. Fershee, Law and Economics, Legislation | Permalink | Comments (1)

Saturday, June 13, 2015

The Pope and the Politics of Climate Change

Apparently, there is a split of opinion on what some people believe God wants the world to do about the climate. On one side, Senator Jim Inhofe does not believe the man is responsible for climate change. He has publicly stated that, “[T]he Genesis 8:22 that I use in there is that ‘as long as the earth remains there will be seed time and harvest, cold and heat, winter and summer, day and night.’ My point is, God’s still up there. The arrogance of people to think that we, human beings, would be able to change what He is doing in the climate is to me outrageous.” When I mentioned this quote to a European audience at a conference on climate change and business in 2013, there was an audible gasp. He also wrote a 2012 book, The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future. His position did not change after the 2013 Intergovernmental Commission on Climate Change Report definitively declared that climate change was largely man made. This would all be irrelevant if Senator Inhofe wasn’t the Chair of the Senate committee that oversees the environment. Inhofe was the keynote speaker last week at the Heartland Institute’s annual conference on climate change (watch the video clip in the article in which the Catholic Church and the Pope get special mention).

On the other side of the debate, Pope Francis will enter the fray with a new Encyclical on climate change next week, and it's expected to have some influence on upcoming UN talks on the subject. Many US politicians argue that the Pope should "mind his own business" and stick to issues that affect the poor and the faithful around the world. Climate change is actually directly related to the ability of poor people to gain access to water, grow crops, and avoid natural disasters, and thus I would argue that this is the Pope’s “business.” It’s also Senator Inhofe’s business as he's allegedly received over $1.7 million from the oil and gas industry over his career.

Although oil and gas companies have contributed to Senator Inhofe, a number of them have already tried to be proactive in their CSR reports and other marketing efforts. The tide may be turning against climate change deniers. Norway’s $900 billion sovereign wealth fund just divested from 122 fossil fuel companies ($945 million), and that fund was largely financed by Norway’s oil wealth. In any event, I look forward to reading the Pope’s comments and seeing how foreign governments and US businesses respond to it.

 

June 13, 2015 in Corporate Personality, Corporations, CSR, Current Affairs, Marcia Narine, Religion, Science | Permalink | Comments (0)

Thursday, June 11, 2015

The Cuba Conundrum- How Will US Companies Fare Doing Business in a Communist Country?- Part I

Cuba has been in the news a lot lately. I’ve just returned from ten days in Havana so I could see it first hand both as a person who writes on business and human rights and as an attorney who consults occasionally on corporate issues. The first part of the trip was with the International Law Section of the Florida Bar. The second was with a group of art lovers. I plan to write two or three blog posts about the prospects of doing business in Cuba if and when the embargo is lifted. Because I do some consulting work, I want to make clear that these views are my own as an academic and should not be attributed to anyone else.

In this post I will just briefly list some basic facts about Cuba and foreign investment. Next week I will talk a bit more about investment, introduce the Cuban legal system, and talk about some of the business and compliance challenges. That's the subject of my research this summer. The following week I will address human rights in Cuba and how various governments and businesses are addressing those issues, the subject of another article I am working on. 

Some Cuba basics:

  • The island has 11 million people
  • The average monthly wage is $25-45 per month
  • The government is just starting to develop a comprehensive tax code
  • The government is now allowing the sale of private property but the concept of mortgages is undeveloped
  • 86% of people work for the government in some form but the government is now allowing “self employment” and cooperatives (small private businesses such as agricultural farms, salons, and restaurants)
  • 5% of population has access to internet or a cell phone
  • The government is seeking foreign investment- except in health, education, or military sectors
  • Cuba is not an OECD member state. It does sit on the UN Human Rights Council
  • The GDP is 62.7 billion
  • The literacy rate is 99.8% and the country scores high on the human development index
  • The country is in the middle of the pack in terms of the Corruption Perception Index, which measures bribery
  • There are now over 60 bilateral investment treaties in place but they are not all in force
  • Most lawyers and law firms work for the Cuban government

There are now three possible methods of international investment:

1)  International Economic Association Contract (AEI). 49% of the companies in the 2015 registry are AEIs. This is a contract that does not create a new company and there is no sharing of profits. Certain changes of parties require government approval;

2) Full Foreign Capital Company. This is almost never approved but the foreign company has total control of the enterprise; and

3)  Joint venture with the Cuban government. These are 45% of the companies in the 2015 registry. Often the hotels and other EU businesses are JVs with the government.

In the preamble to Cuba’s 2014 Laws on Foreign Investment (LFI), the Cuban National Assembly makes clear that the underlying basis for the law is: “Cuba's need to provide greater incentives to attract foreign capital, new technologies, and know-how to increase domestic production and better position Cuba to export to international markets.”  The new law halves the profits tax from 30 to 15% and exempts investors from paying it for eight years. But the new law also appears to withhold many of the tax benefits from companies that are 100% foreign-owned.

Although Cuba changed its law last year, many people believe that Cuba is not ready for investment. Clearly rule of law concerns and the lack of infrastructure are real barriers. I’ll give more of my opinion on compliance and investment challenges and opportunities next week.

 

 

June 11, 2015 in Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Legislation, Marcia Narine, Travel | Permalink | Comments (1)

Wednesday, June 10, 2015

Random Thoughts on the Beneficiaries of Corporate Board Decision Making

Last week, I attended the National Business Law Scholars Conference at Seton Hall University School of Law in Newark, NJ.  It was a great conference, featuring (among others) BLPB co-blogger Josh Fershee (who presented a paper on the business judgment rule and moderated a panel on business entity design) and BLPB guest blogger Todd Haugh (who presented a paper on Sarbanes-Oxley and over criminalization).  I presented a paper on curation in crowdfunding intermediation and moderated a panel on insider trading.  It was a full two days of business law immersion.

The keynote lunch speaker the second day of the conference was Kent Greenfield.  He compellingly argued for the promotion of corporate personhood, following up on comments he has made elsewhere (including here and here) in recent years.  In his remarks, he causally mentioned B corporations and social enterprise more generally.  I want to pick up on that thread to make a limited point here that follows up somewhat on my post on shareholder primacy and wealth maximization from last week.

Continue reading

June 10, 2015 in Business Associations, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joan Heminway, Litigation, Social Enterprise | Permalink | Comments (6)

Friday, June 5, 2015

Evidence that Corporate Law Matters (!) (?)

This week, while preparing for and attending the National Business Law Scholars Conference, I have had to deal with a Tennessee corporate law "brushfire" of sorts generated by a Nashville Business Journal (NBJarticle published earlier this week.  The article, written by a Nashville lawyer, took a somewhat alarmist--and substantively inaccurate--view of a recent addition to the Tennessee Business Corporation Act drafted by the Business Entity Study Committee (BESC) of the Tennessee Bar Association, of which I am a member (and about which I have written here in the past, including here, here, and here).  Specifically, the author asserted that Tennessee's adoption of the text of Model Business Corporation Act Section 14.09 creates new liability for Tennessee corporate directors--especially directors of insolvent Tennessee corporations.  Somewhat predictably, calls and emails from directors, executives, and the Tennessee Secretary of State's office (which, itself, received many calls) ensued.

By design, and (we believe) by effect, the statutory section at issue clarifies the duties of directors of dissolved Tennessee corporations and establishes a safe harbor from liability.  Accordingly, the drafting team from the BESC (me included) believed we had to jump in and correct the mischaracterizations in the article, which the author apparently was unwilling to retract or self-correct.  The NBJ, greatly to its credit, understood our concerns and published a rebuttal from the BESC chair, which the BESC collaborated in drafting and co-signed.  In addition, the Chattanooga Times Free Press published an article that outlines the debate (in which the BESC chair and I am quoted).

So, folks do pay attention to corporate law--and they think it matters! Unfortunately, sometimes, they get it wrong. This leads to a number of lessons . . . .  Apropos of that thought, it's important that a lawyer measure twice and cut once, especially when writing a critical exposé intended and destined to receive attention from an important audience--one personally affected by the contents of the exposé.  Moreover, the need for experienced corporate legal counsel--lawyers steeped in the structure and function of corporate law--continues to be important in the drafting of, and public education regarding, complex corporate legal rules.

June 5, 2015 in Business Associations, Corporate Governance, Corporations, Current Affairs, Joan Heminway, Legislation | Permalink | Comments (0)

Friday, May 29, 2015

The Economics of the TV Show Nashville

Earlier this month, The Tennessean reported that the state of Tennessee approved $8 million of incentives for the fourth season of ABC's show Nashville. The city of Nashville also plans to chip in about $500,000.  According to the article, the "show spends about $20 million each season on local labor."

Economic incentives seem to be increasingly common, but this arrangement is interesting for a few reasons. First, this is an arrangement that not only brings jobs to town, but also brings publicity and tourists. Second, the lion share of the incentives appear to be coming from the state, but the lion share of the benefits seem to be directed at the city of Nashville - causing some in other parts of the state to complain

Some businesses, like the Bluebird Cafe, are featured regularly on the show, and I wonder whether they pay for that privilege. I don't think they do, but have not been able to find out for sure. 

My wife and I watch the show, if only because we like seeing our city on TV. Nashville is a wonderful place, has been called an "it city" and the "south's red hot town." Even the New York Times did a glowing article on the city Nashville during the tenure of ABC's show. The job market and real estate are both booming in Nashville.

I don't know how much of this success, if any, is due to the show about Nashville, but things do seem to be going well here...except for the increasing traffic. Product placement has been on the rise in media for some time now; perhaps we will see more city, state, and business placement over time.  

May 29, 2015 in Current Affairs, Haskell Murray, Jobs, Television | Permalink | Comments (2)

Wednesday, May 27, 2015

The Future of Respectability for Lawyers (Part 4)

In my first post of this series, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession and potential waning influence.  I suggested that business leaders may be the driving force that ends up saving the legal profession.  In my second and third posts, I discussed the current state of in-house attorneys and law firms.  Today is my birthday, so it is a great present to be able to share my view on the future of the legal profession, and how shifts may occur. 

Eventually, corporations can (and most probably will, in my view) evolve their thinking about “legal strategies” (as Professors Bird and Orozco suggest) to the point that lawyers are essential resources in developing sophisticated corporate planning. In order for this evolution to take place throughout the business world to any great degree, it will take time, experience, and success with the legal strategy concepts.  In other words, lawyers must become valuable not only for their legal skills, but also because they have inherent business talent resulting from advanced training. 

 

If this conversion is to occur, companies will initially be forced to buy senior legal talent they will need to begin this transformation.  This means attorneys with specific experience, usually from private firms or perhaps governmental entities, should begin moving towards corporate employment.  Companies will likely change their legal strategies from a rigid general counsel structure to include “Chief Legal Strategists,” as Bird and Orozco have posited, in order to accommodate this movement.  If accepted by business leaders, this should increase in-house counsels’ opportunities for engagement with the business units.  If so, corporate budgets likely will be increased to entice very talented firm lawyers to transition more regularly to companies. 

 

Because of their skill and expertise, and with the increasing trust of corporate leaders, these very same senior lawyers can then begin the legacy process of hiring established mid-career lawyers and use their growing corporate influence to replicate the success of their own tenure. If corporations begin to fill their ranks with qualified and active counsel, business leaders will be more able to recognize real legal talent, both in hiring and promotion.* Eventually, this environment may allow newly minted graduates to be directly hired into the company. Because these new hires should  have mentorship and support from more senior lawyers, their chances for individual acceptance and success in the corporate setting should increase.  As this occurs, corporations may be able to build legal departments that rival firms in social and economic attractiveness, as well as career opportunity.**

 

Assuming companies increase their endorsement of legal strategy, with the attendant hiring of more attorneys in-house, difficulties in communication between corporations and their outside law firms should diminish substantially.  With in-house attorneys having the confidence of their senior leadership and the knowledge of their businesses, they can foster enhanced dialogue with external counsel that might not have been possible in the past.  This can alleviate corporate trust concerns about law firm billing and perceived value (since in-house lawyers can act as an interpretive engine), allowing firms closer ties with their clients through greater understanding.  This in turn may actually increase work for the private law firms that survive the initial diminishment of legal work and lead to more private practice opportunities for new graduates, along with some firm positions that open due to lawyers moving to corporations.

 

As the legal landscape changes, the legal profession will, with the help of business leaders, become a broader, more inclusive, and more “respectable” profession—one that becomes pervasive and accepted throughout the business world, and not as insulated in private firms.  This familiarity will not breed contempt, but respect and appreciation, and it should benefit all. When this will happen, I cannot tell you.  But sooner, rather than later, it is bound to happen.

 

So, what can law schools and current lawyers do to help in this transition?  Well, I have some thoughts on that as well.  More here anon, same “Bat-Channel”...

 

--Marcos Antonio Mendoza

 

 

 

*Whether the business leaders will be able to hone and execute on this increased ability to recognize and incorporate this legal talent, no one can say for sure.  It will be a necessary factor in the success of this transformation of the legal environment, and one that should occur.  If not, the corporations will simply go through endless cycles of in-house counsel that will likely be underutilized.   

 

**I recognize that many companies have already built large legal divisions, and some companies have extremely talented lawyers.  But, for most businesses, in-house departments have yet to rival the talent, the opportunities for skill building, the ability to train, and the financial rewards, that most private law firms have.

May 27, 2015 in Corporations, Current Affairs | Permalink | Comments (0)

Friday, May 22, 2015

The outsourcing of human rights enforcement to corporations- EU-style

I haven’t met Hollywood producer Edward Zwick, who brought the movie and the concept of Blood Diamonds to the world’s attention, but I have had the honor of meeting with medical rock star, and Nobel Prize nominee Dr. Denis Mukwege. Both Zwick and Mukwege had joined numerous NGOs in advocating for a mandatory conflict minerals law in the EU. I met the doctor when I visited Democratic Republic of Congo in 2011 on a fact finding trip for a nonprofit that focuses on maternal and infant health and mortality. Since Mukwege works with mass rape victims, my colleague and I were delighted to have dinner with him to discuss the nonprofit. I also wanted to get his reaction to the Dodd-Frank conflict minerals regulation, which was not yet in effect. I don’t remember him having as strong an opinion on the law as he does now, but I do remember that he adamantly wanted the US to do something to stop the bloodshed that he saw first hand every day.

The success of the Dodd-Frank law is debatable in terms of stemming the mass rape, use of child slaves, and violence against innocent civilians. Indeed, earlier this month, over 100 villagers were raped by armed militia. A 2014 Human Rights Watch report confirms that both rebels and the Congolese military continue to use rape as a weapon of war to deal with ethnic tensions. I know this issue well having co-authored a study on the use of sexual and gender-based violence in DRC with a medical anthropologist. With all due respect to Dr. Mukwege (who clearly know the situation better than I), that research on the causes of rape, but more important, my decade of experience in the supply chain industry have lead me to believe that the US Dodd-Frank law was misguided. The law aims to stem the violence by having US issuers perform due diligence on their supply chains. I have spoken to a number of companies that have told me that  it would have been easier for the US to just ban the use of minerals from Congo because the compliance challenges are too high. Thus it was no surprise that last year’s SEC filings were generally vague and uninformative. It remains to be seen whether the filings due in a few weeks will be any better.

To me Dodd-Frank is a convenient way for the US government to outsource human rights enforcement to multinational corporations. Due diligence and clean supply chains are good, necessary, and in my view nonnegotiable, but they are not nearly enough to deal with the horrors in Congo. Nonetheless, in a surprise move, the EU Parliament voted this week to go even farther than the US law. According to the Parliament’s press release:

Parliament voted by 400 votes to 285, with 7 abstentions, to overturn the Commission's proposal as well as the one adopted by the international trade committee and requested mandatory compliance for "all Union importers" sourcing in conflict areas. In addition, "downstream" companies, that is, the 880, 000 potentially affected EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products, will be obliged to provide information on the steps they take to identify and address risks in their supply chains for the minerals and metals concerned… The regulation applies to all conflict-affected high risk areas in the world, of which the Democratic Republic of Congo and the Great Lakes area are the most obvious example. The draft law defines 'conflict-affected and high-risk areas' as those in a state of armed conflict, with widespread violence, the collapse of civil infrastructure, fragile post-conflict areas and areas of weak or non-existent governance and security, characterised by "widespread and systematic violations of human rights".

(emphasis mine). I hope this proposed law works for the sake of the Congolese and all of those who live in conflict zones around the world. The EU member states have to sign off on it, so who knows what the final law will look like. Some criticize the law because the list of “conflict-affected areas” is constantly changing. Although that’s true, I don’t think that criticism should affect passage of the law. The bigger flaw in my view is that there are a number of natural resources from conflict-affected zones- palm oil comes to mind- that this regulation does not address. This law, like Dodd-Frank does both too much and not enough. In an upcoming book chapter, I propose that governments use procurement and other incentives and penalties related to executive compensation and clawbacks to drive human rights due diligence and third-party audits (sorry, I'm prohibited from posting a link to it but it's forthcoming from Cambridge University Press).

In the meantime, I will wait for the DC Circuit to rule on constitutional aspects of the Dodd-Frank bill. I will also be revising my most recent law review article on the defects of the disclosure regime to address the EU development. I will post the article next week from Havana, Cuba, where I will spend 10 days learning about the Cuban legal system and culture. Given my scholarship and the recent warming of relations between the US and Cuba, I may sneak a little research in as well, and in two weeks I will post my impressions on the challenges and opportunities that US companies will face in the Cuban market once the embargo is lifted. Adios!

May 22, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, International Business, Legislation, Marcia Narine, Securities Regulation, Travel | Permalink | Comments (0)

The Future of Respectability for Lawyers (Part 3)

In my first post of this series, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession and potential waning influence.  I suggested that business leaders may be the driving force that ends up saving the legal profession, and its "respectability".  In my second post, I discussed the current state of in-house attorneys.  In this post, I would like to look at the current state of private firms as it relates to the in-house attorney discussion.  My view is that the competitive marketplace reactions of a growing number of firms are partially contributing to the dimming of their own future prospects.  Firms will need to evolve rather quickly; how they can, I’ll discuss in a future post.  However, because of the firms’ relatively weaker position compared to corporations, many firms are in very precarious circumstances.

In this interim period between past firm dominance and the future corporate acceptance of Professors Bird and Orozco’s “corporate legal strategy” (in which attorneys are fully accepted and integrated as part of business teams in corporations, resulting in greater legal opportunities), firms are struggling.   From my discussions with attorneys, I have learned that many private firms are beginning to intentionally screen out attorneys that even appear to be on a path to in-house corporate life in the future.  They feel less inclined to provide expensive training for someone that has (in their perception) little intention of making a career of private practice, especially their private practice.  This diminishes the number of opportunities for new lawyers.  Firms have a harder time training the new lawyers they have, because much of the basic business work is now taken up by in-house counsel.  Corporations, for their part, have exacerbated the lack of work for new associates by using their increased influence and wealth to insist that only the most senior firm attorneys handle their corporate work—perhaps shortsightedly robbing firms of talent continuity that has historically benefitted the corporations in the end.  Expensive summer clerkships and recruiting drives have all but disappeared. 

Additionally, firms have become focused on hiring attorneys with portable business for the “quick hit” of income and are less concerned about hiring new law graduates.  This cannibalization of mature legal talent has always occurred, but it now seems to be a much greater part of firm business plans. It has resulted in some lawyers commoditizing themselves, rather than some of their clients doing so, perhaps further weakening the profession's "respectability".  Of course, because the legal industry is currently well staffed, this “horse-trading” approach will work for the present.  However, it will eventually be unsustainable—as lawyers retire, there will be fewer talented lawyers to replace them or have the capacity to buy out retiring partners’ percentages.  Of those, even fewer still will invite the rigors of private practice if the rewards diminish.

I, for one, am not a complete believer in the “end of Big Law”, or any size "Law", for that matter.  (The late Professor Larry Ribstein discussed the subject here--disappointingly, he only briefly touched on the in-house counsel effect, and instead, focused on the firms themselves.)  However, I do believe in the necessary evolution of “All Law”—where the legal industry (firm, in-house, and academia) evolves to a point of natural and mutual support which benefits society as a whole (creating greater “respectability” for all lawyers)—and businesses will initially play a dominant role.  How will businesses do so?  More soon in a post coming your way!

--Marcos Antonio Mendoza

 

May 22, 2015 in Compensation, Corporations, Current Affairs, Jobs | Permalink | Comments (9)

Thursday, May 21, 2015

Call for Papers: Business and Human Rights


Business and Human Rights Junior Scholars Conference
                          
The Rutgers Center for Corporate Governance, The University of Washington School of Law, and the Business and Human Rights Journal (Cambridge University Press) announce the first Business and Human Rights Junior Scholars Conference, to be held September 18, 2015 at the Rutgers School of Law – Newark in Newark, New Jersey, just outside of New York City.  The Conference will pair approximately ten junior scholars writing at the intersection of business and human rights issues with senior scholars in the field.  Junior scholars will have an opportunity to present their papers and receive feedback from senior scholars.   Upon request, participants’ papers may be considered for publication in the Business and Human Rights Journal (BHRJ), published by Cambridge University Press.
 
All junior scholars will be tenure-track professors who are either untenured or have been tenured in the past three years.  The Conference is interdisciplinary; scholars from all disciplines are invited to apply, including law, business, human rights, and global affairs.  The papers must be unpublished at the time of presentation.
 
To apply, please submit an abstract of no more than 250 words to msantoro@business.rutgers.edu andarama@uw.edu with the subject line Business & Human Rights Conference Proposal.  Please include your name, affiliation, contact information, and curriculum vitae. 
 
The deadline for submission is June 15, 2015.  Scholars whose submissions are selected for the symposium will be notified no later than July 15, 2015. We encourage early submissions, as selections will be made on a rolling basis.
  
About the BHRJ
 
The BHRJ provides an authoritative platform for scholarly debate on all issues concerning the intersection of business and human rights in an open, critical and interdisciplinary manner. It seeks to advance the academic discussion on business and human rights as well as promote concern for human rights in business practice.
 
BHRJ strives for the broadest possible scope, authorship and readership. Its scope encompasses interface of any type of business enterprise with human rights, environmental rights, labour rights and the collective rights of vulnerable groups. The Editors welcome theoretical, empirical and policy / reform-oriented perspectives and encourage submissions from academics and practitioners in all global regions and all relevant disciplines.
 
A dialogue beyond academia is fostered as peer-reviewed articles are published alongside shorter ‘Developments in the Field’ items that include policy, legal and regulatory developments, as well as case studies and insight pieces.
 
 

May 21, 2015 in Call for Papers, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Marcia Narine | Permalink | Comments (0)

Tuesday, May 19, 2015

The Future of Respectability for Lawyers (Part 2)

In my last post, I asked whether business leaders had unknowingly provided the legal industry with a long-term solution to declining interest in the legal profession (based on the drop in applications to law school) and potential waning influence.  I suggested that business leaders (inadvertently or otherwise) may be the driving force that ends up saving the legal profession.  I would like to take the discussion one step further.

There is no doubt in my mind that, historically, companies rarely did much legal training for the lawyers they hired.  They simply bought talent—usually by offering employment to attorneys with private practice experience that was valuable to the corporation.  Sometimes this worked extremely well, and sometimes it failed miserably.  Why? Business leaders sometimes possess only basic knowledge of what quality legal talent really looks like (after all, they usually are not lawyers themselves).  Moreover, they often have difficulty finding a lawyer who can operate in a corporate environment and have high-level legal skills.  The “a lawyer is a lawyer” mentality still prevails. 

Adding to the difficult situation is that private firm attorneys often view corporate attorneys as those who could not flourish in private practice (for whatever reason—lack of skill, drive, ability, focus, etc.), and they consequently may be perceived at times by their own companies as somewhat suspect (“If they were really good attorneys, wouldn’t they be practicing with a firm?”).  It becomes a Kobayashi Maru-type of character test for such in-house attorneys—virtually, a no-win situation.  They are hired to help, but at times not fully trusted to do so because they are on staff.  Professional respect, and compensation, for in-house attorneys lags behind that for lawyers in private firms.

Corporations are struggling with the concept of attorneys as part of entrepreneurial teams.  Few companies hire law students directly out of law school for the very same reasons that firms are currently limiting their new-hires—lack of return on their dollar.  Lawyers take 5-15 years to build the experience necessary to obtain the “gravitas” needed for a high level of trust, depending on the field.  Many lawyers never achieve this status; they are simply caught in an eddy of repeating activity.  (Perhaps this issue is worthy of a separate post!)

At this juncture, the in-house path remains precarious, and pursued at one’s peril.  At most companies, there is no specified legal track, unlike the well-worn management paths.  Many corporate legal positions are much lower paying than firm jobs, and often of the “J.D. preferred” type of position—helpful to be a lawyer, but not necessary.  Graduating law students usually do not choose this corporate path—it is chosen for them, as they graduate from lower tier law schools, have less than stellar grades, or perhaps due to personal obligations involving location or family.  Perhaps such students never had a great desire to be lawyers, drifting into professional school through lack of other opportunities.   Additionally, inside companies, non-lawyers often feel that their in-house attorneys are a form of threat, and sometimes attempt to undermine them.* Advanced education continues to be viewed, probably irrationally, with some suspicion in the business environment.  Perhaps because the lawyers presently in-house have offered little to benefit the business operations, or because they are just not well understood.

These attitudes appear to be changing.  As the legal environment continues evolve, students may actually enter law school for the specific purpose of being in-house counsel, perhaps even having a specific company or industry in mind prior to taking their first class.  Law schools are well advised to shift their focus to accommodate this new reality.  Law schools that play the game well will again become a dominant option for bright college students.  What does this future look like?  That will be the subject of my next post.  More soon!

 --Marcos Antonio Mendoza 

 

*Interestingly, I have never heard a single MBA joke (has anyone?), but frequently hear lawyer jokes.  However, many millennials report to me that lawyer jokes are no longer de rigueur around them—in other words, people feel sorry for them and the challenges they face!

May 19, 2015 in Corporations, Current Affairs, Law School | Permalink | Comments (10)

Thursday, May 14, 2015

Did a Slave Make Your Product and Do You Care? The California AG Thinks So

Last week, I looked lovingly at a picture of a Starbucks old-fashioned grilled cheese sandwich. It had 580 calories. I thought about getting the sandwich and then reconsidered and made another more “virtuous” choice. These calorie disclosures, while annoying, are effective for people like me. I see the disclosure, make a choice (sometimes the “wrong” one), and move on.

Regular readers of this blog know that I spend a lot of time thinking about human rights from a corporate governance perspective. I thought about that uneaten sandwich as I consulted with a client last week about the California Transparency in Supply Chains Act. The law went into effect in 2012 and requires retailers, sellers, and manufacturers that exceed $100 million in global revenue that do business in California to publicly disclose the degree to which they verify, audit, and certify their direct suppliers as it relates to human trafficking and slavery. Companies must also disclose whether or not they maintain internal accountability standards, and provide training on the issue in their direct supply chains. The disclosure must appear prominently on a company’s website, but apparently many companies, undeterred by the threat of injunctive action by the state Attorney General, have failed to comply. In April, the California Department of Justice sent letters to a number of companies stating in part: 

If your company has posted the required disclosures on its Internet website or, alternatively, takes the position that it is not required to comply with the Act, we request that – within 30 days of this letter’s date – you complete the form accessible at http://oag.ca.gov/sb657 and provide this office with (1) the web links (URLs) to both your company’s Transparency in Supply Chains Act disclosures and its homepage containing a link to the disclosures; and/or (2) information demonstrating your company is not covered by the Act.

There are no financial penalties for noncompliance. Rather, companies can face reputational damage and/or an order from the Attorney General to post something on their websites. A company complies even if that disclosure states that the company does no training, auditing, certification, monitoring or anything else related to human trafficking or slavery. The client I spoke to last week is very specialized and all of its customers are other businesses. Based on their business profiles, those “consumers” are not likely to make purchasing decisions based on human rights due diligence. I will be talking to another client in a few weeks on the California law. That client is business to consumer but its consumers specifically focus on low cost—that’s the competitive advantage for that client. Neither company-- the B2B nor the B2 (cost conscious)C-- is likely to lose significant, if any business merely because they don’t do extensive due diligence on their supply chains. Similarly, Apple, which has done a great job on due diligence for the conflict minerals law will not set records with the sale of the Apple Watch because of its human rights record. I bet that if I walked into an Apple Store and asked how many had seen or heard of Apple’s  state of the art conflict minerals disclosure, the answer would be less than 1% (and that would be high).

People buy products because they want them. The majority of people won’t bother to look for what’s in or behind the product, although that information is readily available through apps or websites. If that information stares the consumer in the face (thanks Starbucks), then the consumer may make a different choice. But that assumes that (1) the consumer cares and (2) there is an equally viable choice.

To be clear, I believe that companies must know what happens with their suppliers, and that there is no excuse for using trafficked or forced labor. But I don’t know that the use of disclosures is the way to go. Some boards will engage in the cost benefit analysis of reputational damage and likelihood of enforcement  vs cost of compliance rather than having a conversation about what kind of company they want to be. Many board members will logically ask themselves, “should we care if our customers don’t care?”

My most recent law review article covers this topic in detail. I’ll post it in the next couple of weeks because I need to revise it to cover the April development on the California law, and the EU’s vote on May 19 on their own version of the conflict minerals law. In the meantime, ignorance is bliss. I’m staying out of Starbucks and any other restaurant that posts calories- at least during the stressful time of grading exams.

May 14, 2015 in Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, International Business, Law Reviews, Marcia Narine, Securities Regulation | Permalink | Comments (3)

Tuesday, May 12, 2015

Sports Law Grading Break: A Little Perspective on Deflategate

I had planned to write a post about Delaware LLCs and who has standing to request judicial dissolution, but that post is going to wait.  I'm knee deep in Sports Law exam grading, and so sports is on my mind.  The big thing going on right now is, of course, Tom Brady's four-game suspension for his apparent participation in having footballs deflated to a psi that was not in compliance with league rules.  

The science on the benefits of deflating footballs is not clear, as noted here.  That, of course, is irrelevant to whether the rules were broken.  Some have argued that the air pressure rules are stupid, especially given that the league not long ago change the rules to allow each team to prepare their own footballs for use on offense. Andy Benoit of SI.com explains

With football being so much about strategy, the more comfortable the ball is for a quarterback and his receivers, the more entertaining the game becomes.

The NFL already agrees with this. Why do you think officials and ball boys go to such lengths to try to keep a football dry during a rainy game? Or, bringing it back to the inflate/deflate issue (or inflate/deflate controversy, since America has decided to be dramatic, if not hysterical, about this), why did the NFL permit quarterbacks to prepare their own balls before games in the first place?

The problem is, the league didn’t go far enough here. It should abolish all parameters regarding the ball’s air. Tom Brady didn’t cheat. Tom Brady’s job is to throw the football. Unfortunately, he had to go too far out of his way to do his job well.

I wouldn't think it would take a lawyer to explain that this reasoning is flawed, but perhaps it does. Even where a rule is stupid, counterproductive, or even obstructionist, it is still a rule. Failing to follow it leads to sanctions.  If a speed limit is too low, it can limit my ability to get to a meeting on time or make it so the FedEx driver can't deliver as many packages in a day.  But if either one of us gets clocked by a police officer's radar going 15 mph over the speed limit, we're going to get a ticket. And it's no defense to say, "But it's making it harder for me to do my job well!" 

Brady, through his agent, has vowed to appeal, as is his right.  Some people seem very concerned with Brady's image, and other have even suggested that the suspension could keep Brady from a future in politics.  Maybe, but given that we live in a country that has re-elected many people who have tarnished their own images while in office, I'm not going to be too concerned about this.  

The NFL, of course, has its own image issues, much of which is self-imposed.  The sanctions against Brady seem reasonable but severe, if acting in a vacuum.  But we don't, and it's hard to to look at other relative punishments for guidance.  The NFL has been aggressive with suspensions in other areas, such as Sean Payton's year-long suspension for BountyGate. Saints fans were certainly not happy with the outcome of the NFL's punishment.

On the other hand, as the Washington Post reported, A lot of people noticed that Tom Brady got twice as long a suspension as Ray Rice’s initial punishment.  The NFL could argue, of course, that Brady broke the league's rules, while Rice was subject to punishment from thecriminal justice system, too.  And they might, if they wanted to remain as tone deaf on domestic violence as they have been in the past.  

Why the NFL has this inflation rule, though, is a fair question. As Andy Benoit noted in the article linked above, why not just let each team provide footballs with whatever inflation they want?  If it is easier to catch a deflated ball, then it's also easier to intercept.  The league knows that offense sells tickets, so why not provide an advantage to all teams, if there is one to be had?  Seems like a win-win option, and it reduces the number of things NFL officials have to worry about enforcing. Less regulation of regulations that are hard to enforce and have dubious value to the integrity of game helps everyone involved, and it reduces people trying to game the system through largely irrelevant technical rule enforcement. (I'm looking at you, pine tar.)

Still, a rule is a rule, and if you get caught knowingly breaking a rule, there will (and should be) sanctions.  And let's be honest: The New England Patriots, with Bill Belichick and Tom Brady know what they are doing better than most.  They are arguably the most successful coach and quarterback combination in NFL history, and they are very, very good at what they do. They only do things they think will help them win, and if they do something risky, there's a good chance they're correct that there's an advantage to be had.  

Respect them for their skills, and hold them accountable for actions. And let's keep it all in perspective. It's still just football, and this time, no one got physically hurt.   

May 12, 2015 in Current Affairs, Games, Joshua P. Fershee, Sports, Teaching | Permalink | Comments (1)

Thursday, May 7, 2015

Is a national bar exam on the way?

I currently teach two classes that are on the bar exam—civil procedure and business associations. Many of my BA students are terrified of numbers and don’t know much about business and therefore likely would not take the course if it were not required. I know this because they admit that they take certain classes only because they are required or because they will be tested on the bar, and not because they genuinely have an interest in learning the subject. I went to Harvard for law school and although I had an outstanding education, I learned almost nothing that helped me for the NY, NJ, or FL bars (hopefully that has changed). I owe all of my bar passages to bar review courses so naturally (naively?), I think that almost any student can learn everything they need to know for the bar in a few short months assuming that they had some basic foundation in law school and have good study habits.

The pressure to ensure that my students pass the bar exam definitely informs the way I teach. Though there has only been one round of civil procedure testing on the multistate, this semester I found myself ensuring that I covered certain areas and glossed over others, even though I know having litigated for 20 years, that some subjects are more relevant in real life. Similarly, in BA, I had to make sure that I covered what will be on the Florida bar, while still ensuring that my students understand Delaware law and some basic finance and accounting, which isn't on the Florida bar, but which they need to know.

New York recently announced that it would join other states in adopting the uniform bar examination effective July 2016. The other states using the UBE include Alabama, Alaska, Arizona, Colorado, Idaho, Kansas, Minnesota, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Utah, Washington, and Wyoming. New York, as the largest adopter, hopes to inspire other states to do the same.

NY students would still have to take online courses and pass a 50-question test regarding specific NY laws, but the students would take the MBE, and MPT or multistate performance test. According to the National Conference of Bar Examiners, the two 90-minute MPT exercises are “designed to test an examinee’s ability to use fundamental lawyering skills in a realistic situation and complete a task that a beginning lawyer should be able to accomplish. The MPT is not a test of substantive knowledge. Rather, it is designed to evaluate certain fundamental skills lawyers are expected to demonstrate regardless of the area of law in which the skills arise.” The NY graduates will also no longer have to write on 6 NY-based essays, but will instead write the multistate essay examination. Students will have to write on topics including: Business Associations (Agency and Partnership; Corporations and Limited Liability Companies), Civil Procedure, Conflict of Laws, Constitutional Law, Contracts, Criminal Law and Procedure, Evidence, Family Law, Real Property, Torts, Trusts and Estates (Decedents' Estates; Trusts and Future Interests), and Uniform Commercial Code (Secured Transactions).

In adopting the change, New York officials explained, a “significant advantage of adopting the UBE is that passage of the test would produce a portable score that could be used by the bar applicant to gain admission in other UBE states, assuming the applicant satisfies any other jurisdiction-specific requirements. This portability is crucial in a legal marketplace that is increasingly mobile and requires more and more attorneys to engage in multi-jurisdictional practice.”

I think this is sound reasoning. Many of today’s graduates do not know where they will end up, and I personally know that the thought of taking yet another bar exam was a reason that I decided to stay in Florida when I was in private practice. But the better reason to move to the UBE is the testing of the practical skills that lawyers say recent graduates lack. It won’t solve the problem of the lack of legal work, but it will make it easier for students who want to try to find work in other states. I doubt that Florida, which wants to make it as difficult as possible for snowbirds to set up practice here, will ever adopt the UBE but it should. Many oppose the adoption because schools may not have the faculty or resources to prepare students for the new test. But I welcome the change. Despite the pressure to prep my students for the bar, I have ensured that my students work on drafting client memos, discovery plans, markups of poorly written documents, and even emails to partners and clients so that they can be ready for the world that awaits them. If Florida joins the UBE bandwagon, they will be ready for the MPT too.

 

May 7, 2015 in Business Associations, Corporations, Current Affairs, Jobs, Law School, Marcia Narine, Teaching | Permalink | Comments (0)

Wednesday, May 6, 2015

Dow Chemicals: Investigation Questions CEO Conduct & Raises Fiduciary Duty Questions

Earlier today, Reuters published a fascinating investigative journalist piece by Joshua Schneyer & Brian Grow raising questions about Dow Chemical's CEO Andrew Liveris.  Drawing facts and allegations from internal auditor reports, filings in retaliation and employment suits, Dow documents regarding Liveris's nearly $720,000 reimbursement of improper spending, and documents related to an alleged pet charity in Greece create the backdrop for an interesting story that suggests officer wrong-doing and raises fiduciary duty concerns.  This may be an interesting story to watch unfold, or at least a great afternoon procrastination excuse.

-Anne Tucker

May 6, 2015 in Anne Tucker, Corporate Governance, Current Affairs | Permalink | Comments (0)

Friday, May 1, 2015

The New White Collar Whistleblower: Compliance and Audit Professionals as Tipsters

I’ve been thinking a lot about whistleblowers lately. I serve as a “management” representative to the Department of Labor Whistleblower Protection Advisory Committee and last week we presented the DOL with our recommendations for best practices for employers. We are charged with looking at almost two dozen whistleblower laws. I've previously blogged about whistleblower issues here.

Although we spend the bulk of our time on the WPAC discussing the very serious obstacles for those workers who want to report safety violations, at the last meeting we also discussed, among other things, the fact that I and others believed that there could be a rise in SOX claims from attorneys and auditors following the 2014 Lawson decision. In that case, the Supreme Court observed that: “Congress plainly recognized that outside professionals — accountants, law firms, contractors, agents, and the like — were complicit in, if not integral to, the shareholder fraud and subsequent cover-up [Enron] officers … perpetrated.” Thus, the Court ruled, those, including private contractors, who see the wrongdoing but may be too fearful of retaliation to report it should be entitled to SOX whistleblower protection.

We also discussed the SEC's April KBR decision, which is causing hundreds of companies to revise their codes of conduct, policies, NDAs, confidentiality and settlement agreements to ensure there is no language that explicitly or implicitly prevents employees from reporting wrongdoing to the government or seeking an award.

Two weeks ago, I spoke in front of a couple hundred internal auditors and certified fraud examiners about how various developments in whistleblower laws could affect their investigations, focusing mainly on Sarbanes-Oxley and Dodd-Frank Whistleblower. I felt right at home because in my former life as a compliance officer and deputy general counsel, I spent a lot of time with internal and external auditors. Before I joined academia, I testified before Congress on what I thought could be some flaws in the law as written. Specifically, I had some concerns about the facts that: culpable individuals could receive awards; individuals did not have to consider reporting wrongdoing internally even if there was a credible, functioning compliance program; and that those with fiduciary responsibilities were also eligible for awards without reporting first (if possible), which could lead to conflicts of interest. The SEC did make some changes to Dodd-Frank. The agency now weighs the whistleblower’s participation in the firm’s internal compliance program as a factor that may increase the whistleblower’s eventual award and considers interference with internal compliance programs to be a factor that may decrease any award. It also indicated that compliance or internal audit professionals should report internally first and then wait 120 days before going external.

Before I launched into my legal update, I gave the audience some sobering statistics about financial professionals:

  • 23% have seen misconduct firsthand
  • 29% believe they may have to engage in illegal or unethical conduct to be successful
  • 24% would engage in insider trading if they could earn $10 million and get away with it 

I also shared the following awards with them:

  • $875,000 to two individuals for “tips and assistance” relating to fraud in the securities market;
  • $400,000 to a whistleblower who reported fraud to the SEC after the employee’s company failed to address internally certain securities law violations;
  • $300,000 to an employee who reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally first;
  • $14 million- tip about an alleged Chicago-based scheme to defraud foreign investors seeking U.S. residency; and
  • More than $30 million to a tipster living in a foreign country, who would have received more if he hadn't delayed reporting

I also informed them about a number of legal developments that affect those that occupy a position of trust or confidence. These white-collar whistleblowers have received significant paydays recently. Last year the SEC paid  $300,000 to an employee who performed “audit or compliance functions.” I predicted more of these awards, and then to prove me right, just last week, the SEC awarded its second bounty to an audit or compliance professional, this time for approximately 1.4 million.

I asked the auditors to consider how this would affect their working with their peers and their clients, and how companies might react. Will companies redouble their efforts to encourage internal reporting? Although statistics are clear that whistleblowers prefer to report internally if they can and don’t report because they want financial gain, will these awards embolden compliance, audit, and legal personnel to report to the government? Will we see more employees with fiduciary duties coming forward to report wrongdoing? Does this conflict with any ethical duties imposed upon lawyers or compliance officers with legal backgrounds? SOX 307 describes up the ladder reporting requirements, but what happens to the attorney who chooses to go external? Will companies consider self-reporting to get more favorable deferred and nonprosecution agreements to pre-empt the potential whistleblower?

I don’t have answers for any of these questions, but companies and boards should at a minimum look at their internal compliance programs and ensure that their reporting mechanisms allow for reports from outside counsel and auditors. In the meantime, it’s now entirely possible that an auditor, compliance officer, or lawyer could be the next Sherron Watkins.

And by the way, if you were in Busan, South Korea last Wednesday, you may have heard me on the morning show talking about whistleblowers. Drop me a line and let me know how I sounded. 

May 1, 2015 in Case Law, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Legislation, Marcia Narine, Securities Regulation | Permalink | Comments (0)