Friday, March 24, 2017

Impact Esq. and Kickstarter's 2016 Benefit Statement

Attorney Kyle Westaway has started a monthly e-mail that compiles information about social enterprise and impact investing law. You can subscribe here.

In the latest Impact Esq. newsletter, Kyle included a link to the Kickstarter’s 2016 Benefit Statement. Kyle wrote that he had “never seen [a benefit report] as strong as Kickstarter’s.” Personally, I am not sure I would go that far. I think Greyston Bakery’s Report and Patagonia’s Report are at least as good. I do think the Kickstarter report is relatively good, but the bar is incredibly low, as many benefit corporations are ignoring the statutory reporting requirement or doing a pathetically bad job at reporting.

While the Kickstarter report is more detailed than most, it still reads mostly like a PR piece to me. The vast majority of the report is listing cherry-picked, positive statistics. That said, Kickstarter did note a few areas for possible improvement, which is extremely rare in benefit report. Kickstarter stated that they could do more to promote “sustainability,” that they could do more to encourage staff to “take advantage of the paid time off we provide for volunteering,” and that they wanted to “encourage greater transparency from creators, better educate backers about the risks and rewards of this system, and further empower our Integrity team in their work to keep Kickstarter safe and trusted.” These “goals” for improvement are quite vague, and I would have liked to see more specific goals.

A few other things to note:

  • University of Pennsylvania produced a study, which was cited and used in the report. I think involving universities in the creation of these reports could be a good idea, though possible conflicts should be considered.
  • “Including both salary and equity, our CEO's total compensation equaled 5.52x the median total compensation of all non-CEO, non-founder employees in 2016. For context, a 2015 study examining the executive pay gap found that the average CEO earns 204 times that of the median worker for the same company.” I would be interested in how Kickstarter’s number compares to companies in their industry, especially direct competitors. I imagine the CEO/Employee compensation ratio is lower in the technology industry, where the market demands fairly high employee compensation, but even considering the industry, Kickstarter's ratio still seems quite low.
  • “Kickstarter overall team demographics: 53% women; 47% men. 70% White/Caucasian; 12% Asian; 12% two or more races; 4% Hispanic or Latino; 2% Black/African American.” This seems to be a good bit more diverse, especially as to gender, than other technology companies who have released similar data.
  • “Everyone who works at Kickstarter receives an annual Education Stipend to explore their interests outside the office. In 2016, our employees used their stipends towards blacksmithing classes, a bookmaking class, a synthesizer, pottery courses, an herbal medicine workshop, art supplies, improv classes, a neon light making seminar, and embroidery.” I didn’t see how much the education stipend was, but this seems like a good perk.
  • “We donated 5% of our after-tax profits to six organizations working to build a more creative and equitable world.” Profits are easier to manipulate than revenues; I’d like to see a revenue floor (as Patagonia does – donating the greater of 10% of profits and 1% of revenues). That said 5% of profits can be significant and does show some commitment to these causes.

March 24, 2017 in Business Associations, Corporate Governance, CSR, Current Affairs, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Wednesday, March 22, 2017

What does the EU know that the U.S. Doesn’t About the Effectiveness of Conflict Minerals Legislation?

Earlier this month, the EU announced plans to implement its version of conflict minerals legislation, which covers all “conflict-affected and high-risk areas” around the world. Once approved by the Council of the EU, the law will apply to all importers into the EU of minerals or metals containing or consisting of tin, tantalum, tungsten, or gold (with some exceptions). Compliance and reporting will begin in January 2021. Importers must use OECD due diligence standards, report on their progress to suppliers and the public, and use independent third-party auditors. President Trump has not yet issued an executive order on Dodd-Frank §1502, aka conflict minerals, but based on a leaked memo, observers believe that it's just a matter of time before that law is repealed here in the U.S. So why is there a difference in approach?

In response to a request for comments from the SEC, the U.S Chamber of Commerce, which led the legal battle against §1502, claimed, “substantial evidence shows that the conflict minerals rule has exacerbated the humanitarian crisis on the ground in the Democratic Republic of the Congo…The reports public companies are mandated to file also contribute to ―information overload and create further disincentives for businesses to go public or remain public companies. Accordingly, the Chamber strongly supports Congressional repeal of Section 1502 due to its all-advised and fundamentally flawed approach to solving a geopolitical crisis, and the substantial burden it imposes upon public companies and their shareholders.”

The Enough Project, which spearheaded the passage of §1502, submitted an eight-page statement to the SEC last month stating, among other things, that they “strongly oppose[] any suspension, weakening, or repeal of the current Conflict Minerals Rule, and urge[] the SEC to increase enforcement of the Rule….The Rule has led to improvements in the rule of law in the mining sectors of Congo, Rwanda, and other Great Lakes countries, contributed to improvements in humanitarian conditions in Congo and a weakening of key insurgent groups, and resulted in tangible benefits for U.S. corporations and their supply chains.”

I agree that the Rule has led to increased transparency and efficiency in supply chains (although some would differ), and less armed control of mines. But I’m not sure that the overall human rights conditions have improved as significantly as §1502’s advocates (and I) would have liked.

As Amnesty International’s 2016/2017 report on DRC explains in graphic detail, “armed groups committed a wide range of abuses including: summary executions; abductions; cruel, inhuman and degrading treatment; rape and other sexual violence; and the looting of civilian property... various ... armed groups (local and community-based militias) were among those responsible for abuses against civilians. The Lord’s Resistance Army (LRA) continued to be active and commit abuses in areas bordering South Sudan and the Central African Republic. In… North Kivu, civilians were massacred, usually by machetes, hoes and axes. On the night of 13 August, 46 people were killed … by suspected members of the Allied Democratic Forces (ADF), an armed group from Uganda that maintains bases in eastern DRC…Hundreds of women and girls were subjected to sexual violence in conflict-affected areas. Perpetrators included soldiers and other state agents, as well as combatants of armed groups…Hundreds of children were recruited by armed groups...”

Human Rights Watch’s 2017 report isn’t any better. According to HRW, “dozens of armed groups remained active in eastern Congo. Many of their commanders have been implicated in war crimes, including ethnic massacres, killing of civilians, rape, forced recruitment of children, and pillage. In … North Kivu, unidentified fighters continued to commit large-scale attacks on civilians, killing more than 150 people in 2016 … At least 680 people have been killed since the beginning of the series of massacres in October 2014. There are credible reports that elements of the Congolese army were involved in the planning and execution of some of these killings. Intercommunal violence increased as fighters … carried out ethnically based attacks on civilians, killing at least 170 people and burning at least 2,200 homes.

Finally, according to a February 17, 2017 statement from the Trump Administration, “the United States is deeply concerned by video footage that appears to show elements of the armed forces of the Democratic Republic of Congo summarily executing civilians, including women and children. Such extrajudicial killing, if confirmed, would constitute gross violations of human rights and threatens to incite widespread violence and instability in an already fragile country. We call upon the Government of the Democratic Republic of Congo to launch an immediate and thorough investigation, in collaboration with international organizations responsible for monitoring human rights, to identify those who perpetrated such heinous abuses, and to hold accountable any individual proven to have been involved.”

Most Americans have no idea of the atrocities occurring in DRC or other conflict zones around the world. I have spent the past few years researching business and human rights, particularly in conflict zones in Latin America and Africa. I filed an amicus brief in 2013 and have written and blogged about the failure of disclosure regimes a dozen times because I don’t believe that name and shame laws stop the murder, rape, conscription of  child soldiers, and the degradation of innocent people. I applaud the EU and all of the NGOs that have attempted to solve this intractable problem. But it doesn't seem that enough has changed since my visit to DRC in 2011 where I personally saw 5 massacre victims in the road on the way to visit a mine, and met with rape survivors, village chiefs, doctors, members of the clergy and others who pleaded for help from the U.S. Unfortunately, I don’t think this legislation has worked. Ironically, the U.S. and EU legislation go too far and not far enough. I hope that if the U.S. and EU focus on a more holistic, well-reasoned geopolitical solution with NGOS, stakeholders, and business.

March 22, 2017 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)

Monday, March 13, 2017

More on the U.S. Private and Public Equity Markets

As you may know, I have had an abiding curiosity about the line between the U.S  private and public securities markets in large part because of my work on crowdfunding.  Almost three years ago, I published a post on the topic here at the BLPB.  I posted on the referenced paper here.  That paper recently was republished in a slightly updated form by The Texas Journal of Business Law,  the official publication of the Business Law Section of the State Bar of Texas (available here).

As a result of this work, my interest was (perhaps unsurprisingly) piqued by a this paper by Amy and Bert Westbrook.  Enticingly titled "Unicorns, Guardians, and the Concentration of the U.S. Equity Markets," the article documents concentrations in both private and public equity markets in the United States and makes a number of interesting observations.  I was especially intrigued by the article's identification of a potential resulting peril of this market concentration: the aggregation of both corporate management and ownership in the hands of the few.

[W]ealth has concentrated and private equity markets have emerged that serve as alternatives to the public equity market. At the same time, the public equity market has become dominated by highly concentrated shareholding, in the form of institutional investors, especially index funds, and the occasional founder. Both developments have resulted in concentrations of capital that mirror the concentration of management that concerned Berle and Means. For Berle and Means, the concern was concentrated management and dispersed ownership. The concern now is that both management and ownership are concentrated in the hands of very few people.

Very interesting . . . .  And this is only one of the conclusions that the authors draw.  As a foundation for its assertions, the article documents the concentration of ownership in both private and public markets, tying current participation in both markets back to salient economic and social data and trends.  The full abstract from SSRN is set forth below, for your convenience.

Developments in the private and public equity markets are changing the role equity investment plays in the United States, and therefore what "stock market" means as a matter of political economy. During the 20th century, securities and other laws did much to tame the "animal spirits" of industrial capitalism, epitomized by the "Robber Barons." In order to raise large sums, businesses offered stock to the public, thereby subjecting themselves to the securities laws. Compliance required not only disclosure, transparency, but more subtly, that the firms themselves undergo a process of Weberian rationalization. A relatively broad middle class was comfortable investing in such corporations, and the governance of firms and thus much of the economy was understood to be answerable to this class. Citizens understood such arrangements as theirs, part of "the American way."

In recent years, in conjunction with rising inequality in the United States, there has been a decisive shift from broad-based ownership of firms to much more concentrated forms of ownership in both private and public markets. Private equity markets are concentrated by legal definition: relatively few people are qualified to participate directly. Yet private equity has become the preferred method of capital formation, epitomized by "unicorns," firms valued at over $1 billion without being publicly traded. Public equity markets are dominated by funds with trillions of dollars under management, and small staffs, who are in effect "guardians" for the portfolios that ensure long-term stability for individuals and institutions, notably through retirement and endowments. The governance of the U.S. economy has to a surprising degree become a matter of grace: the nation now relies on a small elite to make good decisions on its behalf about the allocation of capital, the governance of firms, and the preservation of portfolio value. This consolidation of ownership rivals that of the late 19th century, and may challenge the law to address the equity markets in new ways.

I think you'll enjoy this one.  At the very least, it's a great read for those of you who, like me, are interested in analyses of the U.S securities markets.  But perhaps more broadly, with contentious changes in federal business regulation in the offing under the current administration in Washington, this work should contribute meaningfully to the debate.

March 13, 2017 in Corporations, Current Affairs, Joan Heminway, Private Equity, Securities Regulation | Permalink | Comments (0)

Wednesday, March 8, 2017

Best Binge-worthy Movies on Business

Every year, I offer my students the option of writing an extra credit paper on what Hollywood gets wrong about business. They can also apply what they've learned to a popular movie, television show, or book (the Godfather, Game of Thrones, and Sex and the City have provided some of the more interesting analogies). Often I provide a list of TV shows or movies that they can consider. Today, I’m asking my co-bloggers and our readers for their binge-worthy movie or TV choices. Some movie lists for business students are here, here, here, and here but I welcome your suggestions. For those of you who aren’t in my class and just want a break from the news, these lists may come in handy.

March 8, 2017 in Corporations, Current Affairs, Film, Marcia Narine Weldon | Permalink | Comments (6)

Wednesday, March 1, 2017

Conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges

Businesses from small farmers to cruise lines are anxiously awaiting President Trump's policy on Cuba and how/if he will rescind President Obama's Executive Orders relaxing restrictions on doing business with the island.

If you're in the South Florida area next Friday March 10th, please consider attending the timely conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges from 8:00 am-4:30 pm at the Andreas School of Business, Barry University. The Florida Bar has granted 6.5 CLE credits, including for ethics and for certifications in Business Litigation and International Law. The Miami-Dade Commission on Ethics and Public Trust is organizing the event.

As a member of the Commission and an academic who has just completed my third article on Cuba, I'm excited to provide the opening address for the event. I'm even more excited about our speakers John Kavulich, President, U.S. Cuba Trade and Economic Council Inc;  the general counsel of Carnival Cruise Lines;  mayors of Miami Beach, Coral Gables, and Doral; director of the Miami International Airport; a number of academic experts from local universities; Commissioners Nelson Bellido and Judge Lawrence Schwartz; and outside counsel  from MDO Partners, Akerman LLP, Holland & Knight, Greenberg Traurig, Squire Patton Boggs, and Gray Robinson.

It promises to be a lively and substantive discussion.

Registration closes on Monday, March 6th. The $50 admission fee includes breakfast, lunch, and all materials. Go to ethics.miamidade.gov or call 305-579-2594 to register or for more information.  You can also leave comments below or email me at mnarine@stu.edu.

March 1, 2017 in Compliance, Conferences, Corporate Governance, Current Affairs, Law School, Lawyering, Marcia Narine Weldon, Research/Scholarhip | Permalink | Comments (0)

Tuesday, February 28, 2017

A Few Irritating Things

I don't know if it's the time of year or if I am just a little off, but I am generally grumpy today. So, I am going to vent a bit.  

First, a regular irritation that is no shock to regular readers is the "limited liability corporation." I probably should have stopped the Westlaw alert for that terms, which comes through nearly every single day with multiple cases and news items.  A new case from the U.S. District Court in Kansas, Pipeline Prods., Inc. v. Horsepower Entm't, No. CV 15-4890-KHV, 2017 WL 698504, at *1 (D. Kan. Feb. 22, 2017), is typical.  The court states: 

Pipeline Productions, Inc. is a Kansas corporation with its principal place of business in Lawrence, Kansas. Backwood Enterprises, LLC is an Arkansas limited liability corporation with its principal place of business in Lawrence, Kansas. . . . 

The Madison Companies, LLC is a Delaware limited liability company with its principal place of business in Greenwood Village, Colorado. Horsepower Entertainment, a Delaware limited liability company, is a wholly-owned subsidiary of Madison with its principal place of business in Greenwood Village, Colorado.

Irritation 1: Arkansas does not have an entity called a "limited liability corporation." Arkansas, as is typical, has a corporation entity and a limited liability company entity.  They are different.  The fact that the court gets the entity right for the two Delaware LLCs suggests to me that the filings from Backwood Enterprises, LLC, is the likely source of the language.  Still, courts should be getting this right.  (It won't shock me if my obsession with this is irritating more than one reader. C'est la vie.) 

Irritation 2: The case also references a "wholly-owned subsidiary."  This is a common reference, but "wholly owned" does not need a hyphen when used a compound adjective.  This source cites the one I tend to follow, from my public relations days: 

When a compound modifier–two or more words that express a single concept–precedes a noun, use hyphens to link all the words in the compound except the adverb very and all adverbs that end in -ly. —AP Stylebook, 2013 edition. Boldface added.

Spot on.  The site also provides a good hint:

*Warning: Not every word that ends in -ly is an adverb. Watch out for nouns like family and supply, and adjectives like only. For example, “family-oriented websites”; supply-side economics”; “only-begotten son.”

Since Americans (in particular) love threes, I will follow the Rule of 3s, and add one more. 

Irritation 3: The word "articulate."  Yeah, this is kind of random, but I am done with that word. I cannot come up with a time when another word won't serve as a good substitute, and the loaded way in which the term has evolved means it should be skipped.  See, e.g., here.  This article provides more good background and quotes Condoleezza Rice's former communications counselor, Anna Perez: 

The word perfectly conveys, to quote George Bush, the soft bigotry of low expectations. It literally comes down to that. When people say it, what they are really saying is that someone is articulate ... for a black person.

Before anyone wants to get mad at me for being too "PC," calm down.  I am not saying you can't say it. I am saying you will irritate me if you do.  And if you say it to or about an African-American person, you probably are showing the bias Ms. Perez described. And, yeah, I have heard it said about and to African-Americans in my presence, and it's usually pretty clear the bias is there.  It's an irritation to me, and it's demeaning, even though I think it is, from time to time, well intentioned, if ignorant.  Time to move forward.  What was once "progressive thinking" is not anymore.  Try to catch up if you're really trying to be nice.

I know, everyone has things that irritate them.  It's good to vent now and again. No person attacks or freak outs. Just a good, old-fashioned vent.  Happy Mardi Gras.  

 

February 28, 2017 in Corporations, Current Affairs, Joshua P. Fershee, LLCs | Permalink | Comments (4)

Friday, February 24, 2017

Will Buying American Make America Great Again?

A few weeks ago I blogged about the spate of boycotts and buycotts responding to President Trump’s travel ban. Since that time, the #grabyourwallet campaign has taken credit for a number of stores dropping Ivanka Trump’s merchandise. In response, celebrities and others flocked to Nordstrom after criticism by the President’s surrogates about the retailer’s decision to drop the products, even though Nordstrom cited falling sales. Within days, news outlets reported that her perfume was a top seller on Amazon, and that many reviewers indicated that they had bought the product to show support for the President. 

Yesterday, NPR reported that the United Auto Workers will revive its 1980s Buy American campaign, which will not only promote American-made products but will also encourage the boycott of cars made by American companies overseas. I’ve argued in the past that boycotts don’t work, and the NPR story provided some support from a professor who noted, “these campaigns, even with catchy song lyrics, almost never work. For instance, garment work essentially left the U.S. almost completely a few years after [the look for the union label ad] ran, and after the last UAW campaign, the American car companies continued to lose market share.” The New York Times has also examined whether these boycotts have long term effect.

The back and forth between boycotts and buycotts related to the President’s family may prove conventional wisdom wrong. It may be time for an empirical study (not by me) of when and how the boycott/boycott movement can sustain itself.

February 24, 2017 in Corporations, CSR, Current Affairs, Marcia Narine Weldon | Permalink | Comments (0)

Wednesday, February 22, 2017

Business Headlines

Here is a rundown of recent business news headlines:

The Yahoo/Verizon deal takes a $350M haircut to compensate for Yahoo data security breaches in 2013 and 2014.

The Snapchat parent company, SNAP, scheduled blockbuster IPO ($20-23B) is plagued with news that it lost  $514.6 million in 2016, there are questions about the sustainability of its user base, and, for the governance folks out there, there is NO VOTING STOCK being offered.

In what is being called a "whopper" of a deal, Restaurant Brands, the owner of Burger King and Tim Hortons, announced earlier this week a deal to acquire Popeye's Louisiana Kitchen, the fried chicken restaurant chain, for $1.8 billion in cash. 

Kraft withdrew its $143B takeover offer for Unilever less than 48 hours after the announcement amid political concerns over the merger.  While Unilever evaluates its next steps, Kraft is perhaps feeling the effects of its controversial takeover of Britain's beloved Cadbury

A final item to note, for me personally, is that today is my last regular contribution to the Business Law Professor Blog. I will remain as a contributing editor, but will miss the ritual of a weekly post--a habit now nearly 4 years in the making.  Thanks to all of the readers and other editors who gave me great incentive to learn new information each week, think critically, connect with teaching, and generally feel a part of a vibrant and smart community of folks with similar interests. 

With gratitude,

Anne Tucker

February 22, 2017 in Anne Tucker, Corporate Finance, Corporations, Current Affairs, Financial Markets, M&A | Permalink | Comments (7)

Monday, February 20, 2017

Balancing the Regulatory Budget: Another Analogy for Consideration

Two weeks ago, I posted on the POTUS's "one in, two out" executive order on executive branch agency regulations.  In that post, I used critiques of a clothing maintenance/closet cleaning system working off the same principle.  Interestingly, a CATO report was released January 31, unbeknownst to me at the time I wrote and published my post, that makes some of the same points.  Since that time, I have wondered whether there is a more wise, effective  way to simply address bloated federal agency regulations.  Here is an idea that currently holds my interest.

In a leadership training program a few years ago, I remember hearing about a technique used in institutional budgeting processes.  A unit leader who is required to submit a proposed budget to a superior or to a central budgeting office is asked to submit with the budget a proposal on what the unit would cut if the budget was cut by 5% (or another desired number) and what the unit would spend on if its budget was increased by 5% (or another desired number).  It struck me that a similar system could be employed to true up federal agency regulations.

Specifically, each agency could be required to establish reasonable, evidence-based objectives for its operations for the forthcoming fiscal year, consistent with the agency's overall mandate. Then, the agency could be compelled to report to the President (or a designee) on the ways in which the agency's current body of regulations succeeds or fails to achieve those objectives and that mandate. Finally, as part of its budget submission, the agency could be asked to (1) suggest which regulations it would eliminate if it had to cut a specific percentage of its existing body of regulations and (2) identify and recommend new regulations for adoption if it had the opportunity to introduce new regulation, in each case with the goal of better achieving the agency's objectives and mandate.

Could a system like this work in curing over-regulation?  Is it too simplistic?  Leave your responses and comments below.

February 20, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (2)

Friday, February 17, 2017

Racing Dopers and Endorsement Contract Performance Bonuses

Last week Runner’s World reported:

Mariya Savinova-Farnosova, a Russian middle distance runner, was given a four-year ban for doping by the Court of Arbitration for Sport on Friday. She will also be stripped of two gold medals she won at the 2011 world outdoor championships and 2012 London Olympics, as well as a 2013 world silver medal, all in the 800 meters.

As a result, U.S. athlete Brenda Martinez will likely soon be upgraded to a silver medal for her performance in the 800 meters at the 2013 world championships and American Alysia Montaño will receive bronze medals for her races at the 2011 and 2013 world championships. Officials will first need to verify the new results.

In this post, I’ll examine how the presumably clean athletes—like Brenda Martinez and Alysia Montaño in this case—should be treated with regards to their endorsement contracts. The main question is:

  • Should the clean athletes be awarded their endorsement contract performance bonuses based on world rankings than have been revised to exclude doping athletes?

Respected law firm Reed Smith has some helpful contract interpretation materials available here, which is relevant to the discussion. All of the following is merely an academic exercise and not legal advice.

Contract Drafting and the Text of the Contract.

As with any contractual issue, we should start with the text of the contracts. Since few of these endorsement contracts are publicly available, I will use the language in Nike’s endorsement contract that was filed in the Nike v. Berian case last year.

A great many contract disputes could be avoided with clear drafting. If an endorsement contract stated that performance bonuses would be paid based on any revised rankings that remove doping athletes, then I imagine that language would control and the clean athletes would promptly get paid the difference between their old and new ranking. Doping has been uncovered frequently enough in sports like cycling and track & field (aka “athletics”) that such a contractual clarification might be helpful to include on the front end of the drafting process.

The proposed Nike contract in the Berian case does contain promised performance bonuses, based on world rankings, with additional bonuses for Olympic and World Championship Medals (pg. 14), but I did not see any guidance regarding world rankings that are revised due to doping. The potential bonuses in the Berian case were fairly significant, with the top bonus of $150,000 exceeding the proposed annual base pay of $125,000. The contract does allow Nike to terminate the contract due to any sponsored athlete’s doping offense (pg. 9), but, again, I don’t see anything about doping by the athlete’s competitors.

Contract Interpretation.

As the Reed Smith contract interpretation flowchart correctly states, judges attempt to construe contracts in accordance with the parties’ intent. We first look at the text of the contract, and can only look at the contract language if the wording in unambiguous. If the contract language is ambiguous (reasonably susceptible to more than one interpretation) then the court may be able to look beyond the contract (parol evidence) to determine the intent of the parties.

Here, I think the parties' intent might be interpreted either way. On one hand, the athlete could argue that the intent was to award bonuses based on the fair world rankings, which would exclude drug cheats. On the other hand, the sponsor could argue that they were paying for publicity, and that the revised rankings publicity is typically significantly less than the publicity surrounding achievement during the actual Olympics or World Championships.

As a practical matter, like most legal disputes, it probably  makes sense for the athlete and the sponsoring company to settle the matter outside of court. An example of a principled negotiation could involve the sponsor paying the difference in the performance bonuses, and the athlete promising to do an anti-doping ad for the sponsor or a few extra appearances related to the new rankings.

Additional Topics.

It future posts, I may write about the appropriate punishment for athletes who use performance enhancing drugs. For example, is jail time appropriate? I may also post on ways to further compensate the clean athletes for their lost earnings, publicity, and recognition.

February 17, 2017 in Current Affairs, Haskell Murray, Lawyering, Sports | Permalink | Comments (0)

Thursday, February 16, 2017

The President and Responsible Business Conduct

     This post does not concern President Trump’s own business empire. Rather, this post will be the first of a few to look at how the President retains, repeals, or replaces some of the work that President Obama put in place in December 2016 as part of the National Action Plan on Responsible Business Conduct. Many EU nations established their NAPS year ago, but the U.S. government engaged in two years of stakeholder consultations and coordinated with several federal agencies before releasing its NAP.

     Secretary of State Tillerson will play a large role in enforcing or revising many of the provisions of the NAP because the State Department promotes the Plan on its page addressing corporate social responsibility. Unlike many federal government pages, this page has not changed (yet) with the new administration. As the State Department explained in December, “the NAP reflects the government's commitment to promoting human rights and fighting corruption through partnerships with domestic and international stakeholders. An important part of this commitment includes encouraging companies to embrace high standards for responsible business conduct.” Over a dozen federal agencies worked to develop the NAP.

     We now have a new Treasury Secretary and will soon have a new Secretary of Labor, presumably FIU Law Dean and former US Attorney Alex Acosta, a new SEC Chair, presumably Jay Clayton, and a new Secretary of Commerce, presumably Wilbur Ross. These men, along with Attorney General Jeff Sessions and Secretary of State Tillerson will lead the key agencies enforcing or perhaps revising the country’s commitment to responsible business conduct.

    The following list of priorities and initiatives comes directly from the Fact Sheet:

Strengthening laws preventing the import of goods produced by forced labor to ensure products made under exploitative conditions do not gain U.S. market access.

Updating social and environmental standards criteria for financing through the Overseas Private Investment Corporation, to promote high standards through U.S.-supported private investment.

Creating guidance on social safeguards for USAID’s development programs.

Funding efforts to promote awareness and implementation of the United Nations Guiding Principles on Business and Human Rights.

Publishing, for the first time, an annual report by the U.S. National Contact Point for the OECD Guidelines.

Identifying means through trade agreements to encourage companies to engage in RBC.

Enhancing information sharing with sub-national governments on public procurement best practices, to ensure that governments at all levels promote RBC through purchasing.

Collaboration with Stakeholders

In order to achieve shared RBC goals, it is essential for governments to work with the private sector, as well as with civil society, labor, and other stakeholders, to leverage each other’s resources and strengths.  The USG’s measures to collaborate with such stakeholders include:

Establishing a formal mechanism for increased government participation in “multi-stakeholder initiatives” that promote RBC in various sectors and regions.

Convening stakeholders to develop and promote effective metrics for measuring and managing labor rights impacts in supply chains.

Facilitating a dialogue with stakeholders on implementation of the Sustainable Development Goals.

Promoting worker voice and empowerment in global supply chains via new tools that allow workers in national supply chains to directly report potential labor abuses and workplace safety violations, as well as leveraging public-private partnerships to more fully incorporate the perspectives of workers.

Facilitating RBC by Companies

The USG encourages companies to follow the best domestic and international practices and is supportive of company efforts to voluntarily report on certain aspects of their operations.  The USG produces a number of reports that can be useful for companies as they seek to uphold high standards, sometimes in challenging environments.  The NAP sets forth an illustrative list of USG initiatives to further that work, including the following commitments:

Creating an online database containing government reports on issues such as human rights, human trafficking including forced labor, child labor, and investment climates so that companies can more effectively make investment decisions and mitigate risk.

Providing new and increased training for USG officers and officials, including those who serve abroad, on RBC issues so that government officials are well-equipped to advise companies on considerations such as the status of labor rights, human rights and transparency, in a particular operating environment.

Training for USG officials on the Foreign Corrupt Practices Act and related issues.

Updating country-level public land governance profiles that explain land laws, land use patterns, gender concerns, land administration, and land markets within a given country.  These profiles are an important tool for businesses making responsible land-based investments in a given country.

Recognizing Positive Performance

U.S. companies make tremendous contributions to communities around the world by generating economic growth, creating jobs, spurring innovation, and providing solutions to pressing challenges such as access to clean energy, healthcare, and technology.  The USG recognizes and highlights when companies achieve high standards with meaningful results for workers and communities. Such items include...

Developing an online mechanism to identify, document, and publicize lessons learned and best practices related to corporate actions that promote and respect human rights. 

Providing Access to Remedy

Even when governments and companies seek to act responsibly, challenges can arise.  Both governments and companies should have mechanisms in place by which affected parties can raise concerns, report problems, and seek remedies, as appropriate.  Through the NAP, the USG is furthering its commitment to this objective by:

Improving the performance of the U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises, including by announcing a fall 2017 peer review, organizing workshops to promote RBC, and publishing an outreach plan.

Hosting a forum for dialogue with stakeholders on opportunities and challenges regarding issues of remedy, as well as how the USG can best support effective remedy processes.

    I will continue to follow up on this issue as well as how corporate compliance and governance may change under the Trump Administration.

February 16, 2017 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Law, Marcia Narine Weldon | Permalink | Comments (0)

Tuesday, February 14, 2017

Business Law on Valentine's Day

I hope this Valentine's Day is a good one for you, dear readers.  Mine started with a random (minor) dog bite on my morning run, followed by some time with some very nice health care professionals and quite a few less pleasant needles. 

A friend alerted me to the law-related Twitter hashtag #AppellateValentines. Some of them are quite funny.  See, e.g.,

There is also a #BusinessValentines hashtag, which is less creative, but has its moments.  Of course, there was no #BusinessLawValentines, but there should be and there is now. I went first. Join in, if you're so inclined.  

And, of course, I could not resist:

February 14, 2017 in Corporations, Current Affairs, Joshua P. Fershee, Partnership, Unincorporated Entities, Web/Tech | Permalink | Comments (0)

Friday, February 10, 2017

First Standalone Publicly Traded Benefit Corporation - Laureate Education

Laureate Education recently became the first standalone publicly traded benefit corporation. They are organized under Delaware's public benefit corporation (PBC) law, are also a certified B corporation, and will be trading as LAUR on NASDAQ.  

Plum Organics, also a Delaware PBC, is a wholly owned subsidiary of publicly-traded Campbell Soup Company. And Etsy is a publicly traded certified-B corporation, but is organized under traditional Delaware corporation law.

Whether the for-profit educator Laureate will hurt or help the popularity of benefit corporations remains to be seen, but some for-profit educators have not been getting good press lately.

Inside Higher Ed reports on Laureate Education's IPO as a benefit corporation below:

The largest U.S.-based for-profit college chain became the first benefit corporation to go public Wednesday morning.

Laureate Education, which has more than a million students at 71 institutions across 25 countries, had been privately traded since 2007. Several major for-profit higher education companies have over the last decade bounced back and forth between publicly and privately held status; also yesterday, by coincidence, the Apollo Group, owner of the University of Phoenix, formally went back into private hands….In its public debut, the company raised $490 million….

Becker said the move to become the first benefit corporation that is public is one way to show that Laureate is putting quality first.“There is certainly plenty of skepticism about whether for-profit companies can add value to society, and I feel strongly we can,” Becker said, adding that Laureate received certification from the nonprofit group B Lab after years of “rigorous” evaluations….

But the certification and the move to becoming a benefit corporation doesn’t prove a for-profit will not make bad decisions or commit risky actions that hurt students, said Bob Shireman, a senior fellow at the Century Foundation and for-profit critic.

"The one thing that being a benefit corporation does is reduce the likelihood that shareholders would sue the corporation for failing to operate in the shareholders' financial interest," Shireman said. "So it makes a marginal difference, and there's no evidence that benefit corporations, in the 10 or so years they've existed in the economy, cause better behavior."

Companies and investors could make better choices and decisions for their students without needing a benefit corporation model to do that, Shireman said, adding that the legal protection it provides is small.

"What's more important are what commitments are being made under the rubric of being a benefit corporation," he said. "How is that going to be measured and enforced … and how can they be changed or overruled by stockholders."

Head of Legal Policy at B Lab Rick Alexander, also authored a post on Laureate Education. For those who do not know, B Lab is the nonprofit responsible for the B Corp Certification and an important force behind the benefit corporation legislation that has passed in 30 states.

 

February 10, 2017 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Delaware, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Thursday, February 9, 2017

What do we know about the future of corporate governance and compliance so far under Trump?

Shortly after the election in November, I blogged about Eleven Corporate Governance and Compliance Questions for the President-Elect. Those questions (in italics) and my updates are below:

  1. What will happen to Dodd-Frank? There are already a number of house bills pending to repeal parts of Dodd-Frank, but will President Trump actually try to repeal all of it, particularly the Dodd-Frank whistleblower rule? How would that look optically? Former SEC Commissioner Paul Atkins, a prominent critic of Dodd-Frank and the whistleblower program in particular, is part of Trump's transition team on economic issues, so perhaps a revision, at a minimum, may not be out of the question.

Last week, via Executive Order, President Trump made it clear (without naming the law) that portions of Dodd-Frank are on the chopping block and asked for a 120-day review. Prior to signing the order, the President explained, “We expect to be cutting a lot out of Dodd-Frank…I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.” An executive order cannot repeal Dodd-Frank, however. That would require a vote of 60 votes in the Senate. To repeal or modify portions, the Senate only requires a majority vote.

Some portions of Dodd-Frank are already gone including the transparency provision, §1504, which NGOs had touted because it forced US issuers in the extractive industries to disclose certain payments made to foreign governments. I think this was a mistake. By the time you read this post, the controversial conflict minerals rule, which requires companies to determine and disclose whether tin, tungsten, tantalum, or gold come from the Democratic Republic of Congo or surrounding countries, may also be history. The President may issue another executive order this week that may spell the demise of the rule, especially because others in Congress have already introduced bills to repeal it. I agree with the repeal, as I have written about here, because I don’t think that the SEC is the right agency to address the devastating human rights crisis in Congo.

As for the whistleblower provisions, it is too soon to tell. See #7 below.

Based on an earlier Executive Order meant to cut regulations in general and the President’s reliance on corporate raider/activist Carl Icahn as regulation czar, we can assume that the financial sector will experience fewer and not more regulations under Trump.

  1. What will happen with the two SEC commissioner vacancies? How will this president and Congress fund the agency? 3. Will SEC Chair Mary Jo White stay or go and how might that affect the work of the agency to look at disclosure reform?

President Trump has nominated Jay Clayton, a lawyer who has represented Goldman Sachs and Alibaba to replace former prosecutor Mary Jo White. Based on his background and past representations, we may see less enforcement of the FCPA and more focus on capital formation and disclosure reform. Observers are divided on the FCPA enforcement because 2016 had some record-breaking fines. As for the other SEC vacancies, I will continue to monitor this.

  1. How will the vow to freeze the federal workforce affect OSHA, which enforces Sarbanes-Oxley? 

The Department of Labor enforces OSHA, and the current nominee for Secretary, Andy Pudzer, is a fast food CEO with some labor issues of his own. His pro-business stance and his opposition to increases in the minimum wage and the DOL white-collar exemption changes don’t necessarily predict how he would enforce SOX, but we can assume that it won’t be as much of a priority as rolling back regulations he has already publicly opposed.

  1. In addition to the issues that Trump has with TPP and NAFTA, how will his administration and the Congress deal with the Export-Import (Ex-IM) bank, which cannot function properly as it is due to resistance from some in Congress. Ex-Im provides financing, export credit insurance, loans, and other products to companies (including many small businesses) that wish to do business in politically-risky countries. 

The U.S. has pulled out of TPP. Trump has not specifically commented on Ex-Im, but many believe that prospects don't look good.

  1. How will a more conservative Supreme Court deal with the business cases that will appear before it? 

I will comment on this after the confirmation hearings of nominee Neil Gorsuch. Others have already predicted that he will be pro-business.

  1. Who will be the Attorney General and how might that affect criminal prosecution of companies and individuals? Should we expect a new memo or revision of policies for Assistant US Attorneys that might undo some of the work of the Yates Memo, which focuses on corporate cooperation and culpable individuals?

Senator Jeff Sessions was confirmed yesterday after a contentious hearing. During his hearing, he indicated that he supported whistleblower provisions related to the False Claims Act, and many believe that he will retain retain the Yates Memo. Ironically, prior to that confirmation, President Trump fired Acting Attorney General Sally Yates, for refusing to defend the President’s executive order on refugees and travel.

  1. What will happen with the Consumer Financial Protection Bureau, which the DC Circuit recently ruled was unconstitutional in terms of its structure and power?

Despite, running on a populist theme, Trump has targeted a number of institutions meant to protect consumers. Based on reports, we will likely see some major restrictions on the Consumer Financial Protection Bureau and the rules related to disclosure and interest rates. Trump will likely replace the head, Richard Cordray, whom many criticize for his perceived unfettered power and the ability to set his own budget. The Financial Stability Oversight Council, established to address large, failing firms without the need for a bailout, is also at risk. The Volker Rule, which restricts banks from certain proprietary investments and limits ownership of covered funds, may also see revisions.

  1. What will happen with the Obama administration's executive orders on Cuba, which have chipped away at much of the embargo? The business community has lobbied hard on ending the embargo and eliminating restrictions, but Trump has pledged to require more from the Cuban government. Would he also cancel the executive orders as well?

I will comment on this in a separate post.

  1. What happens to the Public Company Accounting Board, which has had an interim director for several months?

The PCAOB is not directly covered by the February 3rd Executive Order described in #1, and many believe that the Executive Order related to paring back regulations will not affect the agency either, although the agency is already conducting its own review of regulations. In December, the agency received a budget increase.

  1. Jeb Henserling, who has adamantly opposed Ex-Im, the CFPB, and Dodd-Frank is under consideration for Treasury Secretary. What does this say about President-elect Trump's economic vision?

President Trump has tapped ex-Goldman Sachs veteran Steve Mnuchin, and some believe that he will be good for both Wall Street and Main Street. More to come on this in the future.

I will continue to update this list over the coming months. I will post separately today updating last week’s post on the effects of consumer boycotts and how public sentiment has affected Superbowl commercials, litigation, and the First Daughter all in the past few days.

February 9, 2017 in Compliance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Human Rights, International Business, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)

Tuesday, February 7, 2017

5% Women in Charge is a Record? Wow.

According to CNN/Money, 2016 was a record year for women.  The report

America hit a milestone in 2016: The most female CEOs ever. There are now 27 women at the helm of S&P 500 companies. 

 The good news is it's a new record for women in business, according to S&P Global Market Intelligence. It's also 22% more -- a big jump -- from last year, when only 22 women led S&P 500 companies. 
Wow.  It's not shocking that women are trailing, but the numbers are still pretty surprising to me. That's a lot of unrealized talent.  
 
I have had the opportunity to work for two women who were deans of my law schools, and that, too, is pretty uncommon, though far more so than the numbers at Fortune 500 companies.  Women make up about 34% of faculty and 30% of law deans (or did as of 2015). That's noticeably better, but it remains clear we have work to do.
 
And that's really all I have to offer right now. We need to do better in how we assess talent and ability.  Because the numbers suggest we're missing out.  
 
 
 

February 7, 2017 in Current Affairs, Joshua P. Fershee | Permalink | Comments (0)

Monday, February 6, 2017

Cleaning Out the Regulatory Closet: An Analogy for Consideration . . .

This post comments on the method for managing regulation and regulatory costs in the POTUS's Executive Order on Reducing Regulation and Controlling Regulatory Costs.

I begin by acknowledging Anne's great post on the executive order.   She explains well in that post the overall scope/content of the order and shares information relevant to its potential impact on business start-ups.  She also makes some related observations, including one that prompts the title for her post: "Trumps 2 for 1 Special."  In a comment to her post, I noted that I had another analogy in mind.  Here it is: closet cleaning and maintenance.

84px-Wall_Closet
You've no doubt heard that an oft-mentioned rule for thinning out an overly large clothing collection is "one in, one out."  Under the rule, for every clothing item that comes in (some limit the rule's application to purchased items, depending on the objectives desired to be served beyond keeping clothing items to a particular number), a clothing item must go out (be donated, sold, or simply tossed).  Some have expanded the rule to "one in, two out" or "one in, three out," as needed.  The mechanics are the same.  The rule requires maintaining a status quo as to the number of items in one's closet and, in doing so, may tend to discourage the acquisition of new items.

Articulated advantages/values of this kind of a rule for wardrobe maintenance include the following:

  • simplicity (the rule is easy to understand);
  • rigor (the rule instills discipline in the user);
  • forced awareness/consciousness (the rule must be thoughtfully addressed in taking action); and
  • experimentation encouragement (the rule invites the user to try something new rather than relying on something tried-and-true).

Disadvantages and questions about the rule include those set forth below.

  • The rule assumes that it is the number of items that is the problem, not other attributes of them (i.e., age, condition, size, suitability for current lifestyle, etc.).
  • Once new items are acquired, the rule assumes that existing ones are no longer needed or are less desirable.
  • The rule operates ex post (it assumes the introduction of a new item) rather than ex ante (allowing the root problem to be addressed before the new item is introduced).
  • The rule encourages an in/out cycle that incorporates the root of the problem (excess shopping) rather than addressing it.
  • Definitional questions require resolution (e.g., what is an item of clothing).

Internet sources from which these lists were culled and derived include the article linked to above as well as articles posted here and here.

Regulation is significantly more complex than clothing.  But let's assume that we all agree that the list of advantages/values set forth above also applies to executive agency rule making.  Let's also assume the validity and desirability of the core policy underlying the POTUS's executive order on executive agency rule making, as set forth below (and excerpted from Section 1 of the executive order).

It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. In addition to the management of the direct expenditure of taxpayer dollars through the budgeting process, it is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.

How do the closet organization disadvantages or questions stack up when applied in the executive agency rule-making context?  Here's my "take."

Continue reading

February 6, 2017 in Anne Tucker, Current Affairs, Joan Heminway | Permalink | Comments (10)

Saturday, February 4, 2017

More from Ben Edwards on Broker Fiduciary Duty and the POTUS's Recent EO

As readers may recall, I posted on broker fiduciary duties back at the end of December, focusing on a WaPo op ed written by friend-of-the-BLPB, Ben Edwards (currently at Barry, but lateraling later this year to UNLV).  He has a new op ed out today in the WaPo that says everything I could and would say regarding the POTUS's recent executive order on this topic (referenced by Ann in her post earlier today), and more.  I commend it to your reading.  

It's important to remember as you read and consider this issue what Ben's op ed focuses in on at the end: the rule the POTUS executive order blocks is a narrow one, since it only applies to activities relating to retirement investments. A broader fiduciary duty rule for brokers has not yet been adopted.  Suitability is still the standard of conduct for brokers outside the application of any applicable fiduciary duty rule.  The central question at issue is whether a broker must recommend investments in retirement planning that are in the best interest of the client investor or whether, e.g., a broker can recommend a suitable investment to a retirement investor that makes the broker more money/costs the client more money.

I have had to answer friends-and-family questions on this issue in the last 24 hours.  Perhaps you have, too. Here's an article that may be helpful if you are in the same boat I am in on this in having to help inform folks in your circle of influence about what this means for them.

February 4, 2017 in Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (0)

Thursday, February 2, 2017

Executives and the Executive Order

Donald Trump has had a busy two weeks. Even before his first official day on the job, then President-elect Trump assembled an economic advisory board. On Monday, January 23rd, President Trump held the first of his quarterly meetings with a number of CEOs to discuss economic policy. On January 27th, the President issued what some colloquially call a “Muslim ban” via Executive Order, and within days, people took to the streets in protest both here and abroad.

These protests employed the use of hashtag activism, which draws awareness to social causes via Twitter and other social media avenues. The first “campaign,” labeled #deleteuber, shamed the company because people believed (1) that the ride-sharing app took advantage of a work stoppage by protesting drivers at JFK airport, and (2) because they believed the CEO had not adequately condemned the Executive Order. Uber competitor Lyft responded via Twitter and through an email to users that it would donate $1 million to the ACLU over four years to “defend our Constitution.” Uber, which is battling its drivers in courts around the country, then established a $3 million fund for drivers affected by the Executive Order. An estimated 200,000 users also deleted their Uber accounts because of the social media campaign, and the CEO resigned today from the economic advisory board.

Other CEOs, feeling the pressure, have also issued statements against the Order. In response, some companies such as Starbucks, which pledged to hire 10,000 refugees, have faced a boycott from many Trump supporters, which in turn may lead to a “buycott” from Trump opponents and actually generate more sales. This leads to the logical question of whether these political statements are good or bad for business, and whether it's better to just stay silent unless the company has faced a social media campaign. Professor Bainbridge recently blogged about the issue, observing:

The bulk of Lyft's business is conducted in large coastal cities. In other words, Obama/Clinton country. By engaging in blatant virtue signaling, which it had to know would generate untold millions of dollars worth of free coverage when social media and the news picked the story up, Lyft is very cheaply buying "advertising" that will effectively appeal to its big city/blue state user base.

Bainbridge also asks whether “Uber's user base is more evenly distributed across red and blue states than Lyft? And, if so, will Uber take that into account?” This question resonates with me because some have argued on social media (with no evidentiary support) that Trump supporters don’t go to Starbucks anyway, and thus their boycott would fail.

All of this boycott/boycott/CEO activism over the past week has surprised me. I have posted in the past about consumer boycotts and hashtag activism/slacktivism because I am skeptical about consumers’ ability to change corporate behavior quickly or meaningfully. The rapid response from the CEOs over the past week, however, has not changed my mind about the ultimate effect of most boycotts. Financial donations to activist groups and statements condemning the President’s actions provide great publicity, but how do these companies treat their own employees and community stakeholders? Will we see shareholder proposals that ask these firms to do more in the labor and human rights field and if so, will the companies oppose them? Most important, would the failure to act or speak have actually led to any financial losses, even if they are not material? Although 200,000 Uber users deleted their accounts, would they have remained Lyft customers forever if Uber had not changed its stance? Or would they, as I suspect, eventually patronize whichever service provided more convenience and better pricing?

We may never know about the consumers, but I will be on the lookout for any statements from shareholder groups either via social media or in shareholder proposals about the use or misuse of corporate funds for these political causes.

February 2, 2017 in Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Human Rights, Marcia Narine Weldon | Permalink | Comments (3)

Wednesday, February 1, 2017

Trump's 2 for 1 Special

On Monday President Trump signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The Order uses budgeting powers to constrict agencies and the regulatory process requiring that for each new regulation, two must be eliminated and that all future regulations must have a net zero budgeting effect (or less). The Order states:

"Unless prohibited by law, whenever an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed."

Two points to note here.  First, the Executive Order does not cover independent agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, agencies that crafted many of the rules required by the 2010 Dodd-Frank Wall Street reform law--an act that President Trump describes as a "disaster" and promised to do "a big number on".  The SEC, the CFTC and Dodd-Frank are not safe, they will just have to be dealt with through even more sweeping means.   Stay tuned.  The 2-for-1 regulatory special proposed on Monday is a part of President Trump's promise to cut regulation by 75%.

Second, the Order is intended to remove regulatory obstacles to Americans starting  new businesses.  President Trump asserted that it is "almost impossible now to start a small business and it's virtually impossible to expand your existing business because of regulations." Facts add nuance to this claim, if not paint an all-together different story.  The U.S. Department of Labor Statistics documents a steady increase in the number of new American businesses formed since 2010.  The U.S. small business economy grew while regulations were in place.  President Trump asks us to believe that they will grow more without regulation.  Some already do. The U.S. Chamber of Commerce "applauded" the approach decrying the "regulatory juggernaut that is limiting economic growth, choking small business, and putting people out of work."

Chart 1. Number of establishments less than 1 year old, March 1994–March 2015

Yet, as shocking as this feels (to me), the U.K. and Canada both have experience with a similar framework.  The U.K.'s two for one regulation rule has been touted as saving businesses £885 million from May 5, 2015 to May 26, 2016 and there is now a variance requiring three regulations to be removed for each one.  Canada takes a more modest one in- one out approach.  No information is available yet on any externalities that may be caused by decreased regulations.  For some, and I count myself in this camp, the concern is that the total cost of failed environmental protection, wage fairness, safety standards, etc. may outweigh individual gains by small business owners.

The 2-for-1 special evokes some odd memories  for me (Midwestern, of modest means) of a K-Mart blue-light special.  The Trump Administration is flashing a big, blue light with the promise to cut regulation by 75% without reference to the content of those regulations.  The first tool, a "two for one approach" strikes me as a gimmick where the emphasis is on marketing the message of deregulation through quantity, not quality.  Not to mention the arbitrariness of the numerical cut off (why not 1 or 13?). It is the type of solution, that if offered in answer to a law school hypo, would quickly be refuted by all of the unanswered questions.  Can it be any two regulations?  Can the new regulation just be longer and achieve the work of several?  Should there be a nexus between the proposed regulation and the eliminated ones?  What is the administrative process and burden of proof for identifying the ones to be removed?  The Executive Order, targeted at business regulation, but in doing so has created the most "significant administrative action in the world of regulatory reform since President Reagan created the Office of Information and Regulatory Affairs (OIRA) in 1981." Hold on folks, this is going to be a bumpy ride.

Image result for blue light special images

-Anne Tucker

 

 

February 1, 2017 in Anne Tucker, Corporations, Current Affairs, Entrepreneurship, Jobs | Permalink | Comments (2)

Tuesday, January 31, 2017

Note to the White House: More Energy Supply Drives Down Prices

Energy and business are closely related, and the former often has a direct impact on latter.  At Whitehouse.gov, the President has posted his energy plan, making the following assertions: 

Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own. We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Less expensive energy will be a big boost to American agriculture, as well.

It is certainly true that we "have vast untapped domestic energy reserves right here in America." It has brought some wealth and prosperity to the nation, and low oil prices because the country "embrace[d] the shale oil and gas revolution to bring jobs and prosperity to millions of Americans." However, low oil and gas prices (which largely remain) have slowed that growth and expansion because shale oil and gas exploration and production was wildly successful. 

The President says, "We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own."  But it's not clear how that's helpful. That is, selling our (the American people's) assets when the market is at or near record lows doesn't seem like very good asset management.  

The plan is to "use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure."  I am very fond of all of these things, though I am skeptical that the federal government should take a leading role in all of them. I am open to the discussion.  But, if we're selling our assets at pennies on the dollar of historic value, I am particularly skeptical of the benefits. 

"Less expensive energy will be a big boost to American agriculture, as well." Low energy costs do help agriculture. That is certainly true.  But notice that making energy even less expensive means we get less for our assets, and we're dumping more cheap energy into a market where private businesses in the oil and gas sector are already having a hard time.  

Facilitating a boom from cheap energy means investing in new jobs to use the energy, not just getting more of the energy.  Plants that use our cheaper fuels to make and build new products could help, but it's never easy.  High energy prices can stifle an economy, but low ones rarely spur growth.  About a year ago, an Economist article from January 2016 remains accurate, as it explained that sudden and major price increases can slow an economy rapidly, as we saw in Arab oil embargo of 1973. However, "when the price slumps because of a glut, as in 1986, it has done the world a power of good. The rule of thumb is that a 10% fall in oil prices boosts growth by 0.1-0.5 percentage points."  

The article further explains: 

Cheap oil also hurts demand in more important ways. When crude was over $100 a barrel it made sense to spend on exploration in out-of-the-way provinces, such as the Arctic, west Africa and deep below the saline rock off the coast of Brazil. As prices have tumbled, so has investment. Projects worth $380 billion have been put on hold. In America spending on fixed assets in the oil industry has fallen by half from its peak. The poison has spread: the purchasing managers’ index for December, of 48.2, registered an accelerating contraction across the whole of American manufacturing. In Brazil the harm to Petrobras, the national oil company, from the oil price has been exacerbated by a corruption scandal that has paralysed the highest echelons of government.

I am all for a new energy plan to help the economy grow, and I support continued energy exploration and production as long as it is done wisely, which I firmly believe can be done.  But adding new competitors (by allowing more exploration on federal lands) simply won't help (and it really won't help increase coal jobs). More supply is not the answer in an already oversupplied market.  And the current proposal is just giving away assets we will want down the road. 

January 31, 2017 in Current Affairs, Entrepreneurship, Financial Markets, Joshua P. Fershee, Law and Economics | Permalink | Comments (1)