Monday, June 27, 2016
I am still at Berle VIII with Haskell Murray and Anne Tucker. One more day of my June Scholarship and Teaching Tour to go--and I have a final presentation to do. Then, back to Knoxville to stay until late in July. Whew!
As you may recall or know, my Berle appearance this week follows closely on the heels of a talk on the same work (on corporate purpose and litigation risk in publicly held U.S. benefit corporations) that I made at last week's 2016 National Business Law Scholars conference. While I am thinking about this conference, please join me in saving the date for the next one: the 2017 National Business Law Scholars conference. Next year's conference will be held June 8-9 at The University of Utah S. J. Quinney College of Law, with Jeff Schwartz hosting. I will post more information and the call for papers, etc. once I have it.
June 27, 2016 in Anne Tucker, Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Haskell Murray, Joan Heminway, Research/Scholarhip, Teaching | Permalink | Comments (0)
Friday, June 24, 2016
Recently, I came across this discussion on Poverty Inc. by Bill Easterly (NYU Economics) and the film's creators (Michael Matheson Miller and Mark Weber). I posted on one of Bill Easterly's books here.
In the discussion at NYU, I especially liked this quote from Michael Matheson Miller: "We tend to treat poor people as objects--as objects of our charity, objects of our pity, objects of our compassion.--instead of subjects...Poor people are not objects; they are subjects and they should be the protagonists in their own stories of development." The personal story Mark Weber tells of his trip while he was studying at Notre Dame was moving, but you will have to watch the discussion to hear it, as it would be tough to summarize. Some of the audience questions are a bit long-winded, but I think the panel does a nice job deciphering and answering.
The film's trailer, the discussion, and the Q&A with the audience are all worth watching.
Monday, June 20, 2016
Having helped a few Tennessee bar applicants get straight on their knowledge of agency, unincorporated business associations, and personal property law last Friday at my BARBRI lecture (such a nice group present at the taping to keep me company!), it's now time for me to wrap up my June Scholarship and Teaching Tour with a twofer--a week of travel to two of my favorite U.S. cities: Chicago, for the National Business Law Scholars Conference and Seattle for Berle VIII. At both events, I will present my draft paper (still in process today, unfortunately) on publicly held benefit corporations, Corporate Purpose and Litigation Risk in Publicly Held U.S. Benefit Corporations. Here's the bird's-eye view from the introduction:
Benefit corporations—corporations organized for the express purpose of realizing both financial wealth for shareholders and articulated social or environmental benefits—have taken the United States by storm. With Maryland passing the first benefit corporation statute in 2010, legislative growth of the form has been rapid. Currently, 31 states have passed benefit corporation statutes.
The proliferation of benefit corporation statutes and B Corp certifications can largely be attributed to the active promotional work of B Lab Company, a nonprofit corporation organized in 2006 under Pennsylvania law that supports social enterprise (“B Lab”). B Lab works with individuals and interest groups to generate attention to social enterprise generally and awareness of and support for the benefit corporation form and B Corp certification (a social enterprise seal of approval, of sorts) specifically. B Lab also supplies model benefit corporation legislation, social enterprise standards that may meet the requirements of benefit corporation statutes in various states, and other services to social enterprises.
Benefit corporation statutes have not, by and large, been the entity law Field of Dreams. Despite the legislative popularity of the benefit corporation form, there have not been as many benefit corporation incorporations as one might expect. In the first four years of benefit corporation authority, for example, Maryland reported the existence of fewer than 40 benefit corporations in total. Tennessee’s benefit corporation statute came into effect in January 2016, and as of May 2, 2016, Secretary of State filings evidence the organization of 26 for-profit benefit corporations. However, a review of these filings suggests that well more than half were erroneously organized as benefit corporations. Colorado, another recent adopter of the benefit corporation, does appear to have a large number of filings (90 in total as of June 12, 2016 based on the list of Colorado benefit corporations on the B Lab website). However, as with Tennessee, a number of these listed corporations appear to be erroneously classified. These anecdotal offerings indicate that published lists of benefit corporations—even those constructed from state filings—over-count the number of benefit corporations significantly.
Research for this article identified no publicly held U.S. benefit corporations. For these purposes (and as referenced throughout this article), the term “publicly held” in reference to a corporation is defined to mean a corporation (a) with a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (“1934 Act”), or (b) otherwise required to file periodic reports with the Securities and Exchange Commission under Section 13 of the 1934 Act. Yet, benefit corporations may be subsidiaries of publicly held corporations (as Ben & Jerry's Homemade Inc., New Chapter Inc., and Plum, PBC have demonstrated), and corporations certified as B Corps have begun to enter the ranks of publicly held corporations (perhaps Etsy, Inc. being the most well known to date). It likely is only a matter of time before we will see the advent of publicly held U.S. benefit corporations.
With the likely prospect of publicly held U.S. benefit corporations in mind, this article engages in a thought experiment. Specifically, this article views the publicly held U.S. benefit corporation from the perspective of litigation risk. It first situates, in Part I, the U.S. benefit corporation in its structural and governance context as an incorporated business association. Corporate purpose and the attendant managerial authority and fiduciary duties are the key points of reference. Then, in Part II, the article seeks to identify the unique litigation risks associated with publicly held corporations with the structural and governance attributes of a benefit corporation. These include both state and federal causes of action. The reflections in Part III draw conclusions from the synthesis of the observations made in Parts I and II. The closing thoughts in Part III are intended to be of use to policy makers, academic observers, and advisers of corporations, among others.
As Haskell mentioned in an earlier post, he and Anne and I will be together at the Berle VIII event. What a great way to end my June tour--with my friends and colleagues from the Business Law Prof Blog! I look forward to it.
Friday, June 17, 2016
By now, I am sure all readers are aware of the horrific, hateful mass shooting that occurred in Orlando earlier this week.
If your social media feeds are anything like mine, it did not take long for politicians, pundits, and friends to politicize this tragedy. The tragedy was quickly used, by people all along the political spectrum, as evidence supporting their views on guns, religion, sexuality, and immigration. There is certainly a time and need for solutions, but there needs to be space to mourn. Orin Kerr (George Washington Law) summarized my thoughts well when he tweeted:
It's impressive how national tragedies prove to everyone that they were right all along.— Orin Kerr (@OrinKerr) June 13, 2016
What could and should be done immediately after a tragedy? I am not entirely sure, but those who took steps to donate blood and financial resources should be commended.
Some local businesses also attempted to help. For example, it was reported that Chick-fil-A, which is famously closed on Sundays, cooked and gave away food to those waiting in line to donate blood. This is an admittedly small gesture, but at a time when our nation often seems hopelessly divided, I am thankful for the gesture. Chick-fil-A and its conservative Christian COO Dan Cathy were, of course, at the center of controversy regarding views on marriage. I have seen no indications that Dan Cathy has changed his views on marriage, though Chick-fil-A does appear to have made changes in its donations. In any event, I am so glad to see a business looking past differing views and caring for human beings in the aftermath of tragedy.
[Disclosure: While no company is perfect, my family and I are Chick-fil-A fans, and I have friends, including a former roommate, who work for the company.]
Thursday, June 16, 2016
8th Annual Berle Symposium - Benefit Corporations and the Firm Commitment Universe - June 27-28, 2016 - Seattle, WA
Three Business Law Prof Blog editors (myself included) are presenting at the upcoming Berle Symposium on June 27-28 in Seattle.
Colin Mayer (Oxford) is the keynote speaker, and I look forward to hearing him present again. I blogged on his book Firm Commitment after I heard him speak at Vanderbilt a few of years ago. The presenters also include former Chancellor Bill Chandler of the Delaware Court of Chancery. Given that Chancellor Chandler's eBay v. Newmark decision is heavily cited in the benefit corporation debates, it will be quite valuable to have him among the contributors. The author of the Model Benefit Corporation Legislation, Bill Clark, will also be presenting; I have been at a number of conferences with Bill Clark and always appreciate his thoughts from the front lines. Finally, the list is packed with professors I know and admire, or have read their work and am looking forward to meeting.
More information about the conference is available here.
June 16, 2016 in Anne Tucker, Business Associations, Conferences, Corporate Governance, Corporations, CSR, Delaware, Financial Markets, Haskell Murray, Joan Heminway, Law School, Social Enterprise | Permalink | Comments (0)
Friday, June 10, 2016
I have been following Professor Angela Duckworth's work on grit for well over a year, so I was eager to read her new book, Grit: The Power of Passion and Perseverance. In fact, I can't remember the last time I bought and read a book within a few weeks of it being published.
The book is an easy read, written for a for a popular audience, and I was able to finish it in three relatively short sittings.
Below, I reflect on the book, hopefully in a balanced way.
Thesis. As may be evident from previous posts of mine, I like Duckworth's thesis - essentially, that passion and perseverance in pursuit of long-term goals are important in achieving success. Duckworth is careful to caveat her thesis, noting at hard work and passion are important, but are not the only factors that matter in achieving success. With this caveat, her thesis seems rather obvious and uninteresting.
Grit Scale. The Grit Scale Duckworth created for her studies seems easy to fake, and to her credit, she admits that it can be faked, like most self-reporting measures. Given the ability to fake the Grit Scale, I am not sure that it would be of much use in practical settings where the stakes are high (such as admissions or hiring). In one of the more interesting studies, Duckworth discusses how they gave the Grit Scale to West Point cadets before going through Beast Barracks (described as the toughest part of the four years). Supposedly, Grit scores did a nice job predicting who would stay and who would drop out. Given that the scale is easy to fake, maybe the interesting finding is not "those who actually have more grit perform better" but rather "those who think they have more grit (or are willing to lie that they have more grit) perform better.
Parenting and Teaching. As a parent, I appreciated her chapter on parenting for Grit (though she admits that these are just her thoughts, and unlike other parts of the book, the parenting chapter is lacking directly applicable scientific studies). In particular, she notes the importance of being both supportive and demanding. This is also fairly obvious, but easy to forget, hard to consistently apply, and important to remember. This instruction applies to teachers as well -- make clear that you have high expectations, but also communicate you are there to help and believe the students can meet the expectations with work. For a skeptics view, at least on the point of whether grit can be taught, see here.
Creativity, Talent, Structural Barriers: While Duckworth admits that there are other factors that contribute to success, I didn't think she made a strong case for grit being more important than creativity or talent. In fact, most of the gritty people she mentioned had certain natural advantages over many others. While grit may be needed to get things done, it seems like creativity and talent and access are all necessary and may be even more important than grit in some cases.
Anecdotes. There are a number of anecdotes in the book. The stories are less convincing than the academic studies, but the stories help illustrate her points. I especially liked the sports stories, including the ones about the UNC women's soccer team and the Seattle Seahawks. The coach of the UNC soccer team, for example, had his team memorize passages related to each team core value, and then also integrated the values into practices and games. Much better than a meaningless organization vision statement.
All in all, I think the book was worth reading, if only to stay current on some of the theories that are likely to be talked about by educators at all levels, and to inspire more passion and perseverance in general.
For a fair and thoughtful critique of Grit see here.
Friday, June 3, 2016
Next week, I will post some reflections on the contents of the book, but for now, I would like to discuss professors publishing for a popular audience. Tongue-twisting alliteration unintended.
I am thankful that Duckworth wrote this book for a popular audience rather than in a way that would target a narrow slice of academia. Even as a professor myself, I find books written for popular audience easier to digest, especially if in a different discipline. While popular press books often oversimplify, I would rather a professor author a popular press book on her studies (and studies in her field) than have a journalist attempt to explain them. Also, while a popular press book may oversimplify, professors tend to be intentional about avoiding claims that are too sweeping. Note that in this interview, like the book, Duckworth is careful to state that grit is not the only thing that contributes to success. Finally, especially when the professor has done the background academic work first, as Duckworth did in many peer-reviewed journal articles, a popular press book can reach more people and inspire change and may eventually lead to broader engagement with the underlying academic articles.
Grit, as a popular press book, has already reached a large audience. Grit was published by Scribner: An Imprint of Simon & Schuster (not a university press) and jumped into the top-5 of The New York Times best-seller list for hardcover non-fiction. Duckworth had already reached well over a million people with her TED talk, and the book allowed her to be much more nuanced than she could be in a 6 minute speech. The TED talk was a gateway to her popular press book and perhaps her popular press book with be a gateway to the academic research she cites.
One problem with engaging a large, popular audience is that the professor may lose control of her message, and people may misinterpret the findings. Duckworth looks like she is staying engaged in the conversation, however, and has, for example, written to argue against grading schools on grit.
In short, there are certainly potential problems when writing about academic topics for a popular audience, but I am glad Duckworth took on the challenge and spread her research in this way. That said, as I will discuss next week, Grit does have weaknesses, in addition to its strengths.
Thursday, June 2, 2016
See below for information on the The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference in Chicago, IL and their call for papers. I attended MALSB this year, found it beneficial, and reflected on the conference in this post.
Midwest Academy of Legal Studies in Business
2017 Annual Conference
March 22 – 24, 2017
The Palmer House Hilton Hotel – Chicago, Illinois
Conference Registration and Call for Papers
The Midwest Academy of Legal Studies in Business (MALSB) Annual Conference is held in conjunction with the MBAA International Conference, long billed as “The Best Conference Value in America.”
The MBAA International Conference draws hundreds of academics from business-related fields such as accounting, business/society/government, economics, entrepreneurship, finance, health administration, information systems, international business, management, and marketing. Although the MALSB will have its own program track on legal studies, attendees will be able to take advantage of the multidisciplinary nature of this international conference and attend sessions held by the other program tracks.
Saturday, May 28, 2016
A former law student of mine who practices in Delaware just alerted me to this Delaware Online article.
The article describes the proposed bill as follows:
House Bill 371 would restrict the number of corporate shareholders who can petition the court for a stock appraisal to only those who own $1 million or more of a company's stock or 1 percent of the outstanding shares, depending on which is less. Currently, any shareholder can ask the court to appraise their shares. Those motions are typically filed when a company is the target of an all-cash acquisition and the shareholder wants to ensure the buyer is paying a fair price for the stock. (emphasis added)
Corporate governance expert Charles Elson is quoted as saying:
. . . he understands the argument on both sides. "Anytime you attempt to restrict the rights of a smaller shareholder, it is going to be controversial whether or not the approach is warranted"
The article cites co-authored work by my Nashville neighbor, Randall Thomas (Vanderbilt Law):
A study published earlier this month by four noted corporate law professors, including Wei Jang of Columbia Business School and Randall S. Thomas of Vanderbilt Law School, found that hedge funds have accounted for nearly 75 percent of the amount awarded in all appraisal actions over the last few years. The study also found that 32 percent of the cases involved stakes below $1 million or 1 percent of a company's stock.
Go read the entire article.
Friday, May 27, 2016
A few months ago, Inside Higher Ed ran a story that noted "that grades continue to rise and that A is the most common grade earned at all kinds of colleges." (emphasis added). This finding surprised me. I knew grade inflation was becoming more and more common, but I did not expect A to be the most common grade earned, especially in the undergraduate setting.
The article reported that A's accounted for "more than 42 percent of grades" and "A's are now three times more common than they were in 1960." (emphasis added).
This grade inflation trend is a mistake, in my opinion. And it is a trend that is impacting graduate schools as well. At the law school I attended, they moved from a 100-point scale and a 78-point mean when I attended, to letter grades and a much higher mean GPA. I understand why my alma mater made the move; they were very different than other law schools, even at the time, and a student with an 85% average had a tendency to be discounted by employers, even if that person was in the top 10% of her class. Business graduate schools may well have led the grade inflation charge, probably driven, at least in part, by employers who would only reimburse for a B or better in a class. Again, I think grade inflation is a mistake.
Is grade inflation simply an extension of the participation trophy phenomenon? "Entitled" might be the most common adjective I hear used to describe students today. "65% of Americans Say Millennials Are “Entitled,” 58% of Millennials Agree." And if these students grew up being rewarded for just showing up, why wouldn't they be entitled? For the most part, I agree with Pittsburg Steeler, James Harrison, who famously returned his children's participation trophies. To be clear, I think there is a place for team (and individual) achievement trophies and for most improved trophies, but trophies for just showing up seems to encourage mediocrity.
I also understand this mother's point of view, who argued in favor of participation trophies, given the situation of her "mildly intellectually disabled" son. She is concerned for "kids who don't have the chance to ever be the star athlete [or student] no matter how hard they work for it" and hopes for recognition "that not everyone is born with the same abilities." When teaching, my heart does go out to the C-student who appears to be doing his best, while a slacker gifted student may be able to get a B with minimal effort. We should encourage the determined C-student, but also teach him that achievement takes time and effort and is more difficult for some. I believe that former UCLA basketball coach John Wooden defined success well when he wrote: "Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to become the best you are capable of becoming." I want my children and my students to know that I care about them regardless of their relative achievement. I want them to know that doing their very best is all that can be rightly expected. But I do not want to shelter them from the reality of failure. And I want them to realize that life is not always fair. And I want to help them to find a career well-suited for them, which may be aided by comparison to others over time.
In light of all of this, how should we respond in our grading?
I think there has to be a discussion at the college and university level. Individual teachers are in a tough position. At most schools, a professor who believes that Cs are average, and As are only for true excellence, would be a significant outlier and could wreck individual student GPAs. Personally, I think colleges and universities need to establish a presumptive mean grade (and maybe some distribution requirements as well). The grade mean would have to have some flexibility, especially for smaller classes, where the high achieving students may be concentrated or absent from particular classes. I know there are some who find a required grade mean limiting, and an established mean is not without faults, but I think it is a more fair system and limits the race to grade inflation that is sure to occur if more flexibility is granted.
While effort should be recognized and encouraged, grades and trophies should represent relative achievement. Competition is a reality of business. You don't get clients just by trying hard; you get clients by being the best. Students and athletes need to learn to compete, push through failure, and at some point realize that it may be best to move on to a different area.
Monday, May 23, 2016
Well, given that I just spent several hours constructing a somewhat lengthy post that I apparently lost (aargh!), I will keep this relatively short.
This summer, I am working on a benefit corporation project for the Annual Adolf A. Berle Symposium on Corporation, Law and Society (Berle VIII) to be held in Seattle next month. In that connection, I have been thinking about litigation risk in public benefit corporations, which has led me to consider the specific litigation risks incident to mergers and acquisitions ("M&A"). I find myself wondering whether anyone has yet done a benefit corporation M&A transaction and, if so, whether a checklist might have been created for the transaction that I could look at. I am especially interested in understanding the board decision-making aspects of a benefit corporation M&A transaction. (Haskell, maybe you know of something on this . . . ?)
Preliminarily, I note that fairness opinions should not carry as much weight in the benefit corporation M&A approval context, since they only speak about fairness "from a financial point of view." Benefit corporation boards of directors must consider not only the pecuniary interests of shareholders in managing the firm, but also the firm's articulated public benefit or benefits (which is/are set forth in its charter). Will legal counsel pick up the slack and render an opinion that the board's consideration of the public benefit(s) complies with law? What diligence would be required to give that opinion? I assume in the absence of interpretive decisional law, any opinion of that kind would have to be qualified. I also assume that legal counsel will not readily volunteer to give this kind of opinion.
However, even in the absence of an opinion, legal counsel will have to offer advice on the matter, since the board of a benefit corporation has the legal obligation to manage the firm consistent with its public benefit(s) in any case. Moreover, M&A agreements typically include representations (on transactional consents, approvals, and governance/legal compliance) affirming that the requisite consents and approvals for the transaction have been obtained and that the agreement and consummation of the transactions contemplated by it do not violate the firm's charter or applicable law. Legal counsel will be responsible for counseling the client on these contractual provisions.
At first blush, the embedded issues strike me as somewhat complex and fact-dependent. Important facts in this context include the precise language of the applicable statutory requirements, the nature of the firm's public benefit or benefits, the type of M&A transaction at issue and the structure of the transaction (including which entity survives in a merger), and the identity of the other party or parties to the transaction (especially whether, e.g., a merger partner is organized as a public benefit corporation or another form of entity). As I continue to ponder these and related matters in the benefit corporation M&A setting, I invite your comments on any of this--or on broader aspects of litigation risk in the public benefit corporation environment.
Friday, May 20, 2016
As previously mentioned, last week I presented at the Center for Nonprofit Management's Bridge to Excellence Conference.
Below I share a few thoughts. Some of these thoughts I have shared before about other conferences, but I think they bear repeating.
- Value of Practitioner Conferences. As an academic, it is easy for me to stay mostly in the academic world. I do think, however, going to practitioner conferences can be quite useful. Maybe most important, these conferences can help you meet people who are in practice, especially in your local area. People I have met at practitioner conferences have served as guest speakers in my classes, provided individual advice to students, helped students find jobs, and provided ideas for blog posts and scholarship. Practitioner conferences can also be useful as they tend to address very practical problems and remind me that I want my scholarship to speak to not only academics, but also the bar, bench, and business people. Attending one practitioner conference can lead to more opportunities---other speaking engagements, board member openings, and consulting opportunities, and the like.
- Check Technology Before Speaking. I learned this early in my academic career, and I found the IT person well before my talk and made sure the technology worked well. We had no issues. In other sessions, however, there were a number of technology delays and hiccups. Especially, if you plan to use a video file, make sure that the file loads and that the sounds works beforehand. One of the speakers made the mistake of mocking PowerPoint before launching her Storify presentation, which would not load at all because of Internet issues. Thankfully, you did not let that slow her down and provided an engaging presentation. Checking technology beforehand is not always possible, and IT support is not always available, but it is a rare conference that doesn't have a technology issue at some point, so I think more planning is usually appropriate.
- Think-Pair-Share and Q&A. Think-Pair-Share is a well-known teaching technique that I often use in my classes. You pose a question. Allow some time for thought. Break the room into small groups to discuss. Then ask for volunteers to share thoughts. I tried this technique at the conference yesterday and thought it worked well. We did not have an incredible amount of time, so I did not allow much time for individual thought beforehand, but the audience seemed to enjoy the discussion and the thoughts shared were mostly quite useful. One benefit of this technique is that it gets the audience involved. Another benefit is that it allows the audience members to meet and talk with people they may not have had a chance to otherwise. I was able to leave a few minutes at the end of my presentation for Q&A, but not nearly as much as I would have liked. Personally, I often find the Q&A among the most valuable time, depending on the audience and the questions. I generally wish more speakers left more time for Q&A.
- Time Between Sessions. CNM provided significant time between sessions - always at least 20 minutes, I think. But, as always seems to happen at conferences, sessions run long, and that time gets squeezed. The networking time between sessions can be incredibly useful, and so I think it is important to get speakers to honor the time limitations and leave a good bit of time between sessions, knowing that there will be delays. Part of the responsibility of staying on track falls on the speaker. The conference organizers can help by starting on time and providing notice when time is short. CNM did quite a good job keeping things on track, but even so, I wished for a bit more time between sessions.
- Vendor "Passports" and Drawings. CNM included a vendor "passport" in our materials. You got an orange sticker for each vendor you spoke to and if you filled out the passport (which had blank boxes next to vendor names) you could be entered into a drawing for excellent prizes at the end of the day. This seemed to be a good way to get attendees to engage with the vendors (who are also usually conference sponsors), and it seemed to be a good way to keep the attendees at the conference until the end of the day.
- Speed Consulting. CNM had a speed consulting session where you could speak briefly with experts in finance, law, management, grant-writing, etc. I could see a session like this being used at academic conferences, where more senior faculty members would offer bits of advice to prospective professors or more junior professors. I imagine, however, that more in-depth questions would have to be scheduled for another time. It did seem to be a good time to get some very preliminary thoughts and meet experts.
- Mementos. Thoughts may vary on this, but I like conferences that provide attendees and/or speakers with unique takeaway items. Some may think too much money is wasted on these trinkets, and that can be the case if the item is quite generic, but I think mementos can be a nice touch. I keep a few such items from conferences on my office shelves and they are nice reminders of the conferences. At CNM's conference, they provided little elephants, because the theme was "elephants in the room." I especially liked this gift because both of my young children are crazy about elephants and it was nice to bring them something home from work. One of my table-mates gave me her elephant so I had one for each child.
Wednesday, May 18, 2016
Today, I received notice of a web seminar on corporate political activity to be hosted by one of my former firms, King & Spalding.
Interested readers can register for the free web seminar here.
More information, from the notice I received, is reproduced below.
Election 2016: What Every Corporate Counsel Must Know About Corporate Political Activity
Thursday, May 26, 2016, 12:30 PM – 1:30 PM ET
In this election year, corporations and their employees will be faced with historic opportunities to engage in the political arena. Deciding whether and how to do so, however, must be made carefully and based on a thorough understanding of the relevant law. In this presentation, King & Spalding experts will address this timely and important area of the law and provide the guidance that corporate counsel need when engaging in the political process.
Friday, May 13, 2016
Yesterday, I presented on negotiation theory and stakeholder engagement at the Center for Nonprofit Management's Bridge to Excellence Conference.
At a session after mine, I was directed to a PowerPoint entitled What Every Board Member Should Know: A Guide for Tennessee Nonprofits. The PowerPoint was authored by the Tennessee Attorney General, the Tennessee Secretary of State, and the President of the Center for Nonprofit Management. The document is rather simple, but might be useful as a primer for nonprofit board members in Tennessee.
The conference attendees appeared to be a few hundred nonprofit practitioners and only about three or four professors, two of whom were among the presenters. After my morning presentation, I stuck around and listened to some of the other speakers and enjoyed an excellent lunch. I am a sucker for free food.
At the conference, I was struck by how nonprofit board members were discussed by some of the speakers and attendees. One question that was posed was - "how do you deal with a board member who is not pulling his or her weight as a fundraiser?" I guess I knew that nonprofit board members were chosen, at least in part, for their ability to give or raise money, but I never really saw fundraising as a major or primary role. The blunt phrase used was "give, get, or get off." Most of my thinking has been on for-profit board members and their role in governance, so this significant focus on another role was a bit unexpected.
Another question asked was - "how do you deal with a board member that is over-involved and thinks he or she is the executive director of the nonprofit?" Again, because of my focus on for-profit boards, this question hasn't been one that surfaced for me; I am usually thinking about how to get board members more involved. In fairness, I do recognize that officers are responsible for the day-to-day running of the organization, and I could see how a board member might overstep. Thankfully, the flip-side, the problem of the under-involved board member, was also discussed.
I left the conference wondering how effective nonprofit board members will be in governing when so much emphasis is put on their fundraising role, and when they are warned to not become over-involved in the operational side of the organization.
Board diversity was also a major topic - race and gender, and also age (there is evidently a push to get the next generation involved on nonprofit boards instead of just the "same old suspects") and skills and even personality type and political views. I didn't hear any discussion, outside of my session, on socio-economic diversity on boards, which is interesting given the communities that are often served by nonprofits, but maybe not surprising giving the role of fundraising. In my session, I did discuss the role of stakeholder boards, which I am writing on in the for-profit context, as a way to give voice to all major constituents, not just donors.
I may reflect further on this conference in future posts as it was certainly an interesting and useful day.
Monday, May 9, 2016
Thought Josephine Sandler Nelson's recent Oxford Business Law Blog post on Volkswagen might be of interest to our readers. It is reposted here with permission.
Fumigating the Criminal Bug: The Insulation of Volkswagen’s Middle Management
New headlines each day reveal wide-spread misconduct and large-scale cheating at top international companies: Volkswagen’s emissions-defeat devices installed on over eleven million cars trace back to a manager’s PowerPoint from as early as 2006. Mitsubishi admits that it has been cheating on emissions standards for the eK and Dayz model cars for the past 25 years—even after a similar scandal almost wiped out the company 15 years ago. Takata’s $70 million fine for covering up its exploding air bags in Honda, Ford, and other car brands could soon jump to $200 million if a current Department of Justice probe discovers additional infractions. The government has ordered Takata’s recall of the air bags to more than double: one out of every five cars on American roads may be affected. Now Daimler is conducting an internal investigation into potential irregularities in its exhaust compliance.
A recent case study of the 2015-16 Volkswagen (‘VW’) scandal pioneers a new way to look at these scandals by focusing on their common element: the growing insulation and entrenchment of middle management to coordinate such large-scale wrongdoing. “The Criminal Bug: Volkswagen’s Middle Management” describes how VW’s top management put pressure on the rest of the company below it to achieve results without inquiring into the methods that the agents would use to achieve those results. The willing blindness of top executives to the methods of the agents below them is conscious and calculated. Despite disclosure-based regulation’s move to strict-liability prosecutions, the record of prosecutorial failure at trial against top executives in both the U.S. and Germany demonstrates that assertions of plausible deniability succeed in protecting top executives from accountability for the pressure that they put on agents to commit wrongdoing.
Agents inside VW receive the message loud and clear that they are to cheat to achieve results. As even the chairman of the VW board has admitted about the company, “[t]here was a tolerance for breaking the rules”. And, contrary to VW’s assertion, no one believes that merely a “small group of engineers” is responsible for the misconduct. Only middle management at the company had the longevity and seniority to shepherd at least three different emissions-control defeat devices through engine re-designs over ten years, to hide those devices despite heavily documented software, and to coordinate even across corporate forms with an outside supplier of VW’s software and on-board computer.
The reason why illegal activity can be coordinated and grow at the level of middle management over all these years is rooted in the failure of the law to impose individual accountability on agents at this level of the corporation. Additional work by the same author on the way in which patterns of illegal behavior in the 2007-08 financial crisis re-occur in the 2015-16 settlements for manipulations of LIBOR, foreign currency exchange rates, and other parts of the financial markets indicates that middle management is further protected from accountability by regulators’ emphasis on disclosure-based enforcement. In addition, U.S. law has lost the ability to tie together the behavior of individuals within a corporation through conspiracy or other types of prosecutions.
Previous research has shown that the more prominent the firm is, and the higher the expectations for performance, the more likely the firm is to engage in illegal behavior. Now we understand more about the link between the calculated pressure that top executives put on their companies and the protection of middle management that supports the patterns of long-term, large-scale wrongdoing that inflict enormous damage on the public. It is not solely VW that needs to fumigate this criminal bug: the VW case study suggests that we need to re-think the insulation from individual liability for middle management in all types of corporations.
This post originally appeared on the Oxford Business Law Blog, May 5, 2016.
Friday, May 6, 2016
It is commencement season – our commencement at Belmont University is tomorrow. Commencement season means commencement speeches. Commencement speeches often comes with an extra helping of cliché advice. If I had to guess, no piece of cliché advice is more common in commencement speeches than “follow your passion in your career.”
For example, in Steve Job’s famous Stanford commencement speech he said:
You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.
Jim Carey, in an otherwise pretty original and somewhat odd commencement speech, included some of the cliché “follow your passion” advice when he said:
My father could have been a great comedian, but he didn’t believe that was possible for him, and so he made a conservative choice. Instead, he got a safe job as an accountant, and when I was 12 years old, he was let go from that safe job and our family had to do whatever we could to survive. I learned many great lessons from my father, not the least of which was that you can fail at what you don’t want, so you might as well take a chance on doing what you love.
Like almost any cliché, the “follow your passion” instruction contains some wisdom. I do think there are students who take conventional jobs out of fear, and fear shouldn’t drive a decision as important as career choice. That said, I also think this cliché advice can do a good bit of harm. I see students overly focused on trying to find work that fits with their current interests --- music, sports, travel, etc. --- or work that they think will “change the world" and make them feel good in the process. As a result, students often ignore work that may seem ordinary, but is just as important, if not as glamorous.
Accounting, mentioned in Jim Carey’s speech, is actually one of those areas that students often pass over as “ordinary work” or turn to reluctantly, out of fear. Few people I know have a natural passion for accounting. But I have seen a passion for accounting develop over time. As the philosopher William James said:
Action seems to follow feeling, but really action and feeling go together; and by regulating the action, which is under the more direct control of the will, we can indirectly regulate the feeling, which is not.
Most work is “ordinary” work. Even the splashy work celebrated in commencement speeches (and indirectly celebrated by the choice of commencement speakers) has ordinary elements, or was, at the very least, preceded by less unique work. I worry that students, attempting to follow the advice of Jobs, Carey, and others, bounce from job to job trying to find work that makes them feel good immediately and all the time. While I don’t necessary think “do what you love” is bad advice, I think it needs to be tempered with “find work the world needs and that fits your talents,” “do good work wherever you are,” and “know that most work is needed and important, even if it does not grab headlines.” I wish we took more time at our universities to celebrate the day-in, day-out grind of the faithful, ordinary worker. And I am trying to impart to my students that their future work matters, even if it seems common and doesn’t receive much recognition.
Friday, April 29, 2016
Earlier this month, B Lab, the 501(c)(3) nonprofit organization that oversees the certification of B corps, announced that it will move its October 2016 retreat from North Carolina because of North Carolina’s controversial House Bill 2 (“HB2”).
In an April 12 e-mail to “Friends of the B Corp Community,” the B Lab team wrote:
Standing for inclusion, the global B Corp community has decided to relocate the 2016 B Corp Champions Retreat and related events from North Carolina in light of the newly-enacted State law HB2 which limits anti-discrimination protections, particularly for members of the LGBT community.
Immediately, B Lab will work with the North Carolina B Corp community and others to get HB2 off the books and make North Carolina more inclusive and business-friendly.
B Lab also linked to this longer statement in that e-mail.
The Model Benefit Corporation Legislation and the laws following the Model require that a third-party standard be used by benefit corporations to measure their social and environmental impact. B Lab’s standard is currently the most popular standard, but it is not required or even mentioned by the benefit corporation statutes. Allowing for various third-party standards helps prevent the benefit corporation law from being overly political. I do wonder, however, if B Lab’s public stand on this issue will make the benefit corporation laws harder to pass in more conservative states, because of B Lab’s large role in cultivating both the certified B corp and benefit corporation communities.
Further, this situation leads to a question I asked in 2012 --- would B Lab exercise their veto power and deny certification to Chick-fil-A, if Chick-fil-A applied for certification and managed the required social score? As I wrote in 2012, I don’t see anything in the benefit corporation laws that would prevent Chick-fil-A from becoming a benefit corporation, but I am less sure if Chick-fil-A would be successful in obtaining certification from B Lab. B Corp certification is separate from the entity formation process, and the certification is under the control of B Lab rather than the government.
Also, I am not a nonprofit expert, but I wonder whether B Lab is flirting with the lobbying restrictions for 501(c)(3)s, especially when it promises to “work with the North Carolina B Corp community and others to get HB2 off the books.” They also seem to be involved in the attempts to pass benefit corporation laws in states across the country. (Thoughts from nonprofit lawyers or professors welcomed in the comments or by e-mail...I am told that 501(c)(3)s are allowed to do an "insubstantial" amount of lobbying).
In any event, in seems that non-profits, social enterprises, and traditional for-profits are becoming more and more active in social and political debates. And these organizations are often powerful, influential players.
Friday, April 22, 2016
Last week I attended the Midwest Academy of Legal Studies (MALSB) Conference in Chicago, IL. MALSB is one of the 12 regional associations of legal studies professors in business schools that has an annual conference. The Academy of Legal Studies of Business (ALSB) is the national association and the annual national conference is similar to AALS.
Given that I started my academic career at a law school, and still attend some law school professor conferences, I notice differences between law school and business school legal studies professor conferences. While there are plenty of similarities between the conferences, I note some of the differences below.
Pedagogy Presentations. While law school professor conferences do usually address pedagogy in a few panels, the business school legal studies conferences I have attended seem to have a much stronger emphasis. For example, I think the regional and national ALSB conferences tend to have 30%+ of the presentations dedicated to pedagogy. Many of the business school legal studies conferences have master teacher competitions as well, where finalists present their teaching ideas or cases to the audience and a winner is chosen by vote. I think some of this focus on pedagogy is because a fair number of business school legal studies professors are full-time, non-tenure track instructors without research responsibilities. In any case, I generally find the pedagogy presentations quite useful and think law school professor conferences could increase their focus on the area.
Relative Lack of Subject Area Silos. Maybe the biggest difference I have noticed between law school professor conferences and business school legal studies conferences is the relative lack of subject area silos at the legal studies conferences. At most law school professor conferences I attend, I can and do spend the entire time listening to only business law (narrowly defined) presentations. I leave small and big law school conferences only having heard about business associations, corporate governance, M&A, and securities law. At MALSB I heard those presentations, but also heard talks on employment, constitutional, contract, tax, and white collar criminal law. The conference organizers try to keep the panels in generally the same subject area, but the panels bleed into other areas and there is almost never enough pure business presentations to keep you fully occupied at a legal studies conference. The relative lack of subject area silos is good and bad. It is good because the exposure to other areas can lead to new insights about your own areas, but I still attend some law school professor conferences for more focus and depth.
Associated Journals. Most of the regional and national legal studies associations run blind, peer-reviewed law journals. In my opinion, these journals are excellent for our field and offer a nice alternative to law reviews. I've stuck with the national journals to date because a number of the regional journals do not have WestLaw or Lexis contracts yet. As I have said before, I think there is room for even more traditional peer-reviewed law journals, perhaps run by law schools or by law school associations.
Enjoyed my time at MALSB. The people and the presentations were definitely worth the trip.
Friday, April 15, 2016
I'm at the MALSB Conference in Chicago, but saw Anita Krug's recently posted book chapter entitled Toward Better Mutual Fund Governance. Worth reading. Abstract below.
This chapter evaluates the implications of an emerging model of mutual fund governance for effective oversight and regulation. As in the traditional model, in which a board of directors or trustees serves as the board of multiple discrete funds managed by a single investment adviser, this alternative model similarly contemplates the creation of multiple funds, but it eschews a single investment adviser charged with managing each fund’s assets. Rather, there are numerous advisers, each managing one or a small number of funds within the group. Although the new model may portend an improvement over the traditional model in some respects, questions arise as to whether it introduces concerns of its own and whether those concerns are more or less manageable than those to which the traditional model gives rise. The chapter contends that, although the new model produces risks not associated with the traditional model, there are reasons to believe, at least preliminarily, that it is at least as effective as the traditional model.
Friday, April 8, 2016
Recently, I have been talking to a few of our law students about jobs, and I have also discussed job negotiations in my MBA negotiations course.
Here are a few thoughts for law students negotiating their first job. First, take the time to sit and think about what you want in a job. I know this seems simple, but far too many students simply follow their classmates in chasing the most prestigious firms without fully understanding why; those firms may or may not be a good fit, depending on your goals. Talk to a number of people who have worked in jobs you are considering, and interview them about positives and negatives. Second, you have to understand your BATNA (your best alternative to a negotiated agreement). If you only have one offer, and thus no good alternatives to that job, you will be in a very weak negotiating position. As such, it is best to uncover a good, or at least decent, second option, even if it is a job outside law, before negotiating . Third, try to find out, from faculty members or recent graduates, what items may be negotiable at the organization. At larger firms and many government agencies, it seems that salary and benefits are almost always unmovable for entry level lawyers. That said, there are still some items - like practice group and start date - which might be negotiable. Start date can actually be really important. An early start date, if it is allowed (some organizations start all their first years at once), can give you a head start and more individualized senior associate/partner attention before the rest of the class arrives. At smaller firms, salary and benefits may be negotiable. Fourth, and perhaps more important, in all your discussions be respectful. You don't want to get a reputation of being entitled before you even start with the firm, and again, you need to be realistic about your other options; this is still a buyers' market. If you fortunate enough to have multiple good offers, you can, respectfully, ask for offer improvement, but if it is your only legitimate offer, asking may not be worth the risk of them pulling the offer. Fifth, once you are in the job, I would focus on making yourself valuable, to the senior associates, partners, and eventually the clients, so that you will be in a powerful negotiating position down the road.
For more general thoughts, watch Deepak Malholtra's (Harvard Business School) talk on negotiating your job offer.