Sunday, June 17, 2018

Possible Items for your Summer Reading List: Insider Trading and Legal Writing

Two law scholar/teacher friends have recently published books that deserve attention.  The first is a labor of scholarly love from my Association of American Law Schools and Southeastern Association of Law Schools co-conspirator John Anderson.  The second represents the hard work of Antonio Gidi, who visited at Tennessee Law a number of years ago.  I have read neither book, but I know the quality of the work that went into both of them.

Here is the summary of John's book, Insider Trading: Law, Ethics, and Reform:

As long as insider trading has existed, people have been fixated on it. Newspapers give it front page coverage. Cult movies romanticize it. Politicians make or break careers by pillorying, enforcing, and sometimes engaging in it. But, oddly, no one seems to know what’s really wrong with insider trading, or - because Congress has never defined it - exactly what it is. This confluence of vehemence and confusion has led to a dysfunctional enforcement regime in the United States that runs counter to its stated goals of efficiency and fairness. In this illuminating book, John P. Anderson summarizes the current state of insider trading law in the US and around the globe. After engaging in a thorough analysis of the practice of insider trading from the normative standpoints of economic efficiency, moral right and wrong, and virtue theory, he offers concrete proposals for much-needed reform.

It comes with advance praise from many of our business and criminal law colleagues--Jill Fisch, Don Langevoort, Ellen Podgor, Kelly Strader, and Andrew Vollmer.  If you order from Cambridge University Press before May 1, 2019, you can get a 20% discount using code JPANDERSON2018 at checkout.  I just ordered my copy.

Gidi's book (coauthored with Henry Weihofen), Legal Writing Style (Third Edition), is described as follows:

Legal Writing Style promotes the art of good writing by teaching students and practitioners the tools to make their prose clear, precise, simple, and forceful. With examples of what works and what doesn’t, this short but comprehensive treatise provides an invaluable resource for recasting writing for maximum impact and ultimate success.

It is classified as a hornbook, so you may not think it is a page-turner worthy of summer reading.  And it is a third edition.  But this topic is so crucial to what we do, and this edition is, I understand, a substantial re-write.  So, I draw attention to it here.

Happy Father's Day to all who are celebrating as or with fathers today.  Put the summer reading list aside to honor those important folks in our lives--something we should do every day.

June 17, 2018 in Joan Heminway | Permalink | Comments (0)

Monday, June 4, 2018

Emory Law Transactional Law and Skills Conference

It was great to see co-blogger Marcia Narine Weldon (albeit briefly) at the Sixth Biennial Conference: To Teach is to Learn Twice: Fostering Excellence in Transactional Law and Skills Education hosted by Emory Law's Center for Transactional Law and Practice.  I had the opportunity to present and attend some of the presentations on Friday.  I had to leave Saturday morning to teach Contract Law to ProMBA students in Knoxville Saturday afternoon, however, and missed hearing half the conference program as a result.  Even on Friday, due to the number of super concurrent sessions, I had to forego a lot of great presentations.  Consequently, I was delighted to read Marcia's post on Tina Stark's presentation.  Great stuff.

At the conference, I offered insights on my document "treasure hunt" teaching method in a "try this" session on Friday afternoon.  More specifically, I talked about and demonstrated a corporate finance treasure hunt.  After laying a substantive and practical foundation, I sent the audience, some of whom are not corporate finance folks, on a search for blank check preferred stock provisions in Delaware corporate charters.  Then, I called on them to share their search logic and make observations about what they found, relating their treasure to the example I had given them.  They did so well with this exercise!  Everyone found a blank check stock provision, and many in the audience were willing to talk about what they found.

I went to several other "try this" sessions on Friday (billed as forums "for individual presenters to demonstrate in-class activities").  They included:

The Creative Aspect of Transactional Lawyering: Structuring the Transaction and Drafting the Agreement to Resolve a Legal Issue

John F. Hilson
UCLA School of Law

Stephen L. Sepinuck
Gonzaga University School of Law

Teaching Contract Law, Terms, and Practice Skills Through Problems

Nadelle Grossman
Marquette University Law School

Teach the Basics of Contract Drafting, Corporate Governance & Transactional Law in One Sentence

Neil J. Wertleib
UCLA School of Law

Each session offered much to think about, a hallmark of this conference.  I plan to consider over the course of the summer--and beyond--how I may use some of the demonstrated techniques in my teaching and writing.  The proceedings of the conference will be published in principal part in Transactions: The Tennessee Journal of Business Law, UT Law's business law journal, during the 2018-19 academic year.  I will try to remember to let folks know when that volume of Transactions is available.

This week, I am off to New York and Toronto for two additional conferences (in New York, the Impact Investing Legal Working Group (IILWG)/Grunin Center for Law and Social Entrepreneurship’s 2018 Conference on “Legal Issues in Social Entrepreneurship and Impact Investing–in the US and Beyond,” and in Toronto, the Law and Society Association Annual Meeting on "Law at the Crossroads: Le Droit à la Croisée des Chemins").  I am at the airport waiting for my first (delayed) flight as a type this.  I expect to be able to report out on both next week.

June 4, 2018 in Conferences, Corporate Finance, Joan Heminway, Marcia Narine Weldon, Teaching | Permalink | Comments (0)

Monday, May 28, 2018

Honoring our Fallen Military Heroes and Requesting Permanent Peace

image from www.publicdomainpictures.net

For many, Memorial Day is just another Monday holiday--a time to relax a bit more in a busy work season.  For some, the celebration of Memorial Day means sales and barbecues and community parades, fairs, and similar events.  (I linked to events in my home town, Garden City, NY, and the greater Long Island area.)  Many view Memorial Day as a time to commemorate all veterans, something we also do on Veterans Day in the fall.  (The linked article celebrates the work of some entrepreneurial veterans in the Knoxville community.)  

Many of these ways of celebrating Memorial Day involve reflection of some kind.  At its core, Memorial Day seems to encourage a particular kind of reflection--a moment to recall and honor those who have died for our country in the course of military service.  That general encouragement is consistent with, but not completely reflective of, the text of the federal law establishing the holiday, which expressly calls for the President to call us to united prayer* for permanent peace:

The President is requested to issue each year a proclamation—

(1) calling on the people of the United States to observe Memorial Day by praying, according to their individual religious faith, for permanent peace;
(2) designating a period of time on Memorial Day during which the people may unite in prayer for a permanent peace;
(3) calling on the people of the United States to unite in prayer at that time; and
(4) calling on the media to join in observing Memorial Day and the period of prayer.

Peace, of course, prevents the death of military servants that occurs in war time.  That is a worthy objective.  The President's proclamation for today can be found here.  He reminds us that "[t]he Congress, by Public Law 106-579, has also designated 3:00 p.m. local time on that day as a time for all Americans to observe, in their own way, the National Moment of Remembrance."

Those who fight for our safety and freedom as members of the armed forces are special kinds of heroes.  Those who die in the act of that service sacrifice their own lives for ours.  That service and sacrifice is significant to me.  I plan to take a few moments out today--including the time I took to compose this post and also some time at 3:00 p.m.--to engage in reflection over what it means to spend and lose one's life in service to country and to ask for permanent peace.  I hope that you will, too.

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* I take the position that, notwithstanding the reference in the text of the law to religious faith, one need not align oneself with a particular religious faith to pray for permanent peace.  Dictionary definitions note secular definitions of the word as well as religious ones, e.g., here and here.  (Of course, pleadings include prayers for relief, so we lawyers know and recognize that the term has a more general meaning.)

May 28, 2018 in Joan Heminway | Permalink | Comments (0)

Monday, May 21, 2018

Call for Papers: AALS Section on Transactional Law & Skills

Call for Papers

AALS Section on Transactional Law and Skills

Transactional Law and Finance: Challenges and Opportunities
for Teaching and Research

2019 AALS Annual Meeting

New Orleans, Louisiana

The AALS Section on Transactional Law and Skills is proud to announce a call for papers for its program, “Transactional Law and Finance: Challenges and Opportunities for Teaching and Research.” This session will examine the role of finance in business transactions from various perspectives with the goal of inspiring more deliberate consideration of finance in law school teaching and legal scholarship.From structured finance to real estate, from mergers & acquisitions to capital markets, finance plays an important and fundamental role in transactional law. The intersection of transactional law and finance is dynamic, providing academics, practitioners, and the judiciary with both challenges and opportunities. For example, financial product innovation and new funding sources for entrepreneurs continue to expand. Meanwhile, the significant growth in merger appraisal litigation has cast a new spotlight on the ability to critically analyze financial models (with a critical issue being whether a particular model is appropriate for expert use to determine fair value in appraisal proceedings). At the same time, activist investors are impacting company boards and the way in which companies do business. Although these are just a few examples, they demonstrate the breadth and significance of finance in transactional law.

The Section on Transactional Law and Skills invites submissions from any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper on this topic to submit a 1 or 2-page proposal to the Chair of the Section by August 31, 2018. Papers accepted for publication as of August 31, 2018 that will not yet be published as of the 2019 meeting are also encouraged. The Executive Committee will review all submissions and select proposals for presentation as part of our AALS 2019 Section Meeting. Please note that presenters who are selected are responsible for paying their own annual meeting registration fees and travel expenses.

Please direct all submissions and questions to the Chair of the Section, Christina Sautter, at the following address:

Christina Sautter
Cynthia Felder Fayard Professor of Law
Byron R. Kantrow Professor of Law
Louisiana State University
Paul M. Hebert Law Center
Room 330
1 East Campus Drive
Baton Rouge, LA 70803

Email: csautter@lsu.edu

Tel: +1 225-578-1306

May 21, 2018 in Call for Papers, Conferences, Corporate Finance, Joan Heminway | Permalink | Comments (0)

Friday, May 18, 2018

Tenure Track Business Law Openings at Emory Law

As a member of the Section on Women in Legal Education of the Association of American Law Schools, I was informed earlier this week about three openings at Emory Law, two of which are for business law folks.  The message is included below.

I am pleased to serve on the Appointments committee at Emory Law for the 2018-2019 school year. We are conducting searches for exciting young scholars in three tenure-track positions: (1) Business law with a specialization in M&A and/or Securities Regulation, (2) General Business law (no specific specialization) with the ability to teach Business Associations/Corporations and Contracts, and (3) Criminal Procedure with the ability to also teach Evidence. We are only looking for junior laterals (no more than 3 years in a tenure-track position) and entry-level candidates. Please feel free to contact me if you are interested or know of others who might be interested.

Best regards,
Barbara

Barbara Bennett Woodhouse
L. Q. C. Lamar Professor of Law
Emory University School of Law
1301 Clifton Road
Atlanta, GA. 30322
cell - 352-262-1854
barbara.woodhouse@emory.edu

I urge those who are interested to contact Barbara for more information.  In any event, be on the lookout for the formal position notice(s).

May 18, 2018 in Joan Heminway, Jobs | Permalink | Comments (0)

Monday, May 14, 2018

A Bit More on Executive Private Lives and Fiduciary Duties

I always have loved the game of tag, and I love a challenge.  More importantly, I love a conversation about business law . . . .

Last week, Steve Bainbridge posted a follow-on to posts written by Ann and me on the application of fiduciary duties to the private lives of corporate executives.  As Steve typically does in his posts, he raises some nice points that carry forward this discussion.  In a subsequent Tweet, Steve appears to invite further conversation from one or both of us by linking to his post and writing "Tag.  You're it."

Screenshot 2018-05-14 22.50.35
I do want to make two additional points.  First, I offer an endorsement of something Steve wrote in his post.  Specifically, Steve asks (with a small typo corrected): 

 . . . to what extent should a board have Caremark duties to monitor a CEO's private life. Personally, I think Caremark is not limited to law compliance programs. A board presented with red flags relating to serious misconduct--especially misconduct in a sphere of life directly related to the corporation's business (think Weinstein)--has a duty to investigate. But, again, does that mean the board should hire private investigators to track the CEO 24/7?

I agree that a board's duty to monitor is not limited to compliance programs.  Stone v. Ritter makes it plain that the duty to monitor arises from a director's obligation of good faith, situated within the duty of loyalty.  Assuming no "intent to violate applicable positive law" or an intentionally failure to act in the face of a known duty to act (demonstrating a conscious disregard for his duties)," however, under Disney, a failure to monitor in this context likely would not rise to the level of bad faith unless the board "intentionally acts with a purpose other than that of advancing the best interests of the corporation"--which seems unlikely (although someone with more time and creativity than I have at the moment may be able to spin out some relevant facts).  Of course, the Delaware Supreme Court could add to the Disney list of actions not in good faith . . . .  But absent any of that, it is unlikely that a board of directors' failure to monitor an executive's private life will result in liability for a breach of the duty of loyalty.

Second, I want to pass on a further thought on the debate--one that is not my own.  In an email message to me, co-blogger Stefan Padfield observed that corporate opportunity doctrine questions are fiduciary duty claims that extend into a fiduciary's private life--specifically, the fiduciary's usurpation of the opportunity for his or her private gain.  He also noted that from there the leap is not as far as it may seem to conceptualizing other aspects of an executive's private conduct as being within the scope of his or her fiduciary duties to the corporation.  This certainly provides more food for thought.

I want to thank Ann for stimulating all these ideas.  Her original post raised a nice question--one that obviously provokes and has encouraged engagement in thoughtful conversation.  While we have not yet resolved the issue, we have staked out some important ground that may be covered in extant or forthcoming cases.  As Ann's and Steve's posts point out, there are a number of intriguing fact patterns at the intersection of executives' private lives and fiduciary duties that may force courts to wrestle some of this to the ground.  I, for one, will be watching to see what happens.

May 14, 2018 in Ann Lipton, Corporate Governance, Corporations, Joan Heminway, Stefan J. Padfield | Permalink | Comments (4)

Monday, May 7, 2018

Yes, Ann. I believe that CEOs have private lives . . . .

I was fascinated by Ann Lipton's post on April 14.  I started to type a comment, but it got too long.  That's when I realized it was actually a responsive blog post.  

Ann's post, which posits (among other things) that corporate chief executives might be required to comply with their fiduciary duties when they are acting in their capacity as private citizens, really made me think.  I understand her concern.  I do think it is different from the disclosure duty issues that I and others scope out in prior work.  (Thanks for the shout-out on that, Ann.)  Yet, I struggled to find a concise and effective response to Ann's post. Here is what I have come up with so far.  It may be inadequate, but it's a start, at least.

Fiduciary duties are contextual.  One can have fiduciary duties to more than one independent legal person at the same time, of course, proving this point. (Think of those overlapping directors, Arledge and Chitiea in Weinberger.  They're a classic example!)  What enables folks to know how to act in these situations is a proper identification of the circumstances in which the person is acting.

So, for example, an agent’s duty to a principal exists for actions taken within the scope of the agency relationship. The agency relationship is defined by the terms of the agreement between principal and agent as to the object of the agency. The principal controls the actions of the agent within those bounds based on that agreement.

Similarly, a director’s or officer's conduct is prescribed and proscribed within the four corners of the terms of their service to the corporation. They owe their duties to the corporation (and in Revlon-land or other direct-duty situations, also to the stockholders). The problem then becomes defining those terms of service. For directors, a quest for evidence of the parameters of their service should start with the statute and extend to any applicable provisions of the corporate charter, bylaws, and board policies and resolutions more generally. For officers, the statute typically doesn’t provide much content on the nature or extent of their services. The charter may not either. Typically, the bylaws and board policies and resolutions, as well as any employment or severance agreement (the validity of which is largely a matter outside the scope of corporate law), would define the scope of service of an officer.

I have trouble envisioning that the scope of service (and therefore, reach of fiduciary duties) for a typical director or officer would extend to, e.g., private ownership of other entities and decisions made in that capacity.  Yet, even where there is no technical conflicting interest or breach of a duty of loyalty, there is a clear business interest in having corporate managers—especially highly visible ones—act in a manner that is consistent with corporate policy or values when they are not “on the job.”  While voluntary corporate policy or private regulation may have a role in policing that kind of director or officer activity (through service qualifications or employment termination triggers, e.g.), I do not think it is or should be the job of corporate law—including fiduciary duty law—to take on that monitoring and enforcement role.

Nevertheless, I remain convinced that better (more accurate ad complete) disclosure of (at least) inherent conflicts of interest may be needed so investors and other stakeholders can evaluate the potential for undesirable conduct that may impact the nature or value of their investments in the firm.  As Ann notes, significant privacy rights exist in this context, too.  There's more work to be done here, imv.

Thanks for making me think, Ann.  Perhaps you (or others) have a comment on this riposte?  We shall see . . . .

May 7, 2018 in Ann Lipton, Business Associations, Corporate Governance, Corporations, Joan Heminway, Management | Permalink | Comments (4)

Monday, April 30, 2018

Social Enterprise and the Traditional For-Profit Corporation

My essay on the use of traditional for-profit corporations as a choice of entity for sustainable social enterprise firms was recently published in volume 86 of the UMKC Law Review.  I spoke on this topic at The Bryan Cave/Edward A. Smith Symposium: The Green Economy held at the UMKC School of Law back in October.  The essay is entitled "Let's Not Give Up on Traditional For-Profit Corporations for Sustainable Social Enterprise," and the SSRN abstract is included below:

The past ten years have witnessed the birth of (among other legal business forms) the low-profit limited liability company (commonly known as the L3C), the social purpose corporation, and the benefit corporation. The benefit corporation has become a legal form of entity in over 30 states. The significant number of state legislative adoptions of new social enterprise forms of entity indicates that policy makers believe these alternative forms of entity serve a purpose (whether legal or extra legal).

The rise of specialty forms of entity for social enterprise, however, calls into question, for many, the continuing role of the traditional for-profit corporation (for the sake of brevity and convenience, denominated “TFPC” in this essay) in social enterprises, including green economy ventures. This essay argues that TFPCs continue to be a viable—and in many cases desirable or advisable choice of entity for sustainable social enterprise firms. The arguments presented are founded in legal doctrine, theory, and policy and include both legal and practical elements.

Somehow, I managed to cite to four BLPB co-bloggers in this single essay: Josh, Haskell, Stefan, and Anne.  Evidence of a business law Vulcan mind meld?  You decide . . . .  

Regardless, comments, as always, are welcomed as I continue to think and write about this area of law and practice.

April 30, 2018 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Haskell Murray, Joan Heminway, Joshua P. Fershee, Social Enterprise, Stefan J. Padfield | Permalink | Comments (2)

Monday, April 23, 2018

AALS 2019 - Section on Business Associations Call for Papers

Call for Papers for the

Section on Business Associations Program on

Contractual Governance: the Role of Private Ordering

at the 2019 Association of American Law Schools Annual Meeting

The AALS Section on Business Associations is pleased to announce a Call for Papers from which up to two additional presenters will be selected for the section’s program to be held during the AALS 2019 Annual Meeting in New Orleans on Contractual Governance: the Role of Private Ordering.  The program will explore the use of contracts to define and modify the governance structure of business entities, whether through corporate charters and bylaws, LLC operating agreements, or other private equity agreements.  From venture capital preferred stock provisions, to shareholder involvement in approval procedures, to forum selection and arbitration, is the contract king in establishing the corporate governance contours of firms?  In addition to paper presenters, the program will feature prominent panelists, including SEC Commissioner Hester Peirce and Professor Jill E. Fisch of the University of Pennsylvania Law School.

Our Section is proud to partner with the following co-sponsoring sections: Agency, Partnership, LLC's and Unincorporated Associations; Contracts; Securities Regulation; and Transactional Law & Skills.

Submission Information:

Please submit an abstract or draft of an unpublished paper to Anne Tucker, amtucker@gsu.edu on or before August 1, 2018.  Please remove the author’s name and identifying information from the submission. Please include the author’s name and contact information in the submission email.

Papers will be selected after review by members of the Executive Committee of the Section. Authors of selected papers will be notified by August 25, 2018. The Call for Papers presenters will be responsible for paying their registration fee, hotel, and travel expenses.

Any inquiries about the Call for Papers should be submitted to: Anne Tucker, Georgia State University College of Law, amtucker@gsu.edu or (404) 413.9179.

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[Editorial note: As some may recall, the BLPB hosted a micro-symposium on aspects of this issue in the limited liability company context in anticipation of a program held at the 2016 AALS annual meeting.  The initial post for that micro-symposium is here, and the wrap-up post is here.  This area--especially as writ broadly in this proposal--remains a fascinating topic for study and commentary.]

April 23, 2018 in Anne Tucker, Business Associations, Call for Papers, Conferences, Contracts, Corporate Finance, Corporate Governance, Corporations, Joan Heminway, LLCs, Nonprofits, Partnership | Permalink | Comments (0)

Monday, April 16, 2018

Lynn A. Stout (1957-2018): Mourning the Loss of an Amazing Colleague . . . .

I learned earlier this afternoon that Lynn Stout, author of The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public (2012), lost her battle with cancer today.  Appropriate words are hard to come by.  She was among the nation's scholarly leaders in the legal aspects of corporate governance.  Regardless of whether you agree with her on the substance, you would likely find her work enlightening and her presence powerful.  She was persistent in argument, yet generous with mentoring and other professional support.

I know we each will miss her in our own way.  She and I had a bit of an unfinished conversation last June at the National Business Law Scholars Conference about my Washington & Lee Law Review article, "Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents."  I am sorry we never completed that chat.

Her vast body of work is among her great legacies.  I have my Advanced Business Associations students read "A Team Production Theory of Corporate Law" (coauthored with Margaret Blair) every year.  Other articles that I have enjoyed and used in teaching or research include: "Why We Should Stop Teaching Dodge v. Ford" (although I enjoy teaching the case and interrogating it nevertheless), "The Investor Confidence Game," "The Mythical Benefits of Shareholder Control," and "On the Proper Motives of Corporate Directors (or, Why You Don't Want to Invite Homo Economicus to Join Your Board)."  Feel free to add your memories and favorite works in the comments.  

Thank you, Lynn, for all you have done for all of us.  May you rest in total peace, free of your earthly burdens.  Amen.

April 16, 2018 in Joan Heminway, Law School | Permalink | Comments (3)

Tuesday, April 10, 2018

Preventing CEO Distraction by Restricting Outside Board Service

Last week, the Neel Corporate Governance Center at UT Knoxville hosted one of UT Knoxville's alums, Ron Ford, as a featured speaker.  He gave a great talk on boards of directors, from his unique vantage point--that of a CFO.  In the course of his remarks, he mentioned a public company corporate gpvernance policy that I had not earlier heard of: a CEO limit or prohibition on outside board service (other than local, small nonprofit board service).  A 2017 study found that:

Only 22% of S&P 500 boards set a specific limit in their corporate governance guidelines on the CEO’s outside board service; 65% of those boards limit CEOs to two outside boards, and 32% set the limit at one outside board. One board does not allow the company CEO to serve on any outside corporate boards, and two boards allow their CEO to serve on three outside corporate boards.

This may be why I had not heard about governance policies limiting board service; it seems these policies may be relatively uncommon.  I know from experience that CEOs do serve on outside boards and often consider that service an important way to learn valuable things that can be implemented at the firm that enjoys them.

What is the ostensible purpose of a policy restricting the outside board service of a firm's CEO?  Perhaps it is obvious.  It seems that most firms imposing this kind of restriction on CEOs desire to prevent the CEO from spending significant time on his or her service as a board member of another firm to the detriment of the firm by which he or she is employed as chief executive.  An online article succinctly captures the capacity for distraction.

. . . CEOs must weigh . . . the potential disadvantage of having to navigate a crisis. David Larcker, a professor at Stanford Law School and senior faculty at the university’s corporate governance center, says that while most CEOs would say that serving on an outside board is highly valuable, everything changes if either company comes up against a big challenge.

“Where it gets really complicated for a sitting CEO is if something happens,” Larcker says. “You’re a takeover target. You have a big restatement. You’re replacing a CEO. That’s harder to predict and takes up a lot of time.”

Are there CEOs who have experienced this kind of distraction?  Yes.  A Forbes contributor offers a well-known example in an article entitled "All Operating Executives Should Never Serve On Any Outside Boards":

A good poster child of outside board distractions was Meg Whitman in her final 2 years at the helm of eBay (EBAY). During this time, she joined the boards of Proctor & Gamble and DreamWorks Animation. EBay flew Meg around to Cincinnati and LA board meetings on their private jet. EBay's stock sank. Meg bought Skype. It didn't help.

The same article also calls out two Yahoo! CEOs as further examples.  And there are others.  See also, e.g.here.

Continue reading

April 10, 2018 in Corporate Governance, Corporations, Joan Heminway, Management | Permalink | Comments (2)

Monday, April 2, 2018

Spotify IPO This Week May Upend How Startups Raise Capital: Guest Post

This timely post comes to us from Jeremy R. McClane, Associate Professor of Law and Cornelius J. Scanlon Research Scholar at the University of Connecticut School of Law.  Jeremy can be reached at jeremy.mcclane@uconn.edu
__________________________________________________

Spotify, the Swedish music streaming company known for disrupting the music market might do the same thing this week to the equity capital markets. On April 3, Spotify plans to go public but in an unusual way. Instead of issuing new stock and enlisting an underwriter to build a book of orders and provide liquidity, Spotify plans to cut out the middleman and list stock held by existing shareholders directly on the New York Stock Exchange.

This will be an interesting experiment that will test some prevailing assumptions that about how firms must raise capital from the public.

The Importance of Bookbuilding. First, we will see just how important bookbuilding is to ensuring a successful IPO. When most companies go public, they hire an underwriter to market the shares in what is known as a “firm commitment” underwriting. The investment banks commit to finding buyers for all of the shares, or purchasing any unsold shares themselves if they cannot find buyers (an occurrence which never happens in practice). The process involves visiting institutional investors and building a book of orders, which are then used to gauge demand and set a price at which to float the stock. The benefit of this process is risk management – the issuing company and its underwriters try to ensure that the offering will be a success (and the price won’t plummet or experience volatile ups and downs) by setting a price at a level that they know market demand will bear, and ensuring that there are orders for all of the shares even before they are sold into the market.

Without underwriters or bookbuilding, Spotify is taking a risk that its share price will be set at the wrong level and become unstable. In Spotify’s case, however there is already relatively active trading of shares in private transactions, which gives the company some indication of what the right price should be. Nonetheless, that indication of price is volatile, in part because the securities laws limit the market for its shares by restricting the number of pre-IPO shareholders to 2,000, at least in the US. In 2017 for example, the price of Spotify’s shares traded in private transactions ranging from $37.50 to $125.00, according to the company’s Form F-1 registration statement.

Continue reading

April 2, 2018 in Corporate Finance, Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (2)

Changes to The University of Tennessee Board of Trustees

In recent weeks, the Tennessee General Assembly has been wrestling with a bill (house and senate versions here and here) that changes the governing board of The University of Tennessee (UT), where I teach.  Non-controversially, the UT FOCUS Act, as it is commonly called (Focusing on Campus and University Success at UT), decreases the size of UT's board of trustees.  Currently, the board of trustees comprises 27 members--five ex officio members and 22 appointed members.  Tenn. Code Ann. § 49-9-202.  Most would agree that 27--or even 22--is a relatively unmanageable number of board members, without good cause, for most governing boards.  But the composition requirements for the board (with this newly reduced number of trustees) are where the rubber hits the road.

The Bill Summary for the measure, as reported on the Tennessee General Assembly website, succinctly describes the current board composition, which is established by statute.  I include the relevant text from the Bill Summary here.

The ex officio members are: the governor, the commissioner of education, the commissioner of agriculture, and the president of the university, who are voting members; and the executive director of the Tennessee higher education commission (THEC), who is a nonvoting member. Of the 22 additional members: one must be appointed from each congressional district (presently there are nine congressional districts); two additional members each must reside in Knox and Shelby counties; one additional member each must reside in Weakley, Hamilton, and Davidson counties; one additional member must reside in Anderson, Bedford, Coffee, Franklin, Lincoln, Moore or Warren County; one additional member is a non-Tennessee resident; two additional members, one voting and one non-voting, must be members of the faculty of the University of Tennessee who served as faculty senate president, or the equivalent, at a University of Tennessee institution during the academic year immediately preceding appointment as a trustee, appointed according to a sequence detailed in present law; and two additional members who are students at a UT institution, one voting and one nonvoting, appointed from the various institutions on a rotating basis pursuant to present law.

Present law requires that at least one third of the appointive members be members of the principal minority political party in the state and that at least one third of the appointive members must be alumni of the University of Tennessee. All appointive members are appointed by the governor subject to confirmation by the senate, but appointments are effective until adversely acted upon by the senate. In making appointments to the board of trustees, the governor must strive to ensure that at least one person appointed to serve on the board is 60 years of age or older, and that at least one person appointed to serve on the board is a member of a racial minority. Present law requires that the membership of the board reflect the percentage of females in the population generally. Appointive members serve terms of six years beginning June 1 of the year of appointment, and members are eligible to succeed themselves.

(emphasis added)  Of particular importance for purposes of this post are the italicized portions of the description.  The UT FOCUS Act calls for no faculty or students--no state employees altogether--on the board as voting or non-voting members.  I am concerned about this aspect of the bill because of its effect on the expertise of UT's board.  No amount of board orientation can imbue board members with the knowledge that faculty and students have.

The apparent tension here is between the value of that expertise--boots-on-the-ground knowledge of shared governance, curriculum design and execution, the role of co-curricular and extra-curricular programming, faculty/staff/student relations, and other matters unique to current participation in the university's campus communities--and a perceived conflict of interest (since faculty and students would be effectively governing themselves).

The Association of Governing Boards of Universities and Colleges (AGB) and the American Association of University Professors (AAUP) agree that university governing boards generally lack knowledge of faculty affairs.  A 2017 publication of the AGB notes in this regard:

Participants in all three categories in our listening sessions (board members, presidents, and faculty) acknowledged—and indeed emphasized—that there is a huge information gap between boards and faculty. They noted that board members often have very little— if any—understanding of the nature of faculty work, of the nature of academic culture, of the real meaning of academic freedom, and of the history and importance of faculty self-governance and the faculty role in shared governance. . . .

The AAUP website features a report on a 2012 Cornell University study of faculty trustees that includes a related observation.

Discussions of “best practices” for governing boards consistently cite improved relationships with the faculty as one of the characteristics of highly effective boards. We are in an era of increasingly “activist” boards, leading to significant mutual distrust between boards and faculty members and creating an impetus for improving faculty-board relations.

As a former faculty senate president at UT Knoxville, I understand and appreciate all of this.

Continue reading

April 2, 2018 in Business Associations, Joan Heminway, Nonprofits | Permalink | Comments (0)

Monday, March 26, 2018

Teaching Corporate Law Globally - Recommended Text

I am committed to introducing my business law students to business law doctrine and policy both domestically and internationally.  The Business Associations text that I coauthored has comparative legal observations in most chapters.  I have taught Cross-Border Mergers & Acquisitions with a group of colleagues and will soon be publishing a book we have coauthored.  And I taught comparative business law courses for four years in study abroad programs in Brazil and the UK.  

In the study abroad programs, I struggled in finding suitable texts, cobbling together several relatively small paperbacks and adding some web-available materials.  The result was suboptimal.  I yearned for a single suitable text.  In my view, texts for study abroad courses should be paperback and cover all of the basics in the field in a succinct fashion, allowing for easy portability and both healthy discussion to fill gaps and customization, as needed, to suit the instructor's teaching and learning objectives.

And so it was with some excitement--but also some healthy natural skepticism--that I requested a review copy of Corporations: A Comparative Perspective (International Edition), coauthored by my long-time friend Marco Ventoruzzo (Bocconi and Penn State) and five others (all scholars from outside the United States), and published by West Academic Publishing.  I am pleased to say that if/when I teach international and comparative corporate governance and finance (especially in Europe) in the future, I will/would assign this book.  It is a paperback text that, despite its 530 pages, is both reasonably comprehensive and manageable.

The book is divided into ten chapters, starting with basic "building blocks" of comparative corporate law and ending (before some brief final thoughts) with unsolicited business combinations.  U.S. law is, for the most part, the centerpiece of the chapters, which consist principally of original text, cases, statutes, law journal article excerpts, and (in certain circumstances) helpful diagrams.  The methodological introduction, which I found quite helpful and user-friendly, notes that the coauthors "often (not always) start our analysis with the U.S. perspective."  (xxvi)  Yet, despite the anchoring use of U.S. law throughout the book, it somehow has a very European feel.  The coauthors note the emphasis on "U.S., U.K., major European continental civil law systems (France, Germany, Italy) and European Union law, and Japan," (id.) but my observation is that the words and phrasing also have a European flair.  Of course, this is unsurprising, given that all but one of the coauthors hail from European universities.  I note this without praise or criticism, but I mention it so others can assess its impact in their own teaching environments.

I recommend that those teaching in study abroad (or other courses focusing on comparative corporate law) review a copy of this book.  I will look forward to teaching from it the next time I need an international or comparative law teaching text for use in or outside the United States.

March 26, 2018 in Business Associations, Comparative Law, Corporate Finance, Corporate Governance, Corporations, International Business, International Law, Joan Heminway, Teaching | Permalink | Comments (0)

Monday, March 19, 2018

2018 Emory Transactional Law and Skills Conference - Last Chance for Submissions

As you may recall, I posted back in January on Emory Law's upcoming biennial conference on transactional law and skills, “To Teach is to Learn Twice:  Fostering Excellence in Transactional Law and Skills Education.” The conference is scheduled for Friday, June 1, 2018 and Saturday, June 2, 2018. 

I learned earlier today that the conference organizers are offering one last chance for interested transactional law and skills instructors to submit a proposal and have extended the proposal deadline through Friday, March 30, 2018.  They do ask that folks submit proposals as soon as possible.  Even if you do not submit a proposal, you can register for the conference now.   

Our friends at Emory Law desire to reach far and wide to embrace the whole community of transactional law and skills educators, so please pass this on and encourage your colleagues–including new teachers and adjunct professors (both able to participate at reduced registration fees)–to attend.  I plan to be there again, although I can only attend the first day of the conference this year.  I always learn something at these conferences.  They attract a great, thoughtful community of teachers and scholars.

March 19, 2018 in Conferences, Joan Heminway, Teaching | Permalink | Comments (0)

Monday, March 12, 2018

Martha and Carl: Untying U.S. Insider Trading's Gordian Knot

As I read recent news reports (starting a bit over a week ago and exemplified by stories here, here, here, and here--with the original story featured here) about Carl Icahn's well-timed sale of Manitowoc Company, Inc. stock, I could not help but associate the Icahn/Manitowoc intrigue with the Stewart/ImClone affair from back in the early days of the new millennium--more than 15 years ago.  As many of you know, I spent a fair bit of time researching and writing on Martha Stewart's legal troubles relating to her December 2001 sale of ImClone Systems, Inc. stock.  Eventually, I coauthored and edited a law teaching text focusing on some of the key issues.  A bit of my Martha Stewart work is featured in that book; much of the rest can be found on my SSRN author page.  For those who may not recall or know about the Stewart/ImClone matter, the SEC's press release relating to its insider trading enforcement action against Stewart is here, and it supplies some relevant background.  (Btw, ImClone apparently is now a privately held subsidiary of Eli Lilly and Company organized as an LLC.)

In reading about Icahn's Manitowoc stock sale, my thoughts drifted back to Stewart's ImClone stock sale because of salient parallels in the early public revelations. Just as Icahn had personal and professional connections with U.S. government officials who were aware of material nonpublic information regarding the later-announced imposition of steel tariffs, Martha Stewart had personal and professional connections with at least one member of ImClone management who was aware of impending negative news from the U.S. Food and Drug Administration regarding ImClone's flagship product.  We know from the law itself and Stewart/ImClone fiasco not to jump to conclusions about insider trading liability from such scant facts.  Stewart's insider trading case ended up being settled.  (No, that's not why she went to jail . . . .)  And I have argued in a book chapter (Chapter 4 of this book) that the facts associated with Stewart's stock sale may well have revealed that she did not violate U.S. insider trading prohibitions under Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934, as amended.

The Supreme Court's decisions in Dirks v. SEC and Salman v. United States advise us that a tippee trading while in possession of material nonpublic information only violates U.S. insider trading prohibitions under Section 10(b) and Rule 10b-5 if:

  • disclosure of the material nonpublic information in the tippee's possession breached a duty of trust and confidence because it was shared (directly or indirectly) with the tippee improperly--typically (although perhaps not always--as I note and argue in a forthcoming essay) because the duty-bearing tipper benefitted in some way from disclosure of the information; and
  • the tippee knew or should have known that the tipper breached his or her duty of trust and confidence.

See, e.g., Dirks v. SEC, 463 U.S. 646, 660 (1983).  

Thus, there is much more to tease out in terms of the facts of the Icahn/Manitowoc scenario before we can even begin to assert potential insider trading liability.  Among the unanswered questions:

  • what Icahn knew and when he knew it;
  • whether any information disclosed to Icahn was material and nonpublic;
  • who disclosed the information to Icahn and whether anyone directly or indirectly making disclosures to him had a fiduciary or fiduciary-like duty of trust and confidence;
  • whether any disclosures directly or indirectly made to Icahn were inappropriate and, therefore, breached the tipper's fiduciary or fiduciary-like duty of trust and confidence; and
  • whether Icahn knew or should have known that the information he received was disclosed in breach of a fiduciary or fiduciary-like duty of trust and confidence.  

Icahn denies having any information about the Trump administration's imposition of tariffs on the steel industry.  (See, e.g.here.)  And the nature of the duties of trust and confidence owed by government officials is somewhat contended (although Donna Nagy's work in this area holds great sway with me).  Regardless, it is simply too soon to tell whether Icahn has any U.S. insider trading liability exposure based on current news reports.  I assume ongoing inquiries will result in more facts being adduced and made public.  This post may serve as a guide for the digestion of those additoonal facts as they are revealed.  In the mean time, feel free to leave your observations and questions in the comments.

March 12, 2018 in Current Affairs, Joan Heminway, Securities Regulation, White Collar Crime | Permalink | Comments (2)

Monday, February 26, 2018

Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts

Like my fellow editors here at the BLPB, I enjoyed the first Business Law Prof Blog conference hosted by The University of Tennessee College of Law back in the fall.  They have begun to post their recently published work presented at that event over the past few weeks.  See, e.g., here and here (one of several newly posted Padfield pieces) and here. I am adding mine to the pile: Professional Responsibility in an Age of Alternative Entities, Alternative Finance, and Alternative Facts.  The SSRN abstract reads as follows:

Business lawyers in the United States find little in the way of robust, tailored guidance in most applicable bodies of rules governing their professional conduct. The relative lack of professional responsibility and ethics guidance for these lawyers is particularly troubling in light of two formidable challenges in business law: legal change and complexity. Change and complexity arise from exciting developments in the industry that invite—even entice—the participation of business lawyers.

This essay offers current examples from three different areas of business law practice that involve change and complexity. They are labeled: “Alternative Entities,” “Alternative Finance,” and “Alternative Facts.” Each area is described, together with significant attendant professional responsibility and ethics challenges. The essay concludes by offering general prescriptions for addressing these and other professional responsibility and ethics challenges faced by business lawyers in an age of legal change and complexity.

I do not often write on professional responsibility issues.  However, I do feel an obligation every once in a while to add to the literature in that area addressing issues arising in transactional business law.  In essence, it's service through scholarship.  

I hope you read the essay and, if you do, I hope you enjoy it.  I also can recommend the commentary on it published by my UT Law faculty colleague George Kuney and my student Claire Tuley.  Both comments will be available electronically in the coming months.  I will try to remember to post links . . . .

February 26, 2018 in Business Associations, Corporate Finance, Crowdfunding, Ethics, Joan Heminway, Lawyering, Securities Regulation, Unincorporated Entities | Permalink | Comments (2)

Monday, February 19, 2018

Social Enterprise and Impact Investing: 2018 Grunin Center Prize and Conference

Mark your calendars!

March 1, 2018 is the deadline for nominations for the inaugural award of the Grunin Prize.

The Grunin Prize has been created to recognize the variety and impact of lawyers’ participation in the ways in which business, whether for-profit or not-for-profit, is increasingly advancing the goals of sustainability and human development.

Lawyers, legal educators, policymakers, in-house counsel, or legal teams that recently have developed innovative, scalable, and social entrepreneurial solutions using existing law, legal education, or the development of new legal structures or metrics are eligible for nomination. And self-nominations are encouraged!

The Grunin Prize will be presented on June 5, 2018 at the IILWG/Grunin Center conference. To learn more about the Grunin Prize and the nomination process, go to http://www.law.nyu.edu/centers/grunin-social-entrepreneurship/grunin-prize.

June 5-6, 2018 are the dates of the Impact Investing Legal Working Group (IILWG)/Grunin Center for Law and Social Entrepreneurship’s 2018 Conference on “Legal Issues in Social Entrepreneurship and Impact Investing – in the US and Beyond.” This year’s IILWG/Grunin Center’s annual conference will take place at NYU School of Law in New York City.

The themes of this year’s conference include:

· Embedding Impact into Deal Structures and Terms
· Policy and Regulation of Impact Investing and Social Entrepreneurship
· Blending and Scaling Capital for Impact
· Building Investment-Ready Social Enterprises
· Mainstreaming Impact

Last year over 250 lawyers and other stakeholders attended this groundbreaking conference for lawyers working in the fields of social entrepreneurship and impact investing. In a post-conference survey of these conference attendees, we learned that:

· Over 99% of survey respondents rated the conference as “excellent” (over 76%) or “very good” (23%);
· Over 84% of survey respondents were very likely to recommend attending this conference to others; and
· Over 64% of survey respondents made 6 or more new connections at this conference.

Come join this growing community of legal practice!

Conference registration will open in April. For more information about the conference, go to http://www.law.nyu.edu/centers/grunin-social-entrepreneurship.

June 7, 2018 is the date of the first Grunin Center Legal Scholars convening. This convening, which is scheduled to take place immediately after the IILWG/Grunin Center Annual Conference, is intended to advance legal scholarship in the fields of social entrepreneurship and impact investing by bringing together legal scholars who are writing and researching in these fields and introducing them to the legal/policy challenges and opportunities that legal practitioners are facing in these fields.

Law school faculty (fulltime and adjunct), other academic personnel working fulltime in law schools who are engaged in legal scholarship, practitioners who are engaging in legal scholarship, and professors who are teaching law in other schools yet are engaging in legal scholarship are invited to join this convening.

If you are interested in joining this community of legal scholars, please contact the Grunin Center (law.gruninsocent@nyu.edu) and we will send you more information about the June 7, 2018 Legal Scholars convening.

Best Regards,

Helen Scott and Deborah Burand
Co-Directors, Grunin Center for Law and Social Entrepreneurship
New York University School of Law
245 Sullivan Street, 5th Floor
New York, NY 10012

February 19, 2018 in Conferences, Corporate Finance, Joan Heminway, Social Enterprise | Permalink | Comments (0)

Monday, February 12, 2018

Sending Advanced Business Law Students on Document "Treasure Hunts"

Just a quick post today about a teaching technique I have been using that offers significant opportunities for exploration, especially in small class environments.

I am again teaching Advanced Business Associations this semester.  The course allows students to review and expand their knowledge of business firm management and control issues in various contexts (public corporations, closely held corporations, benefit corporations, and unincorporated business entities), mergers and acquisitions, and corporate and securities litigation.  I have reported on this course in the past, including in this post and this one.

At the conclusion of each unit, I have students locate (go off on a treasure hunt, of sorts) and post on the course management website (I use TWEN) a practice document related to the matters covered in that unit.  Today we concluded our unit on benefit corporations.  Each student (I only have five this semester) was required to, among other things, post the actual corporate charter (not a template or form) of a benefit corporation.  Although the Advanced Business Associations course features training presentations by representatives of Lexis/Nexis, Westlaw, and Bloomberg that include locating precedent documents of various kinds, the students have not yet had this training.

In our discussions about this part of today's assignment, we learned a number of things.  Here are a few:

  • New articles, blog posts, and other secondary materials can be a good starting place in locating firms with particular attributes.
  • The word "charter" can mean different things to different people.
  • Journalists do not understand the difference between a benefit corporation and a B corporation.
  • In research geared toward locating precedents for planning and drafting, googling descriptive terms is likely to yield fewer targeted results than googling the terms used an actual exemplar document.
  • Corporate charters for privately held firms can be difficult to find--especially in certain specific jurisdictions, even when you know the firm's name and other identifying attributes.
  • "If at first you don't succeed, try, try, again." Three of the five students posted more than one document before they found an appropriate example.
  • The corporate charters the students posted include exculpation and indemnification.
  • Patagonia's charter is pretty cool.  It has a detailed, specific benefit purpose, a prohibition on redemptions, and a right of first offer.  It also requires a unanimous vote on certain fundamental/basic corporate changes, redemptions, and bylaw amendments.
  • There is a law firm in California that is a professional corporation organized as a benefit corporation "to pursue the specific public benefit of promoting the principles and practices of conscious capitalism through the practice of law."  Also pretty cool.

The discussion was rich.  The students accomplished the required task and reflected responsibly and valuably on their individual search experiences during our class meeting.  They learned from each other as well as from me; benefit corporations seemed to come alive for them as we spoke.  We accomplished a lot in 75 minutes!

Do any of you use a similar teaching technique?  Have you adapted it for use in a large-class (over 50 students) environment?  If so, let me know.  I would like to evolve my "treasure hunt" for business law drafting precedents for use in a larger class setting.

February 12, 2018 in Business Associations, Joan Heminway, Research/Scholarhip, Social Enterprise, Teaching | Permalink | Comments (2)

Friday, February 9, 2018

The Business of Designing for the Olympics

As I watch the opening ceremonies of the 2018 Winter Olympic Games, I am struck by all of the design work that goes into the ceremony and the games.  Who designs the vast opening and closing ceremony productions?  Does the host country hire some or all the people who appear in the productions or are some or all volunteers?  Who holds the intellectual property rights to the program elements and the recording of the program?  The International Olympic Committee, I guess . . . .  It strikes me that the Olympic Games have become big business, and intellectual property rights have become important to the value of that business.  The World Intellectual Property Oganization notes that "[t]he Games are as much a celebration of innovation and creativity as they are of humanity, fair play and sporting excellence."

Perhaps most amusing to me in the run-up to the 2018 Winter Olympic Games has been the coverage of the U.S. opening ceremony outfits, designed by Ralph Lauren.  Even for those of you who purport to know nothing about fashion design, you may recall that Ralph Lauren designs those shirts and shorts and sweaters with the little embroidered polo horse on the chest . . . .  But trust me, he's an iconic American designer.  Anyway, here is a critique of the American ensembles, ranking each item.  The jacket is heated (!).  But the large fringe suede gloves appear to be a particularly controversial fashion choice.  As one critic noted:

These outfits have come in for a lot of criticism, particularly because they require the athlete to wear ludicrously large gloves that look as though they were designed for grilling by some sadist who then wants the grillers to go up in flames because the fringe of their large gloves has caught on fire.

She goes on to say the following:

The gloves have also come in for criticism because they have a Southwestern, Native American–meets–Route 66 truck stop, tchotchke vibe to them. The Olympic rings and the American flag are beaded. Between the fringe and the beading, there have been some claims and concerns about appropriation. I hear those. However, I do think that, in the long view, we want the American Olympic team outfits to be referencing a broader set of cultural influences on American life.

Wow.  Who knew the business of deigning for the Olympic Games was so complex and fraught with peril?

In truth, the relationship between the U.S. Olympic Committee and Ralph Lauren is just one example of a designer collaboration seen frequently in fashion design in recent years.  Target, H&M, and many others have entered into successful collaborations with major designers.  See, e.g., herehere and here.  These collaborations involve contracts addressing the fusion of the applicable intellectual property rights, among other legal and business issues.  See, e.g., here and here.  This is undoubtedly an interesting aspect of fashion law.

But back to the Olympic outfits . . . .  Bustle is running a series of articles on the team uniforms and their designers.  Here is the first installment.  And if you want to know how much it will cost you to buy parts of the Team U.S.A. opening ceremony outfits, you can read about that here.  They're pricey; be prepared . . . .

February 9, 2018 in Intellectual Property, Joan Heminway, Licensing | Permalink | Comments (0)