Monday, February 20, 2017

Balancing the Regulatory Budget: Another Analogy for Consideration

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

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

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

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

February 20, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (0)

Tuesday, February 14, 2017

National Business Law Scholars - Last Chance!

Just a quick note and final reminder about the call for papers for the National Business Law Scholars Conference.  The deadline for submissions is Friday!  The conference will be held on Thursday and Friday, June 8-9, 2017, at the University of Utah S.J. Quinney College of Law.

February 14, 2017 in Conferences, Joan Heminway | Permalink | Comments (0)

Monday, February 13, 2017

Got Tax Literacy?

News on TaxJazz: The Tax Literacy Project from Tulane Law colleague Marjorie Kornhauser:

TaxJazz provides individuals with non-partisan, non-technical, accessible tax information to help people participate in discussions about tax policy and problems facing the nation. TaxJazz already addresses basic tax questions, such as: Why do we have taxes? Are there any legal constraints on taxation? What can be taxed? How do we decide what is a fair tax? It plans to add material on particular tax issues and provisions.

The readings, worksheets, dialogues and other materials are suitable for use by individuals or by groups in a variety of situations. They have already been used 7 times in different settings including high schools, a city recreation department’s after-school program, and a community senior center. They have already been used by over 350 people between the ages of 12 and 80.

For more information, please Contact Us.

Looks like I may need to spend some time over there at TaxJazz.  I certainly do not consider myself tax literate! Maybe this will help.  A quick pass over the materials on the site reveals catchy graphics and coverage of salient issues about taxing authority and tax policy.  I know a few legislators who need to better understand the tradeoffs as among different types of taxation . . . .  Maybe I can convince them that learning about taxation can be fun?!

In addition, I wonder if we "firm governance folks" could increase literacy in our field with a project like this.  Hmm.  Food for thought.

February 13, 2017 in Joan Heminway, Teaching, Web/Tech | Permalink | Comments (0)

Monday, February 6, 2017

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

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

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

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

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

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

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

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

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

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

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

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

Continue reading

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

Saturday, February 4, 2017

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

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

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

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

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

Friday, February 3, 2017

Reminder: National Business Law Scholars Conference Paper Submissions Due February 17

National Business Law Scholars Conference (NBLSC)

Thursday & Friday, June 8-9, 2017


Call for Papers

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 8-9, 2017, at the University of Utah S.J. Quinney College of Law. 

This is the eighth meeting of the NBLSC, an annual conference that draws legal scholars from across the United States and around the world.  We welcome all scholarly submissions relating to business law. Junior scholars and those considering entering the legal academy are especially encouraged to participate. 

To submit a presentation, email Professor Eric C. Chaffee at eric.chaffee@utoledo.edu with an abstract or paper by February 17, 2017.  Please title the email “NBLSC Submission – {Your Name}.”  If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.”  Please specify in your email whether you are willing to serve as a moderator.  We will respond to submissions with notifications of acceptance shortly after the deadline. We anticipate the conference schedule will be circulated in May. 

Keynote Speaker:

Lynn A. Stout, Distinguished Professor of Corporate & Business Law, Cornell Law School

Plenary Author-Meets-Reader Panel:

Selling Hope, Selling Risk: Corporations, Wall Street, and the Dilemmas of Investor Protection by Donald C. Langevoort, Thomas Aquinas Reynolds Professor of Law, Georgetown Law School

Commentators:

Jill E. Fisch, Perry Golkin Professor of Law, University of Pennsylvania Law School

Steven Davidoff Solomon, Professor of Law, University of California, Berkeley School of Law

Hillary A. Sale, Walter D. Coles Professor of Law, Washington University School of Law

Conference Organizers:

Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia School of Law)
Jeff Schwartz (University of Utah S.J. Quinney College of Law)


Please save the date for NBLSC 2018, which will be held Thursday and Friday, June 21-22, at the University of Georgia School of Law.

February 3, 2017 in Call for Papers, Conferences, Joan Heminway | Permalink | Comments (0)

Monday, January 30, 2017

Public Officials And Securities Investments - A Parade of Horribles?

Although it may have gotten a bit lost in the shuffle of the POTUS's first ten days in office, the nomination of Representative Tom Price for the post of Secretary of Health and Human Services has received some negative attention in the press.  In short, as reported by a variety of news outlets (e.g., here and here and here), some personal stock trading transactions have raised questions about whether Representative Price may have inappropriately used information or his position to profit personally from securities trading activities, in violation of applicable ethical or legal rules.  This post offers some preliminary insights about the nature of the concerns, which are set forth in major part in this New York Times editorial from January 18, and joins others in calling for reform.

Concerns about legislators' securities trading activities are not new.  As you may recall, a 2011 study (using data from 1985-2001) found that members of the U.S. House of Representatives do make abnormal returns on stock trades.  A 60 Minutes exposé, "Insiders," then followed, which helped catalyze the adoption in 2012 of the Stop Trading on Congressional Knowledge ("STOCK") Act.  A recently released paper catalogues this history and effects on those abnormal returns.  The findings in this paper, which focuses on Senate trading transactions, are summarized below.

Before “Insiders” aired, the market-value weighted hedged portfolio earns an annualized abnormal return of 8.8%. This abnormal return comes entirely from the sell-side of the portfolio, which earns an annualized 16.77% abnormal return. Post-60 Minutes, we find no evidence of continued outperformance in our market-value weighted portfolios. On average, abnormal returns to the market-value weighted sell portfolio are 24% lower post-60 Minutes, relative to the pre-60 Minutes sample. Taken together, our evidence suggests that, Senators, on the whole, outperformed the market pre-60 Minutes, and this systematic outperformance did not survive the attention paid to Senators’ investments surrounding the broadcast of “Insiders” and subsequent passage of the Stop Trading On Congressional Knowledge (STOCK) Act.

Continue reading

January 30, 2017 in Current Affairs, Ethics, Financial Markets, Joan Heminway, Securities Regulation | Permalink | Comments (6)

Monday, January 23, 2017

A New Resource for Teaching Transactional Business Law

Just a quick post today to alert you to a new teaching text that you may want to consider if you teach business planning or another similar offering focusing on transactional business law.  My UT Law colleagues George Kuney, Brian Krumm, and Donna Looper are coauthors of the recently released teaching text, A Transactional Matter.  The description on amazon.com follows.

A Transactional Matter gives users a summary of a basic transaction from initial choice of entity for a new venture through the harvest of that venture through a sale of substantially all its assets to an acquirer. This book allows students to get a feel for how transactional lawyering actually works―examining client objectives, legal options, client counseling, due dilligence, documentation and implementation.

This book is available in both a print version and electronic version. The e-version has live hyperlinks to the underlying transactional documents and statutes, regs, and cases. The print version will be supported by a website giving access to the same materials. Both the e-book and website of print version will feature extensive hyperlinks to source documents and legal authorities.

The three coauthors bring to this book a wealth of business law experience in a variety of contexts (from bankruptcy to general practice).   Overall, the book represents a very accessible set of teaching materials.  In fact, a student in my transaction simulation course module (which focuses on bylaw drafting) has already posted an excerpt to our class website, showing the immediate value of the text to my students (and maybe yours . . .).  If you use the book, please let me know how and how it worked for you.

[FYI, my colleagues also are coauthors of A Civil Matter, a civil procedure/litigation introduction for 1L students, in case that's more up your alley.]

[Added 1/24/2017: Here is the link to the West Academic page that Jeff Lipshaw mentions in his comment, for those who are interested.]

January 23, 2017 in Joan Heminway, M&A, Teaching | Permalink | Comments (4)

Monday, January 16, 2017

In Honor of Martin Luther King, Jr.

Today, we again celebrate the life of a great American, Martin Luther King, Jr.  His legacy is felt in so many ways in this country every day in the year.  But today, we call him and his work out for special attention.

Many have noted that Martin Luther King, Jr. had messages for those engaged in and with business.  I have gathered some of those observations, as interpreted by a variety of folks, for today's post.  Perhaps you have favorite quotes or stories of your own from Dr. King's life that have touched your business law teaching or practice.  If so, please share them in the comments.  But here are some of the nifty ones I found.

It also seems significant to note that business awards (including these out in Colorado) have been named after Dr. King in that same spirit.

As I prepare to lead a faculty-staff-student discussion group on Wednesday at The University of Tennessee College of Law (an annual MLK week tradition at UT Law that I mentioned in a prior Martin Luther King Day post), I am reminded of the many aspects of life--including professional life--that Dr. King's actions and words touch.  They represent a rich gift to us all.  Although I aspire to incorporate much of his wisdom into my daily life, I remain grateful to have a day each year made for thoughtful reflection on how his work affects my own (and the rest of my life, too).

January 16, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (0)

Monday, January 9, 2017

Consensus: The Future of U.S. Insider Trading Regulation Remains Unclear after Salman

The members of Friday's AALS discussion group about which I wrote last week came to an inescapable--if unsurprising--overall conclusion: the U.S. Supreme Court's opinion in the Salman case does little to address major unresolved questions under U.S. insider trading law.  That having been said, we had a wide-ranging and sometimes exciting discussion about the Court's opinion in Salman and what might or should come next.  I found the discussion very stimulating; a great way to start a new semester--especially one in which I am teaching Securities Regulation and Advanced Business Associations, both of which deal with insider trading law.  I will offer brief outtakes from the proceedings here for your consideration and (as desired) comment.

John Anderson and I framed three questions around which we structured the formal part of the discussion session (which commenced after brief introductory comments from each participant).

  • What, if anything, does the Court's Salman opinion say by its silence?
  • What, if anything, is left of the Second Circuit opinion in the Newman case after Salman?
  • Is law reform needed after Salman, and if so, should we continue to permit it to occur through further, incremental judicial developments or should reform be undertaken through legislation or regulatory rule-making or guidance?

The questions drew both divergent and overlapping responses.  It would take too long to try to capture it all, but a recording of the discussion will be available, if all went well with the technology, etc., on the AALS website in the coming months.

I want to pass on here, however, two key reading recommendations that Don Langevoort made to all of us that offer a basis for responding to all three questions--and more.  First, Don recommended that we all read the Solicitor General's Brief for the United States in the Salman case.  From this, he suggested (among other things), we can review issues not addressed in Salman and get an idea of how the U.S. government--at least at present--is processing those issues as across the Department of Justice and the Securities and Exchange Commission. Second, he recommended reading the First Circuit opinions in the Parisian and McPhail cases--two criminal prosecutions alleging insider trading violations (tipping and trading) by members of a golf group.  These opinions also address important issues not taken up by Salman--including how the "knew or should have known" language from the Court's Dirks opinion relates to both the mens rea requirement in criminal insider trading actions (which require proof of a "willful" violation under Section 32(a) of the Securities Act of 1933, as amended) and misappropriation actions--and may offer windows on future judicial decision making.

No doubt, insider trading law in the United States remains a bit of an open book in many respects after Salman.  Given that, I may report on more from this AALS discussion session in future posts.  But I will leave the matter here, for now, having posed a few questions for your consideration and passed on some good advice from a trusted colleague who has followed U.S. insider trading law for many years . . . .

 

January 9, 2017 in Conferences, Corporate Finance, Corporate Governance, Joan Heminway, Securities Regulation | Permalink | Comments (0)

Monday, January 2, 2017

Postscript to my Earlier Post on Salman and Insider Trading Law

Last week, friend of the BLPB Steve Bainbridge published a great hypothetical raising insider trading tipper issues post-Salman.  He invited comments.  So, I sent him one!  He has started posting comments in a mini-symposium.  Mine is here.  Andrew Verstein's is here.  There may be more to come . . . .  I will try to remember to come back and edit this post to add any new links.  Prompt me, if you see one before I get to it . . . .

Postscript (January 5, 2017): James Park also has responded to Steve's call for comments.  His responsive post is here.

Postscript (January 9, 2017, as amended): Mark Ramseyer has weighed in here.  And then Sung Hui Kim and Adam Pritchard added their commentary, here and here, respectively.  Steve collects the posts here.

January 2, 2017 in Corporate Finance, Corporate Governance, Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (1)

The Salman Case and the Future of Insider Trading

Tomorrow, I am headed to the Association of American Law Schools ("AALS") Annual Meeting in San Francisco (from Los Angeles, where I spent NYE and a bit of extra time with my sister).  I want to highlight a program at the conference for you all that may be of interest.  John Anderson and I have convened and are moderating a discussion group at the meeting entitled "Salman v. United States and the Future of Insider Trading Law."  The program description, written after the case was granted certiorari by the SCOTUS and well before the Court's opinion was rendered, follows:

In Salman v. United States, the United States Supreme Court is poised to take up the problem of insider trading for the first time in 20 years. In 2015, a circuit split arose over the question of whether a gratuitous tip to a friend or family member would satisfy the personal benefit test for insider trading liability. The potential consequences of the Court’s handling of this case are enormous for both those enforcing the legal prohibitions on insider trading and those accused of violating those prohibitions.

This discussion group will focus on Salman and its implications for the future of insider trading law.

Of course, we all know what happened next . . . .

The discussants include the following, each of whom have submitted a short paper or talking piece for this session:

John P. Anderson, Mississippi College School of Law
Miriam H. Baer, Brooklyn Law School
Eric C. Chaffee, University of Toledo College of Law
Jill E. Fisch, University of Pennsylvania Law School
George S. Georgiev, Emory University School of Law
Franklin A. Gevurtz, University of the Pacific, McGeorge School of Law
Gregory Gilchrist, University of Toledo College of Law
Michael D. Guttentag, Loyola Law School, Los Angeles
Joan M. Heminway, University of Tennessee College of Law
Donald C. Langevoort, Georgetown University Law Center
Donna M. Nagy, Indiana University Maurer School of Law
Ellen S. Podgor, Stetson University College of Law
Kenneth M. Rosen, The University of Alabama School of Law
David Rosenfeld, Northern Illinois University College of Law
Andrew Verstein, Wake Forest University School of Law
William K. Wang, University of California, Hastings College of the Law

The discussion session is scheduled for 8:30 am to 10:15 am on Friday, right before the Section on Securities Regulation program, in Union Square 25 on the 4th Floor of the Hilton San Francisco Union Square.  The AALS has posted the following notice about discussion groups, a fairly new part of the AALS annual conference program (but something SEALS has been doing for a number of years now):

Discussion Groups provide an in-depth discussion of a topic by a small group of invited discussants selected in advance by the Annual Meeting Program Committee. In addition to the invited discussants, additional discussants were selected through a Call for Participation. There will be limited seating for audience members to observe the discussion groups on a first-come, first-served basis.

Next week, I will post some outtakes from the session.  In the mean time, I hope to see many of you there.  I do expect a robust and varied discussion, based on the papers John and I have received.  Looking forward . . . .

January 2, 2017 in Conferences, Corporate Finance, Corporate Governance, Current Affairs, Joan Heminway, Securities Regulation | Permalink | Comments (1)

Thursday, December 29, 2016

Conflicts of a Different Kind . . . .

Ten days ago, I posted on conflicts of interest and the POTUS.  Today, friend-of-the-BLPB Ben Edwards has an Op Ed in The Washington Post on conflicts of a different kind--those created by brokerage compensation based on commissions for individual orders.  The nub:

In the current conflict-rich environment, Wall Street gorges itself on the public’s retirement assets. While transaction fees are costs to the public, they’re often juicy paydays for financial advisers. A study by the White House Council of Economic Advisers found that Americans pay approximately $17 billion annually in excess fees because of such conflicts of interest. The high fees mean that the typical saver will run out of retirement money five years earlier than he or she would have with better, more disinterested advice.

The solution posed (and fleshed out in a forthcoming article in the Ohio State Law Journal, currently available in draft form on SSRN here):

[S]imply banning commission compensation in connection with personalized investment advice would put market forces to work for consumers. This structure would kill the incentive for financial advisers to pitch lousy products with embedded fees to their clients. While the proposal might sound radical, Australia and Britain have already banned commission compensation linked to investment advice without any significant ill effect. While some might pay a small amount more under such a system, the amount of bias in advice would go down, likely more than offsetting the additional cost with investment gains.

I have been following the evolution of Ben's thinking on this and recently heard him present the work at a faculty forum.  I encourage folks interested in the many areas touched on (broker duties, broker compensation, conflicts of interest generally, etc.) to give it a read.  This is provocative work, even of one disagrees with the extent of the problem or the way to solve any problem that does exist.

December 29, 2016 in Corporate Finance, Current Affairs, Financial Markets, Joan Heminway, Legislation, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Monday, December 26, 2016

Pressing Forward to the New Year in Business Litigation

The end of the calendar year brings many things--among others: the holidays (and I hope you have enjoyed and are enjoying them), the release of the last Oscar-contender movies, and the publication of oh-so-many "top ten" lists.

Apropos of the last of those three, I admit to being a bit proud, in a perverse sort of way, about spotting a "top ten" and commenting on it here on the BLPB.  Back in May and June, I blogged about consumer litigation against Starbucks (my daughter's employer) involving coffee--too much ice, too hot, etc.  Apparently, those types of legal actions are among the "Top Ten Most Ridiculous Lawsuits of 2016."  Specifically, two of those lawsuits against Starbucks (the one for too much ice and another alleging too much steamed milk) are #1 on the list.  Another consumer suit takes the #2 spot--a legal action asserting that a lip balm manufacturer's packaging is misleading (specifically, making customers beehive there is more product in the tube than there actually is).  I continue to maintain (while acknowledging that consumer class action litigation can be useful when employed in cases that present a true danger to the consuming public), as I noted in my May post, that there are better ways to handle customer complaints.  

Back in the spring, Weil, Gotshal shared some observations on litigation trends.  Many of the underlying matters on which the co-authors of the report comment remain unresolved, and many involve actual or potential business litigation (including consumer litigation involving supply-chain-related or False Claims Act allegations).   Certainly, a new U.S. Supreme Court appointee may make a difference in business law cases accepted by the Court this year . . . .

What will 2017 bring in business litigation?  Any predictions?  Now is the time to stake your claim!

December 26, 2016 in Current Affairs, Food and Drink, Joan Heminway, Litigation | Permalink | Comments (0)

Monday, December 19, 2016

The Conflicting Interests of the POTUS through a Corporate Lawyer's Eyes

In her post on Saturday, co-blogger Ann Lipton offered observations about possible legal issues resulting from the President-Elect's tweets regarding public companies.  She ends her post with the following:

So, it's all a bit unsettled. Let's just say these and other novel legal questions regarding the Trump administration are sure to provide endless fodder for academic analysis in the coming years.

Probably right.

Today, I take on a somewhat related topic.  I briefly explore the President-Elect's conflicting interests through the lens of a corporate law advisor.  For the past few weeks, the media (see, e.g., here and here and here) and many folks I know have been concerned about the potential for conflict between the President-Elect's role as the POTUS, public investor and leader of the United States, and his role as "The Donald," private investor and leader of the Trump corporate empire.

The existence of a conflicting interest in an action or transaction is not, in and of itself, fatal or even necessarily problematic.  In a number of common situations, fiduciaries have interests in both sides of a transaction.  For example, a business founder who serves as a corporate director and officer may lease property she owns to the corporation.  What matters under corporate law is whether the fiduciary's participation in the transaction on both sides results in a deal made in a fully informed manner, in good faith, and in the bests interests of the corporation.  Conflicting interests raise a concern that the fiduciary is or may be acting for the benefit of himself, rather than for and in the best interest of the corporation. 

Corporate law generally provides several possible ways to overcome concerns that a fiduciary has breached her duty because of a conflicting interest in a particular action or transaction:

  • through good faith, fully informed approval of the action or transaction (e.g., after disclosure of information about the nature and extent of the conflicts) by either the corporation's shareholders or members of the board of directors who are not interested in the transaction; and
  • through approval of a transaction that is entirely fair--fair as to process and price. 

See, e.g., Delaware General Corporation Law Section 144.  Yet, if I believe what I read, no similar processes exist to combat concerns about actions or transactions in which the POTUS has or may have conflicting interests.  In particular, to the extent one does not already exist, should a disinterested body of monitors be identified or constituted to receive information about actual and potential conflicting interests of the POTUS and approve the action or transaction involving the conflicting interests?  Perhaps the Office of Government Ethics ("OGE") already has something like this in place . . . .  If it does, then both the public media and I are underinformed about it.  While there seems to be OGE guidance on the President-Elect's nominees for executive branch posts (see, e.g.here and here) and on overall executive branch standards of conduct (see here), I have not found or read about anything applicable to the President-Elect or POTUS.

In making these observations, I recognize that our federal government is different in important ways from the corporation.  I also understand that the leadership of a country/nation is different from the leadership of a corporation.  Having said that, however, conflicting interests can have similar deleterious effects in both settings.  The analogy I raise here and this overall line of inquiry may be worth some more thought . . . .

December 19, 2016 in Ann Lipton, Business Associations, Corporate Governance, Corporations, Current Affairs, Family Business, Joan Heminway | Permalink | Comments (8)

Tuesday, December 6, 2016

U.S. Supreme Court Simply and Elegantly Affirms Dirks in Salman

In a relatively brief opinion released this morning, the U.S. Supreme Court affirmed the Ninth Circuit's judgment in Salman v. United States.  The decision of the Court was unanimous.  The big take-aways include:

  • doctrinally, the Court's complete, unquestioning reliance on the language in Dirks v. Sec's Exch. Comm'n, 463 U. S. 646 (1983), as to when the sharing of information through a tip is improper, and therefore a basis for insider trading liability (quoting from the text on page 662 of the Dirks opinion: “'[T]he test,' we explained, 'is whether the insider personally will benefit, directly or indirectly, from his disclosure.'”);
  • factually, the emphasis placed by the Court on the value proposition represented by the information-sharing between the close brothers, Maher and Michael--that information passed on with the knowledge that it will be traded on was effectively a substitute for a monetary gift ("In one of their tipper-tippee interactions, Michael asked Maher for a favor, declined Maher’s offer of money, and instead requested and received lucrative trading information."), noting "[a]s Salman’s counsel acknowledged at oral argument, Maher would have breached his duty had he personally traded on the information here himself then given the proceeds as a gift to his brother.";
  • constitutionally, the Court finding no vagueness ("Dirks created a simple and clear 'guiding principle' for determining tippee liability") and also rejecting on a similar basis application of the rule of lenity; and
  • procedurally, because of the Court's ruling on the merits, the Court finding the jury instructions entirely proper.

The opinion offers some clarity on the application of U.S. insider trading doctrine by unanimously affirming the "gift" language from Dirks in a solid way: "To the extent the Second Circuit held that the tipper must also receive something of a 'pecuniary or similarly valuable nature' in exchange for a gift to family or friends, . . . we agree with the Ninth Circuit that this requirement is inconsistent with Dirks."  Having said that, the Court also hints in several places that the facts in these cases do matter.  The following quote is particularly relevant in this respect:

Salman’s conduct is in the heartland of Dirks’s rule concerning gifts. It remains the case that “[d]etermining whether an insider personally benefits from a particular disclosure, a question of fact, will not always be easy for courts.” . . .  But there is no need for us to address those difficult cases today, because this case involves "precisely the ‘gift of confidential information to a trading relative’ that Dirks envisioned.”

In that context, the Court reminds us that "the disclosure of confidential information without personal benefit is not enough."  This, indeed, places continuing pressure on the nature of the relationship between the tipper and the tippee and other facts relevant to the transmission of the information, all of which must be ascertained and then proven at trial.  And so, it goes on . . . .

December 6, 2016 in Joan Heminway, Securities Regulation, White Collar Crime | Permalink | Comments (0)

Monday, November 28, 2016

Last Class? Coggins to the Rescue!

Today, I share a quick teaching tip/suggestion.

I taught my last classes of the semester earlier today.  For my Business Associations class, which met at 8:00 am, I was looking for a way to end the class meeting, tying things from the past few classes up in some way.  I settled on using the facts from a case that I used to cover in a former casebook that is not in my current course text:  Coggins  et al. v. New England Patriots Football Club, Inc., et al.  Here are the facts I presented:

  • New England Patriots Football Club, Inc. (“NEPFC”), the corporation that owns the New England Patriots, has both voting and nonvoting shares of stock outstanding.
  • The former president and owner of all of the voting shares of NEPFC, Sullivan, takes out a personal loan that only can be repaid if he owns all of the NEPFC stock outstanding.
  • The board and Sullivan vote to merge NEPFC with and into a new corporation in which Sullivan would own all the shares.
  • In the merger, holders of the nonvoting shares receive $15 per share for their common stock cashed out in the merger.

From this, I noted that three legal actions are common when shareholders are discontented with a cash-out merger transaction: appraisal actions, derivative actions for breach of fiduciary duty, and securities fraud actions.  Shareholders in NEPFC brought all three types of action.  (Footnote 9 of the Coggins case and the accompanying text explain that.)  

Having just covered business combinations, including approval and appraisal rights, and wanting to address some new information about the process of derivative litigation, the facts from the case worked well.  I am sure there are other cases or materials that also could have done the job.  (Feel free to leave suggestions in the comments.)  But adding a little football and conflicting interests to the last class seemed like the right idea . . . .

 

 

November 28, 2016 in Business Associations, Corporations, Joan Heminway, M&A, Teaching | Permalink | Comments (0)

Monday, November 21, 2016

Still Worried About Teaching Business Associations . . . .

Thanks to all who responded to my query two weeks ago on teaching corporate fiduciary duties.  I continue to contemplate your suggestions as I recover from the cold that has consumed me now for a week.  Don't catch this version of the common cold!  It's a bear.

Anyway, the weekend after I published that post, I presented at a super symposium on shareholder rights at the University of Oklahoma College of Law--"Confronting New Market Realities: Implications for Stockholder Rights to Vote, Sell, and Sue," hosted by the Oklahoma Law Review.  (I spoke on rights to sell securities purchased in an offering exempt from registration under the CROWDFUND Act, Title III of the JOBS Act.)  Although it was not part of the formal agenda for the symposium, I got a chance to chat informally with a group of folks at and after the conference, including our host, Megan Shaner, along with Jessica Erickson, Gordon Smith, and Vice Chancellor Travis Laster from the Delaware Chancery Court (among others) about fiduciary duty complexity.  All, even the Vice Chancellor, had sympathy, offering ideas for simplifying corporate fiduciary duty law (as opposed to merely the teaching of it) that made sense.  And it seems that among those of us in the academy, there are many ways this material currently is taught in an introductory Business Associations/Organizations or Corporations course.

Of course, I am not the only one worried about teaching the law of business associations.  In extended discussions on the topic, co-blogger Marcia Narine raised a great question.  In general, she asked how one might teach business associations law to a relatively small class.  I understand that she in the past has taught 60-75 students in a four-credit-hour course.  That's similar to my situation at UT Law.  I typically teach up to 72 students (although I teach a three-credit-hour-course).  But in the future, Marcia may teach as few as 30 students in her four-credit-hour offering.  

She noted that she doesn't want to overburden the students or herself, but she wants to think about doing things differently.  She floated the idea of more peer grading.  I suggested in response that my oral midterm exam becomes more palatable in a smaller class.  I also noted that I would generally use more skills training in that environment and maybe even introduce current events or group presentations (2-3 students in each group) over the course of the semester.  But I also allowed as how I wouldn't try too many things all at once.  In fact, I noted that she might be better off just deepening what she already does that works.

What ideas do you have?  Do some of you teach a Business Associations class that includes as few as 30 students?  Do you use any specific pedagogies or tools that may be especially useful in a course like Business Associations/Organizations--a basic doctrinal upper-division course--when taught to a 30-student class?  Do you have any tricks of the trade you would feel comfortable offering?  If so, please post them in the comments.

In other Business Associations teaching news, I requested and have received permission to increase my Advanced Business Associations offering to three credit-hours from two.  This is great news.  I use this course to focus in more on publicly held and closely held firms, business combinations, derivative and securities litigation, and social enterprise and corporate social responsibility topics.  I ask the students to describe and assess the interaction among policy, theory, doctrine, and practice skills in corporate governance.  I like to have the students read full cases and law review articles, in addition to teaching text and excerpts.  (And I now plan to add Ann Lipton's new book chapter to the reading list this spring for the part of the course in which we cover the importance of bylaw amendments to contemporary corporate governance.  Great timing.)  

Bottom line?  The course, structured this way, just felt too densely packed with only two hours per week of teaching time.  So, my last two-credit-hour version of the course will be taught this spring.  Then, I will revamp the syllabus to add the extra credit-hour for 2018.  Interestingly, it was my students who came to me originally asking for the change, because they wanted to pause more over some of the material.  I did, too.  So, now I am not worried about this any more.  One thing to take off the ever-growing list of Business Associations teaching worries . . . .

 

November 21, 2016 in Business Associations, Joan Heminway, Marcia Narine Weldon, Teaching | Permalink | Comments (6)

Tuesday, November 8, 2016

Teaching Corporate Fiduciary Duty Law; Teaching Complexity

Each year, I rethink how I teach fiduciary duties in the corporate law context in my Business Associations course.  My learning objectives for the students are both limited and involved.  On the one hand, there's little room in my three-credit-hour course for a nuanced understanding of all of the contexts in which corporate fiduciary duty claims typically occur.  In particular, I have determined to leave out the public company mergers and acquisitions context almost completely.  On the other hand, I find myself juggling uncertain classifications of duty components, explanations of seemingly mismatched standards of conduct and liability, and judicial review standards in and outside the Delaware corporate law context.  It's a handful.  It's teaching complexity.

Of course, fiduciary duty is not the only complex matter that one must teach in Business Associations.  But it is, for me, one of the topics I am least confident that I "get right" in my interactions with students in and outside the classroom.  Accordingly, as I again head toward the end of the semester, I find myself wondering whether I could have done--or could do--more with the students in my Business Associations course this semester.  This leads me to ask my fellow business law professors (that's you!) whether any of you have materials, teaching techniques, exercises (in-class or out-of-class), etc. that you find to be particularly effective in educating law students the basics and nuances of corporate fiduciary duties.  

So, have at it!  Share your corporate fiduciary duty teaching successes in the comments, if you would.  I am all ears.  I know that what you report will benefit me and others (including our students), and I hope that your comments will generate a continuing conversation . . . .

 

November 8, 2016 in Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink | Comments (7)

Monday, October 31, 2016

Tricks and Treats: My October as a Law Professor

My October included some signifiant tricks and a bunch of parallel treats.  I will highlight but a few of each here.  They illustrate, in my view, the busy mid-semester lives that law professors may have.

The Tricks

It was a real trick for me to give three distinct presentations in three cities (two in person and one virtually) in a two-day period early in the month.  On the morning of October 6, I participated in a panel discussion at The Crowdfunding Conference in New York City (New York).  That afternoon, I jumped on a plane for Little Rock (Arkansas), where I gave a continuing legal education presentation on crowdfunding for the Arkansas Bar Association as part of a program on "Capital Raising Today and Securities Law Issues."  Finally, later that day, I was Skyped into a the North Carolina Law Review 2016 annual symposium in Chapel Hill (North Carolina) on "The Role of Law in Entrepreneurship," at which I presented a draft paper, forthcoming in the North Carolina Law Review, on the important role of business finance lawyers in entrepreneurial enterprise.  

It then was a trick to refocus my energy on faculty hiring a few days later.  That next week, I jetted off to Washington (DC) with my fellow Appointments Committee members and our Dean and Associate Dean for Academic Affairs for a UT Law alumni reception and the Association of American Law Schools (AALS) 2016 Faculty Recruitment Conference.  We were successful in interviewing a variety of folks for our two business law openings--one in the clinic and one in the doctrinal faculty.

After only a few nights home in my own bed, it was (again) a trick to haul my body into the car to drive to Lexington (Virginia) to participate in and attend the Washington and Lee Law Review's 2016 Lara D. Gass Annual Symposium, an event focusing on "Corporate Law, Governance, and Purpose: A Tribute to the Scholarship of Lyman Johnson and David Millon."  At that symposium, my presentation addressed shareholder wealth maximization as a function of firm-level corporate governance.  My essay on that topic will be published in a forthcoming issue of the Washington and Lee Law Review.

Before the next week was out, I accomplished yet another trick.  I drove up to Louisville (Kentucky) to offer my thoughts on current securities litigation issues for the Kentucky Bar Association 2016 Securities Law Conference.  I was asked to cover insider trading and liability under federal and state securities laws.  In fulfillment of this charge, I delivered a presentation entitled "Where There’s a Securities Market, There’s Fraud (and Other Misconduct): Hot Topics in Federal Securities Litigation."

My final October trick?  Fitting in my Business Associations oral midterm examinations and my Monday and Wednesday class meetings for Business Associations and Corporate Finance with all these trips.

The Treats

All of that effort was an investment, however.  The trips, presentations, and other interactions all yielded multiple benefits.  Most of them may be obvious, but I will list a few in any case.

  • I met lots of new and interesting folks from the crowdfunding industry, local bar associations, the AALS applicant pool, and the law academy (from the United States and abroad).
  • I got great feedback on my current work and new ideas, research avenues, and citation sources for my ongoing work.
  • I was able to honor two amazing colleagues, Lyman Johnson and David Millon.
  • I participated meaningfully in the important task of recruiting new faculty to UT Law.
  • I squeezed in some important family and personal time around the edges, including in attending the Knoxville Brewers Jam with my hubby (the tickets having been part of my anniversary gift to him back in August).

I am grateful for safe travels throughout the month.  Having said that, I admit that I am relieved all that travel and activity is over and done.  I look forward to a more calm November and a fun holiday season to follow.  In the mean time, however, I will continue to enjoy the fall, with pumpkins being among my favorite hallmarks of the season.

Bigstock-Pumpkin-Patch-68311816

October 31, 2016 in Conferences, Crowdfunding, Entrepreneurship, Joan Heminway, Law School, Teaching | Permalink | Comments (0)