Monday, April 24, 2017

Lawyers and Compliance: Business Entity Clients with Control Persons Who Recklessly Disobey

As a business lawyer in private practice, I found it very frustrating when the principals of business entity clients acted in contravention of my advice.  This didn't happen too often in my 15 years of practice.  But when it did, I always wondered whether I could have stopped the madness by doing something differently in my representation of the client.

Thanks to friend and Wayne State University Law School law professor Peter Henning, who often writes on insider trading and other white collar crime issues for the New York Times DealBook (see, e.g., this recent piece), I had the opportunity to revisit this issue through my research and present that research at a symposium at Wayne Law back in the fall of 2015.  The law review recently published the resulting short article, which I have posted to SSRN.  The abstract is set forth below.

Sometimes, business entity clients and their principals do not seek, accept, or heed the advice of their lawyers. In fact, sometimes, they expressly disregard a lawyer’s instructions on how to proceed. In certain cases, the client expressly rejects the lawyer’s advice. However, some business constituents who take action contrary to the advice of legal counsel may fall out of compliance incrementally over time or signal compliance and yet (paradoxically) act in a noncompliant manner. These seemingly ineffectual varieties of the lawyer/client relationship are frustrating to the lawyer.

This short article aims to explain why representatives of business entities who consider themselves law-abiding and ethical may nevertheless act in contravention of the business’s legal counsel and offers preliminary means of addressing the proffered reasons for these compliance failures. The article does not address willful noncompliance or even willful blindness. Rather, it makes observations about behavior that falls squarely into what the law typically recognizes as recklessness. An apocryphal lawyer-client story relating to insider trading compliance provides foundational context.

The exemplar story derives from things I witnessed in law practice.  Perhaps some of you also have experienced clients or business entity client principals which/who act contrary to your advice in similar ways.  Regardless, you may find this short piece of interest.

April 24, 2017 in Compliance, Conferences, Corporate Governance, Joan Heminway, Lawyering, Securities Regulation | Permalink | Comments (2)

Monday, April 17, 2017

Bonus Post for a Monday: International Haiku Poetry Day

I rarely post twice in one day, but I am making an exception today.  After posting this morning, I learned that today is International Haiku Poetry Day.  I loved Haiku poetry as a kid.  I still love it as an adult.  It has structure--a structure that, in my opinion, encourages both brevity and creativity.

In honor of this special day, I wrote a personal haiku for my Facebook page.

Yoga feeds the soul
And calms the body and mind.
Breathe and move. Repeat.

I am pretty proud of that one, inspired by my Monday night Iyengar practice.  So, I thought I would try my hand at a BLPB haiku.  Here goes.

A new President.
Time to revamp business regs!
Uncertainty reigns.

The inspiration for this haiku is obvious . . . .  :>)

Prefer more humorous verse? I also loved limericks.  So, I checked to see whether there might be an International or National Limerick Day.  Indeed, it appears that we will celebrate limericks on Friday, May 12, 2017.  Hmm . . . .

 

April 17, 2017 in Current Affairs, Joan Heminway | Permalink | Comments (2)

Visioning the Publicly Held Benefit Corporation

As Haskell earlier announced here at the BLPB, The first U.S. benefit corporation went public back in February--just before publication of my paper from last summer's 8th Annual Berle Symposium (about which I and other BLPB participants contemporaneously wrote here, here, and here).  Although I was able to mark the closing of Laureate Education, Inc.'s public offering in last-minute footnotes, my paper for the symposium treats the publicly held benefit corporation as a future likelihood, rather than a reality.  Now, the actual experiment has begun.  It is time to test the "visioning" in this paper, which I recently posted to SSRN.  Here is the abstract.

Benefit corporations have enjoyed legislative and, to a lesser extent, popular success over the past few years. This article anticipates what recently (at the eve of its publication) became a reality: the advent of a publicly held U.S. benefit corporation — a corporation with public equity holders that is organized under a specialized U.S. state statute requiring corporations to serve both shareholder wealth aims and social or environmental objectives. Specifically, the article undertakes to identify and comment on the structure and function of U.S. benefit corporations and the unique litigation risks to which a publicly held U.S. benefit corporation may be subject. In doing so, the article links the importance of a publicly held benefit corporation's public benefit purpose to litigation risk management from several perspectives. In sum, the distinctive features of the benefit corporation form, taken together with key attendant litigation risks for publicly held U.S. benefit corporations (in each case, as identified in this article), confirm and underscore the key role that corporate purpose plays in benefit corporation law.

Ultimately, this article brings together a number of things I wanted to think and write about, all in one paper.  While many of the observations and conclusions may seem obvious, I found the exploration helpful to my thinking about benefit corporation law and litigation risk management.  Perhaps you will, too . . . .

April 17, 2017 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Current Affairs, Haskell Murray, Joan Heminway, Litigation, Management, Social Enterprise | Permalink | Comments (0)

Friday, April 14, 2017

UMKC Administrative Law Symposium - Call for Papers

CALL FOR PAPERS
Presidential Powers and Administrative Law

The UMKC Law Review is pleased to announce a call for papers relating to the executive branch’s scope of power and its impact on administrative law and the lives of real people. Selected papers will be published in the Special Topics Symposium Winter 2018 edition of the UMKC Law Review.

This symposium invites proposals for papers exploring legal and administrative issues around the authority vested in the President of the United States. The constitutional limits on executive action, ethics and accountability in government, the separation of powers, the far-reaching economic and social effects of proposed or anticipated administrative reforms, and other considerations relating to the intersection of executive and administrative authority are all topics under the umbrella of this symposium. We also welcome analysis of the interaction between the executive branch and areas of administrative concern and impact, such as the environment, healthcare, consumer protection, banking regulation, and other areas dependent on agency oversight. The recent proliferation of executive orders and new structural rules, such as the one-in, two-out regulatory policy and possible changes for the organization of the Executive Branch, make the use of executive orders another topic of interest.

Under the new administration, will established tests for judicial deference to executive agencies, such as Chevron deference and the arbitrary and capricious standard, change? Will the administration’s philosophy affect the metric for analyzing regulations’ worth? Will promises of deregulation affect how agencies approach their statutory duties? How will agencies interpret existing ethics laws and regulations? Will the Supreme Court address questions such as the Emoluments Clause, the Take Care Clause, and the Public Trust Doctrine? These questions provide examples of the broad scope of the symposium.

Issue 4 of UMKC Law Review’s 86th Volume will explore these and related topics with the goal of advancing awareness of Presidential power. Articles and essays of all lengths and papers by single authors or multiple authors are invited. Preference will be given to works between 5,000 and 25,000 words. To be accepted for publication in UMKC Law Review, articles must not have been previously published. First drafts are due August 18, 2017, and final papers are due September 1, 2017.

Proposals for papers should be submitted by May 26, 2017 to the attention of Annette Griffin (aegr86@mail.umkc.edu), Zachary Parker (zacharyjosephparker@gmail.com), and Professor Irma Russell (russelli@umkc.edu). Proposals should include the following information: *Name, title and contact information of author *Title of paper *Anticipated length as an article or essay *Abstract or brief description of the topic

Questions may be addressed to Annette Griffin (aegr86@mail.umkc.edu) or Zachary Parker (zacharyjosephparker@gmail.com).

April 14, 2017 in Call for Papers, Conferences, Joan Heminway | Permalink | Comments (0)

Monday, April 10, 2017

Editing Etiquette 101

After I published last week's post, I heard from a few of you in person and by email.  You expressed support and sympathy.  And you had stories of your own.  Those communications motivate this post.

There are, in my view, rules of etiquette that apply to editing academic and professional work for publication.  It seems that I am not the only one who holds this view.  With articles and posts titled, e.g., Editing Etiquette and Editor Etiquette, a number of others in the writing and editing biz have ideas on how editors should behave in their interactions with writers.  And my key observations about best practices in law review, law journal, and law textbook editing echo theirs.  Here are my "Top Three" rules of editing etiquette for law publications.

  1. Always show the author where changes to the text have been made.  This typically means sending the author a blacklined version of the work.  Once the give-and-take of the editorial process is under way, the backline should indicate whether changes suggested by the author have been accepted and where new changes suggested by the editor have been implemented/added.  Recently, a law review sent me a backline that was made from a clean draft and showed all of the changes made on the document as changes made by the editor (when, in fact, some were changes requested by me that the editor had transferred to the clean draft).  Since I wanted to ensure that the changes I had suggested were, in fact, made, I had to locate the marked draft I had last sent to the law review and compare it to the blackline sent to me by the law review.  Here's what I advised the law review editor:

    "Although the backline was somewhat helpful, . . . it didn’t show which of the changes adopted were mine and which were yours since you made all of the changes on a clean draft. To know which of the changes were mine, I needed to look at yet a third draft, which makes the review more complex. Just a thought for the future—that making your edits on the draft that the author has marked up, rather than on a clean draft, facilitates author review. Admittedly, I still am concerned that I missed something that I need to review more carefully in the changes you made."

  2. When making changes to the wording in the text, strive to retain the author's voice and explain the reason for any change made.  I once had a law review staff member change the word "everyman" to another word that had but a small fraction of the same meaning.  The reason for the change was never offered. I wrote back and patiently explained that the word choice was quite purposeful and pointed--expressing my specific intention to reference "an ordinary individual with whom the . . . reader is supposed to be able to identify easily."  The original wording was restored. But my time in editing (and earlier theirs) had been wasted.

  3. Justify for the author any requests for additional footnotes or citations.  I have had law review editors and staff ask me for citational support for topic sentences that introduce or summarize the contents of the paragraph; same for conclusion sentences including similar content.  I also have had editors and staff request citations for my unique contributions--e.g., observations on the law or extant literature.  (Yes, I know that these are often hard to identify . . . . But just ask!)  After last week's post, one of you offered: "I kept cutting footnotes and they kept adding them back. Very frustrating."

I will spare you all the additional details.  I think you can see where these ideas are headed. I will end with a helpful thought that one of you shared with me--a thought that I and others here on the BLPB have shared in the past when writing about the law review editorial process: "I try to think of my exchanges with law review editors as part of my teaching job, aiming to show them how to edit properly and deal with 'clients' (if you will) . . . ." The publication process will work out just fine in the end if we can embrace those teaching moments and remember that we all are working toward the same objective: a quality, published piece of scholarship. 

April 10, 2017 in Joan Heminway, Law Reviews | Permalink | Comments (0)

Monday, April 3, 2017

Recent Law Review Experiences - Fewer Nightmares

From time to time, we at the BLPB offer our views on publishing with law reviews.  The excellent, the good, the bad, the ugly--apparently, we have seen it all (or at least close to it).  See, e.g., Marcia's post from last year that includes links to many of these prior posts.  This post carries forward that tradition.  

Two-and-a-half years ago, I published a post entitled Nightmare in Law Review Land . . . . That post included the two standard instructions that I routinely give to law reviews when I submit stack-check drafts.

The first is to leave in the automatic footnote cross-referencing that I have used in the draft until we finalize the article.  The second is to notify me if the staff believes that new footnote citations or citation parentheticals need to be added (specifically noting that I will handle those additions myself).

For the most part, this has worked well for me.  Recently, however, I received the following response to the second instruction:

Thank you for your notes. As part of our editing process, we add any needed citations and parentheticals. We build in time to do this and tend to be fairly thorough. If there are questions regarding sources or an individual has trouble finding sources, our Lead Article Editor (who will serve as your main contact) will reach out to ask you for assistance. As a general rule, our journal does tend to add a large number of parentheticals. I only mention this because it has sometimes caught Authors off guard in the past and I thought it would be worth mentioning on the front end. You will have two opportunites to review the parentheticals and added citations over the next few months to ensure they are consistent with your work.

I should have pushed back.  I didn't.  The result?  I got back a draft with a bunch of new, bungled footnote citations and parentheticals.  It took me hours to run down the new sources cited and consider  them.  I responded with significant edits in the draft and the following comments in my cover message, in pertinent part (edited to omit a few typos):

[F]ootnote citations were frequently inserted in places (especially in the introduction and other areas in which I have provided a “roadmap”—a summary of where the text will go next) where I do not believe they are needed. I have left specific comments in each place, although I fear they may not be well enough developed. But ask questions where you have them.

Relatedly, the citations inserted for a number of these new footnotes supported principles other than those in the cited sentence. . . .  In each case, I tried to go find the material being referenced in the cited source and evaluate whether it supported the stated principle. Then, if I found a disconnect, I suggested in the margin an alternative footnote. . . .  [I]f you decide under your editorial guidelines that a citation is required, please use the alternative I provided. . . .

Also, parentheticals were added in places where they are not required, e.g., in general citations to cases . . . .  I took them out. If you require parenthetical in these places, please just ask and I will supply them. The parentheticals that were added were either so general that they were unhelpful or included inapposite information.

I am not sure my tone was right on the message.  But I admit that I was frustrated and disappointed--maybe more with myself than with the law review students who worked on editing the article--when I wrote the message.  My time in cross-checking all those faulty citations and parentheticals was entirely wasted.  I could easily have added some footnotes and parentheticals where I had missed including them in the draft I submitted, as necessary or desired.  It would have taken a lot less time (more like ten, instead of thirty, hours).

Have any of you had this same issue with law review editors?  I originally experienced this years ago, which led to my standard instruction.  But it seems the problem persists.  So, it must have something to do with the way law review editors are instructed--or instruct each other.  Perhaps that instruction requires more thought . . . .

At any rate, since I started issuing my two standard instructions, I have had fewer dissatisfying experiences.  I plan to continue with the practice of including them when I submit draft articles for review.  And I guess next time a law review insists in response on supplying new footnotes and parentheticals, I will send the editors a link to this post . . . .

April 3, 2017 in Joan Heminway, Law Reviews, Writing | Permalink | Comments (4)

Monday, March 27, 2017

Proposed 2018 AALS Business Regulation Discussion Group - Heminway x Tucker Collab

Call for Participants

 

Proposed Discussion Group

A New Era for Business Regulation?

Joan MacLeod Heminway, The University of Tennessee College of Law

Anne Tucker, Georgia State University College of Law

2018 AALS Annual Meeting

San Diego, CA

January 3-6, 2018

This is a call for participants in a proposed discussion group on “A New Era for Business Regulation?” at the 2018 Association of American Law Schools (“AALS”) Annual Meeting.

In January 2017, the president signed an Executive Order on Reducing Regulation and Controlling Regulatory Costs. The order uses budgeting powers to constrict agencies and the regulatory process by requiring that two regulations must be eliminated for each new regulation adopted. The order also mandates that “the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero.” While the executive order does not cover independent agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, agencies that crafted many of the rules required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, these agencies and their regulatory agendas will likely be the subject of future reform. The co-organizers of this proposal are looking for full-time faculty of AALS member or fee-paid schools to engage in a discussion at the AALS annual meeting about changes in the business regulatory environment and assess the consequences—good and bad—of regulatory reform affecting businesses. We invite participants from diverse legal backgrounds including, but not limited to, financial regulation, securities regulation, administrative law, business finance and governance, and related fields. If there is sufficient interest in this topic, the co-organizers will submit a proposal for this discussion group to the AALS before the April 13, 2017 deadline.

To indicate your interest in participating, please send an expression of interest by email to either Joan MacLeod Heminway, The University of Tennessee College of Law, at jheminwa@tennessee.edu or Anne Tucker, Georgia State University College of Law, amtucker@gsu.edu. In the subject line of your email, please include “AALS Business Regulation Discussion Group” and your last name. In the text of your email, please provide your name, contact information, and a one-paragraph summary of your interest in the topic, stating how it connects to your current or future research or teaching interests.

If the discussion group proposal is accepted by AALS, the co-organizers may conduct a call for additional proposals before notifying the final faculty members selected to participate. Participants will not be expected to have a formal paper, but will be asked to contribute a written treatment (5-10 pages) prior to the annual meeting.

March 27, 2017 in Anne Tucker, Conferences, Joan Heminway | Permalink | Comments (0)

Monday, March 20, 2017

What I Did On My Spring Break

Ringling1

No.  This is not a travelogue.  Rather, it's a brief additional bit of background on a case that business associations law professors tend to enjoy teaching (or at least this one does).

In Ringling Bros. Inc. v. Ringling, 29 Del. Ch. 610 (Del. Ch. 1947), the Delaware Chancery Court addresses the validity of a voting agreement between two Ringling family members, Edith Conway Ringling (the plaintiff) and Aubrey B. Ringling Haley (the defendant).  The fact statement in the court's opinion notes that John Ringling North is the third shareholder of the Ringling Brothers corporation.

I spent two days in Sarasota Florida at the end of Spring Break last week.  While there, I spent a few hours at The Ringling Circus Museum.  It was fascinating for many reasons.  But today I will focus on just one.  I noted this summary in one of the exhibits, that seems to directly relate to the Ringling case:

Ringling2

Interestingly, 1938 is the year in which the plaintiff and defendant in the Ringling case created their original voting trust (having earlier entered into a joint action agreement in 1934).  The agreement at issue was entered into in 1941.  Could it be that, perhaps, the two women entered into this arrangement as a reaction to John Ringling North's desire to acquire--or successful acquisition of--management control of the firm?  I want to do some more digging here, if I can.  But I admit that the related history raised some new questions in my mind.  John Ringling North was all but forgotten in my memory and teaching of the case, until the other day . . . .  The case takes on new interest in my mind (more broadly as a close corporation case) because of my museum visit and discovery. 

[Postscript - March 21, 2017:  Since posting this, I have been blessed by wonderful, helpful email messages offering general support, PowerPoint slides (thanks, Frank Snyder), a video link (thanks, Frances Fendler), and referrals to/copies of Mark Ramseyer's article on the Ringling case, Ringling Bros.-Barnum & Bailey Combined Shows v. Ringling: Bad Appointments and Empty-Core Cycling at the Circus, which offers all the detail I could want (thanks, again, Frances, and thanks, Jim Hayes) to help fill in the gaps--while still creating a bit of mystery . . . .  I am a much better informed instructor as a result of all this!  Many thanks to all who wrote.]

March 20, 2017 in Business Associations, Corporate Governance, Corporations, Joan Heminway, Shareholders, Teaching | Permalink | Comments (0)

Monday, March 13, 2017

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

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

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

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

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

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

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

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

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

Monday, March 6, 2017

A Market For Corporate Disclosure? !!!!

Most of us editors here at the Business Law Prof Blog obsess and blog in one way or another about disclosure issues.  Marcia has written passionately about conflict minerals disclosure (see a recent post here) and the SEC's efforts to revamp--or at least reconsider--Regulation S-K (including here).  Anne also wrote about the Regulation S-K revision efforts here.  Ann wrote about mining industry disclosures here and focuses ongoing attention on securities litigation issues in the disclosure realm (including, e.g. here).  Josh wrote about the intersection of corporate governance and disclosure regulation in this post.  I have written about "disclosure creep" here and most of my research and writing has a disclosure bent to it, one way or another . . . .

Last summer, at the National Business Law Scholars Conference at The University of Chicago Law School, I listened with some fascination to the presentation of an early-stage project by Todd Henderson (whose work always makes me think--and this was no exception).  His thesis¹ was a deceptively simple one: that the age-old disclosure debate could best be solved by creating a contextual market for disclosure (rather than by, e.g., continuing its the current system of "federal government mandates and issuer pays" or leaving market participants to their own devices as to what to disclose and punishing malfeasance merely through fraud and misstatement liability or state sanctions).  The paper resulting from that presentation, coauthored by Todd and Kevin Haeberle from the University of South Carolina School of Law (but moving to William & Mary Law School in July), has recently been released on SSRN.  The title of the piece is Making a Market for Corporate Disclosure, and here's the abstract:

One of the core problems that law seeks to address relates to the sub-optimal production and sharing of information. The problem manifests itself throughout the law — from the basic contracts, torts, and constitutional law settings through that of food and drug, national security, and intellectual property law. Debates as to how to best ameliorate these problems are often contentious, with those on one end of the political spectrum preferring strong government intervention and those on the other calling for market forces to be left alone to work.

When it comes to the generation and release of the information with the most value for the economy (public-company information), those in favor of the command-and-control approach have long had their way. Exhibit A comes in the form of the mandatory-disclosure regime around which so much of corporate and securities law centers. But this approach merely leaves those who value corporate information with the government’s best guess as to what they want. A number of fixes have been offered, ranging from more of the same (adding to the 100-plus-page list of what firms must disclose based on the latest Washington fad), to the radical (dump the federal regime and its fraud and insider-trading overlays altogether in favor of state-level regulation). This Article, however, offers an innovative approach that falls in middle of the traditional spectrum: Make relatively small changes to the law to allow a market for tiered access to disclosures, thereby allowing firm supply and information-consumer demand to interact in a way that would motivate better disclosure. Thus, we propose a market for corporate disclosure — and explains its appeal.

I have skimmed the article and am looking forward to reading it in full over my spring break in a week's time.  I write here to encourage you to make time in your day/week/month to read it too--and to consider both the critiques of federally mandated disclosure and the article's response to those critiques.  I am confident that the thinking it will make me do (again) will sharpen my teaching and scholarship; it might just do the same for you . . . .

_____

¹ After publishing this post, I learned that the paper actually was drafted by Kevin well before Todd presented it last summer. My apologies to Kevin for leaving him out of this part of the story!  :>)

March 6, 2017 in Corporations, Joan Heminway, Research/Scholarhip, Securities Regulation | Permalink | Comments (0)

Monday, February 27, 2017

Social Enterprise Law Conference and Handbook

Later this week, I will head to Indiana to present at and attend a social enterprise law conference at The Law School at the University of Notre Dame.  The conference includes presentations by participating authors in the forthcoming Cambridge Handbook of Social Enterprise Law, edited by Ben Means and Joe Yockey.  The range of presentations/chapters is impressive.  Fellow BLPB editors Haskell Murray and Anne Tucker also are conference presenters and book contributors.

Interestingly (at least for me), my chapter relates to Haskell's post from last Friday.  The title of my chapter is "Financing Social Enterprise: Is the Crowd the Answer?"  Set forth below is the précis I submitted for distribution to the conference participants.

Crowdfunding is an open call for financial backing: the solicitation of funding from, and the provision of funding by, an undifferentiated, unrestricted mass of individuals (the “crowd”), commonly over the Internet. Crowdfunding in its various forms (e.g., donative, reward, presale, and securities crowdfunding) may implicate many different areas of law and intersects in the business setting with choice of entity as well as business finance (comprising funding, restructuring, and investment exit considerations, including mergers and acquisitions). In operation, crowdfunding uses technology to transform traditional fundraising processes by, among other things, increasing the base of potential funders for a business or project. The crowdfunding movement—if we can label it as such—has principally been a populist adventure in which the public at large has clamored for participation rights in markets from which they had been largely excluded.

Similarly, the current popularity of social enterprise, including the movement toward benefit corporations and the legislative adoption of other social enterprise business entities, also stems from populist roots. By focusing on a double or triple bottom line—serving social or environmental objectives as well as shareholder financial wealth—social enterprises represent a distinct approach to organizing and conducting business operations. Reacting to a perceived gap in the markets for business forms, charters, and tax benefits, social enterprise (and, in particular, benefit corporations) offer venturers business formation and operation alternatives not available in a market environment oriented narrowly around the maximization or absence of the private inurement of financial value to business owners, principals, or employees.

Perhaps it is unsurprising then, that social enterprise has been relatively quick to engage crowdfunding as a means of financing new and ongoing ventures. In addition, early data in the United States for offerings conducted under Regulation CF (promulgated under the CROWDFUND Act, Title III of the JOBS Act) indicates a relatively high incidence of securities crowdfunding by social enterprise firms. The common account of crowdfunding and social enterprise as grassroots movements striking out against structures deemed to be elitist or exclusive may underlie the use of crowdfunding by social enterprise firms in funding their operations.

Yet, social enterprise’s early-adopter status and general significance in the crowdfunding realm is understudied and undertheorized to date. This chapter offers information that aims to address in part that deficit in the literature by illuminating and commenting on the history, present experience, and future prospects of financing social enterprise through crowdfunding—especially securities crowdfunding. The chapter has a modest objective: to make salient observations about crowdfunding social enterprise initiatives the based on doctrine, policy, theory, and practice.

Specifically, to achieve this objective, the chapter begins by briefly tracing the populist-oriented foundations of the current manifestations of crowdfunding and social enterprise. Next, the chapter addresses the financing of social enterprise through crowdfunding, focusing on the relatively recent advent of securities crowdfunding (including specifically the May 2016 introduction of offerings under Regulation CF in the United States). The remainder of the chapter reflects on these foundational matters by contextualizing crowdfunded social enterprise as a part of the overall market for social enterprise finance and making related observations about litigation risk and possible impacts of securities crowdfunding on social enterprise (and vice versa).

Please let me know if you have thoughts on any of the matters I am covering in my chapter or resources to recommend in finishing writing the chapter that I may not have found.  I seem to find new articles that touch on the subject of the chapter every week.  I will have more to say on my chapter and the other chapters of the Handbook after the conference and as the book proceeds toward publication.  

February 27, 2017 in Anne Tucker, Conferences, Corporate Finance, Crowdfunding, Employment Law, Haskell Murray, Joan Heminway, Social Enterprise | Permalink | Comments (2)

Monday, February 20, 2017

Balancing the Regulatory Budget: Another Analogy for Consideration

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

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

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

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

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

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)