Tuesday, August 25, 2015

LLCs Still Don't Have Corporate Veils. Really.

I know I am Johnny One Note on this, but while researching another project, I decided to check again if litigators (and courts) are still referring to veil piercing of LLCs as "corporate veil piercing." As I have noted before, for LLCs, it should be "piercing the LLC veil" or, more generally, "piercing the limited liability veil."  Or "PLLV," as I like to call it. (Not as catchy is "PCV," but it is far more universally accurate.)

Sure enough, last week, a New York court refused to denied the defendants' motion to dismiss the plaintiff's third amended complaint, deciding that "Plaintiff has adequately pled facts sufficient to defeat the Individual Defendant's motion to dismiss Plaintiff's claim for piercing the corporate veil." Capital Inv. Funding, LLC v. Lancaster Grp. LLC, No. CIV.A. 8-4714 JLL, 2015 WL 4915464, at *7 (D.N.J. Aug. 18, 2015).  But Plaintiff is seeking to piercing the veil of an LLC.  As such, I think they need a fourth amended complaint.  

Also last week, in an unpublished opinion, a Minnesota court upheld a decision to pierce the limited liability veil of Alpha Law Firm, LLC.  The court found the court below "did not abuse its discretion by piercing Alpha's corporate veil." Guava LLC v. Merkel, No. A15-0254, 2015 WL 4877851, at *8 (Minn. Ct. App. Aug. 17, 2015). Again, though, the LLC did not have such a veil because it was not a corporation.  

This should be easier to keep straight in Minnesota than most places. Minnesota has a statute the specifically allows for LLC veil piercing, and states that the corporate law concept applies to the LLC.  But it also calls it "piercing the veil" in the LLC statute, which means the veil is an LLC veil, and not a corporate one.  The statute: 

MINN. STAT. ANN. § 322B.303(2)

. . . .

Subd. 2.Piercing the veil. The case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies.

I am sympathetic (to a point).  As Guava points out, when a statute brings corporate veil piercing into the LLC world, it can be awkward.  Another excerpt from Guava makes that obvious:

Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Gunderson, 632 N.W.2d at 705.
Guava, 2015 WL 4877851, at *6.
 
LLCs don't have shareholders, they have members, so that's a little confusing.  And note how the courts operates back and forth between corporate and LLC concepts.  It can be complex. Still, I'd really like a court in every state to take the time to set the standard and separate the concepts, so that future courts can always have a place to cite.  Consider this as an alternative paragraph for Guava
 
Hansmeier next challenges the district court's decision to pierce on the merits. “In certain circumstances, it is possible to ‘pierce the corporate veil’ and hold a shareholder personally liable .” Gunderson v. Harrington, 632 N.W.2d 695, 705 (Minn.2001) (Gilbert, J., dissenting) (citing Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., 283 N.W.2d 509, 512 (Minn.1979)). A court may pierce a corporate veil when there is fraud or when the shareholder is the “alter ego” of the corporation. Id. at 705. Veil piercing applies to LLCs as well as corporations. Minn.Stat. § 322B.303, subd. 2 (2014). Thus, a court may pierce the veil of an LLC when there is fraud or when the member is the “alter ego” of the LLC. See Minn.Stat. § 322B.303, subd. 2 (2014); Gunderson, 632 N.W.2d at 705.
Just a thought. 

August 25, 2015 in Corporations, Joshua P. Fershee, LLCs, Shareholders | Permalink | Comments (4)

Tuesday, August 18, 2015

LLCs, Freedom of Contract, Bankruptcy, and Planning Ahead

Over at the Kentucky Business Entity law blog, Thomas Rutledge discusses a recent decision from the United States District Court for the Southern District of Indiana, affirming a Bankruptcy Court decision that finding that when a member of an LLC with voting control personally files bankruptcy, that right to control the LLC became a vested in the trustee because the right was part of the bankruptcy estate. The case is In re Lester L. Lee, No. 4-15-cv-00009-RLY-WGH, Adv. Proc. No. 14-59011 (S.D. Ind. August 10, 2015) (PDF here).

A key issue was that the bankruptcy filer (Lester Lee) had 51% of the vote, but no shares. The court then explains:

7.  . . . [t]he Operating Agreement states . . .

(D) Each member shall have the voting power and a share of the Principal and income and profits and losses of the company as follows:

Member’s Name (Share) (Votes)

Debra Jo Brown (20%)  (10)

Brenda R. Lee (40%) (20)

Larry L. Lee (20%) (10)

Melinda Gabbard (20%) (10)

Lester L. Lee (0%) (51)

. . . .

8. . . . Trustee’s counsel became aware of the Debtor’s 51% voting rights as a member, and that pursuant to applicable law, “this noneconomic interest became property of the estate subject to control of the Trustee on the filing of the petition pursuant to 11 U.S.C. § 541.”

Here's Rutledge's take: 

On appeal, the Court’s primary focus was upon whether the right to vote in an LLC constitutes “property of the estate,” defined by section 541(a)(1) of the Bankruptcy Code as “all legal or equitable interest of the Debtor in property as of the commencement of the case. After finding that Lee could be a “member” of the LLC notwithstanding the absence of any share in the company’s profits and losses or the distributions it should make, the Court was able to determine that Lee was a member. In a belt and suspenders analysis, the Court determined also that the voting rights themselves could constitute “economic rights in the company” affording him the opportunity to, for example, “ensure his continued employment as manager” thereof.

In a response to Rutledge's blog, Prof. Carter Bishop notes,

The court did not state the trustee could exercise those voting rights.  The next step is crucial. If the operating agreement is an executory contract of a multi-member LLC, BRC 365 will normally respect LLC state law restrictions as “applicable law” and deny the trustee the right to exercise the debtor’s voting rights (similar outcome to a non-delegable personal service contract).This was a managing member of a multi-member LLC, so I assume BRC 365 blocks the trustee’s exercise.

Rutledge notes that could be the case, but it's also possible the Lee court was saying we already decided that -- voting rights are part of the estate.  

I find all of this interesting and important to think about, especially given my limited bankruptcy knowledge. My main interest, though, is how might we plan around such a situation?  Many LLC statutes provide some options.  

For example, some states allow those forming an LLC to adopt a provision in the Operating Agreement that makes bankruptcy an event that triggers "an event of dissociation,” which would make the filer (or his or her successor in interest) no longer a member. See, e.g., Indiana Code sec. 23-18-6-5(b) ("A written operating agreement may provide for other events that result in a person ceasing to be a member of the limited liability company, including insolvency, bankruptcy, and adjudicated incompetency.").  This raises the question, then, of whether the bankruptcy code trumps this LLC code such that the bankruptcy filing creates an estate that makes it so the state LLC law cannot operate to eliminate the filer as a member. 

The answer is no, the state law doesn't trump the bankruptcy code, but the state provision can still have effect.  A recent Washington state decision (petition for review granted), relying on Virginia law, determined that where state law dissociates a member upon a bankruptcy filing, the trustee cannot be a member, and thus the trustee cannot exercise membership rights: 

[I]nstead of dissociating the debtor, Virginia law operated to dissociate the bankruptcy estate itself. The court concluded, “Consequently, unless precluded by § 365(c) or (e), his bankruptcy estate has only the rights of an assignee.
 
Given the similarities between Virginia's and Washington's treatment of LLC members who file for bankruptcy, we adopt the reasoning of Garrison–Ashburn [253 B.R. 700 (Bankr. E.D. Va. 2000)]. By applying Washington law, we conclude that RCW 25.15.130 dissociates a bankruptcy estate such that it retained the rights of an assignee under RCW 25.15.250(2), but not membership or management rights, despite the provisions of 11 U.S.C. § 541(c)(1).
Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 485, 334 P.3d 63, 77 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015).

The court then needed to decided whether § 365 allows a member to retain his or her membership. Under Washington partnership law, as applied to the bankruptcy code, the court explained:  

under § 365, the other partners are not obligated to accept an assumption of the partnership agreement. Partnerships are voluntary associations, and partners are not obligated to accept a substitution for their choice of partner. The restraint on assumability also makes the deemed rejection provision of § 365 inapplicable to the partnership agreement. Therefore, § 365(e)'s invalidation of ipso facto provisions does not apply, and state partnership law is not superseded. The debtor-partner's economic interest is protected by other sections of the bankruptcy code, but he no longer is entitled to membership. 

Nw. Wholesale, Inc. v. PAC Organic Fruit, LLC, 183 Wash. App. 459, 489, 334 P.3d 63, 79 (2014) review granted sub nom. Nw. Wholesale, Inc. v. Ostenson, 182 Wash. 2d 1009, 343 P.3d 759 (2015). The court then applied the same reasoning to LLC law, concluding "that that 11 U.S.C. § 541 and § 365 did not preempt Washington law that" removes members in the limited liability company upon a bankruptcy filing.  
 
The fact that Indiana law provides the option to make (instead of automatically making) bankruptcy a dissociating event, it seems to me, shouldn't change the outcome if Washington's analysis is right, and I think it is. LLC members be able to pick their members, and protecting that right even in the face of bankruptcy is important. 
 
In the Lee case, state LLC law did not provide that bankruptcy was a dissociating event and the parties did not choose to make that the case.  I am all for LLCs allowing the members to make such a decision (either way), but here, LLC members did not do so (at their own peril).  I agree with Prof. Bishop that an open question remains as to whether the trustee can vote, and I hope the answer is no. But one can make that outcome a lot more likely by planning ahead.  

August 18, 2015 in Bankruptcy/Reorganizations, Business Associations, Joshua P. Fershee, LLCs, Partnership, Unincorporated Entities | Permalink | Comments (0)

Tuesday, August 11, 2015

Ten Promises For New Law Students to Consider

It is orientation time for West Virginia University College of Law, and I am sure other law schools around the country. If not, it's coming soon. I always like the buzz of the new students returning to the building, though it is a little bittersweet as the time I had for other projects is clearing nearing the end. All in all, though, I miss the students and the activity, so I'm happy the new year is getting ready to start. 

The combination of excitement and trepidation (if not fear) seems to be what stands our to me the most. It makes sense. Law school is a big undertaking, and it's not easy.  And it can be hard because it can be challenging both academically and socially.  As my wife has noted, "Law school can be more like high school than high school."  (I had a distinct advantage in skipping a lot of that because we were married when we started law school.)

To that end, here are my suggestions, based on the promises I made to myself when I left my job and went back to law school. Give it a try (and I welcome additions to the list in comments.)

I promise: 

(1) To read everything assigned.  Really. Not like undergrad, but actually read it all.  Then read it again. And again if I need to.

(2) To be honest with myself about whether I really understand what I' m reading so I know if I should read it again. 

(3) To view Black's Law Dictionary as my friend and use it liberally, rather than guessing at words from context.  

(4) To remember I don't know Latin very well (and see number 3 above). 

(5) To go to every class -- every class -- that I am able to attend and participate in that class so that I can learn what I know or don't know, not to so show what I know (or think I know). 

(6) To recognize that no one class is more important (or easier or harder) than another.  I will not skip Torts or Contracts to work on my Legal Writing memo.  It all needs to happen. 

(7) To do my best to get enough sleep. 

(8) To remember that everyone has a story and not assume I know it. 

(9) To be friendly and build relationships so that the community I know is a community I want. 

(10) To do my best work and know that my real competition is myself, so that when I finish an exam or paper, even though I don't know how well I did, I will know I did everything I could to do well. As John Wooden said, "Don't measure yourself by what you have accomplished, but by what you should have accomplished with your ability."

August 11, 2015 in Joshua P. Fershee, Law School | Permalink | Comments (4)

Tuesday, August 4, 2015

More Summer Reading: The Henry Ford Legacy Beyond Dodge v. Ford

Readers of this blog know I am fond of writing about Henry Ford and the Dodge v. Ford case (PDF here).  This summer, I am still working my way through Fordlandia, by Greg Grandin.  It's a really interesting read.  

Henry Ford had plans to build a town in the Amazon that would run like an ideal American town.  The industry would be rubber for car tires, and he was sure he could make a town that produced rubber AND moral people.  He was wrong.  

The book provides more about Ford than just his Amazon city planning. It highlights all sorts of what I will call "interesting" ideas Ford had (many of the quite appalling), and it provides context for a person who was far more interesting and disruptive than many people appreciate.  A good summary of the book is available from NPR here, where the author explains:

"Ford basically tried to impose mass industrial production on the diversity of the jungle," Grandin says. But the Amazon is one of the most complex ecological systems in the world — and didn't fit into Ford's plan. "Nowhere was this more obvious and more acute than when it came to rubber production," Grandin says.

Ford was so distrustful of experts that he never even consulted one about rubber trees. If he had, Grandin says, he would have learned that plantation rubber can't be grown in the Amazon. "The pests and the fungi and the blight that feed off of rubber are native to the Amazon. Basically, when you put trees close together in the Amazon, what you in effect do is create an incubator — but Ford insisted."

As Grandin explains, Ford's plans are a lasting disaster: 

[T]he most profound irony is currently on display at the very site of Ford’s most ambitious attempt to realize his pastoralist vision. In the Tapajós valley, three prominent elements of Ford’s vision—lumber, which he hoped to profit from while at the same time finding ways to conserve nature; roads, which he believed would knit small towns together and create sustainable markets; and soybeans, in which he invested millions, hoping that the industrial crop would revive rural life—have become the primary agents of the Amazon’s ruin, not just of its flora and fauna but of many of its communities.

Despite my love of the business judgment rule, it's hardly surprising that Ford was one of the folks who didn't get its protection. Stories like this give us some idea why.  

August 4, 2015 in Corporate Governance, Corporations, Joshua P. Fershee, Social Enterprise | Permalink | Comments (0)

Tuesday, July 28, 2015

Activist Shareholder and Law Prof: Robin Hood or Charles Pillsbury?

A lawyer representing Fordham Law School Professor (and Riverbed Technology shareholder) Sean Griffith argued in Delaware court that a class action settlement related to Riverbed Technology's  $3.6 billion sale to private equity firm Thoma Bravo was bad for shareholders and good for the lawyers involved, Reuters reports.  

Prof. Griffith told Reuters that "he has been buying stock of companies that have announced merger deals and intends to object to settlements if he feels the litigation is not serving stockholders." He asserts that the shareholders' attorneys "are in cahoots" to reach a settlement, without regard to value.  

This raises some interesting questions of law and policy with regard to the Professor's role here.  As a shareholder, Griffith has the right to object (assuming his time of ownership satisfies the applicable statute).  But how should a court assess the objection of a shareholder who has admitted that he bought stock for the purpose of objecting to settlements not in the interests of shareholders, when that shareholder has expressed ideological concern about the value of all disclosure-only settlements? 

Is Prof. Griffith's desire to protect shareholders a desire to enhance short- or long-term wealth of the entity from greedy lawyers and bad managers? Or is it a desire to punish those who abuse class action lawsuits to their own ends? Both would be reasonable motivations (though, for now, I reserve judgment on whether either assessment is accurate), but it seems that the law might view such motivations differently. 

Take, for example, Pillsbury v. Honeywell, Inc., 191 N.W.2d 406 (1971), which strikes me as similar in concept, if not law.  In that case, the court rejected Charles Pillsbury's request to access the company shareholder list and review books and records of Honeywell.  The request was expressly related to Pillsbury's anti-war efforts, and Pillsbury made clear that he sought the records because he thought Honeywell's activities in weapons were immoral.  The court denied access stating that 

petitioner had already formed strong opinions on the immorality and the social and economic wastefulness of war long before he bought stock in Honeywell. His sole motivation was to change Honeywell's course of business because that course was incompatible with his political views. If unsuccessful, petitioner indicated that he would sell the Honeywell stock.

We do not mean to imply that a shareholder with a bona fide investment interest could not bring this suit if motivated by concern with the long- or short-term economic effects on Honeywell resulting from the production of war munitions. Similarly, this suit might be appropriate when a shareholder has a bona fide concern about the adverse effects of abstention from profitable war contracts on his investment in Honeywell.

If Prof. Griffith is looking to protect the long-term interests of all companies by protecting merging companies from harmful class action settlements, and his mechanism is buying shares in companies that he has reason to believe will merge, then perhaps his Robin Hood-like actions (in that the actions seek to return funds to the rightful owners) have value for shareholder wealth maximization and entity wealth maximization. The fact that he holds out the possibility that he won't object to settlements where the litigation serves the purposes of the shareholder suggests he might be in this camp.  

But what if he will object to all settlement proposals? Or perhaps all disclosure-only settlement proposals, even where such settlements are allowable under the law?  Does this convert his actions to more of a Charles Pillsbury-like feel in that his actions are about opposing class actions settlements, regardless of whether settlement is in the best interest of the parties? 

Of course, his motivations don't necessarily matter under current law in this area, but I can't help but think the motivations will influence how a court views (and eventually decides upon) Prof. Griffith's objections. And I think they should.  If, in any given case, Prof. Griffith is right that the settlement is not in the best interest of the shareholders, the court should uphold his objections. But, under current law, it's possible that a disclosure-only settlement might still be the most efficient outcome.  It's the court's job to assess that in each case.

July 28, 2015 in Corporate Governance, Corporations, Delaware, Joshua P. Fershee, Securities Regulation | Permalink | Comments (0)

Tuesday, July 21, 2015

Is Veil Piercing (State) Constitutional?

The West Virginia Constitution provides for corporations in Article XI, and states the traditional understanding related to liability: 

11-2.  Corporate liability for indebtedness.

      The stockholders of all corporations and joint-stock companies, except banks and banking institutions, created by laws of this state, shall be liable for the indebtedness of such corporations to the amount of their stock subscribed and unpaid, and no more. 

So, suppose that one seeks to pierce the corporate veil.  Does this provision allow for that? Typically, common law allowed veil piercing and constitutions often provide that something that existed in common law remains (which appears to be the case here).  I guess, then, veil piercing is okay, though I think one could argue that a constitutional basis for limited liability should be stronger than a statutory one. 

The better argument, I think, is that veil piercing disregards the entity.  Thus, the constitutional protection does not connect, because there is no corporation.  If we thought of things this way, we'd probably be more reluctant to veil pierce, because it would be a judicial statement that the corporation that was purportedly formed does not exist because of the failures of those in charge of the entity.

Where the shareholders truly don't intend to have an entity, I am okay with this, but that's really the rarity.  Where there is fraud, prove fraud. Where there is a constitutional protection for limited liability, the respect for the entity should be exceedingly strong.  Stronger than the common law standard.

I am not arguing that a constitutional right to limited liability is a good idea -- I'm currently agnostic on that.  I'm questioning whether constitutional corporate status changing the veil piercing calculation.  I am thinking yes, but I am not sure to what degree.   I plan to give this some more thought, but I welcome comments on how constitutional limited liability status (once it exists) should change veil piercing analysis.   

 

July 21, 2015 in Corporate Personality, Corporations, Joshua P. Fershee | Permalink | Comments (0)

Tuesday, July 14, 2015

CVS, Business Judgment, & Noisy Withdrawal from the Chamber of Commerce

A while back, I wrote about CVS's choice to eliminate tobacco products from its stores.  I noted that it seemed clear to me that CVS could make that choice, even thought it would mean lower short-term profits, because it was a decision that is clearly protected (or should be) by the business judgment rule. 

Today, according to an LA Times piece, 

[CVS] stood up for its principles.

The pharmacy giant announced it was quitting the U.S. Chamber of Commerce after reports that the influential business organization was lobbying against anti-smoking laws around the world.

CVS bolted because of the Chamber's views on tobacco sales.  In 2009, Apple and Nike made waves with the Chamber of its policy position on climate change. I find this interesting, and I have no reason to doubt that all of these companies are following their corporate values, though I also think they see public relations value in the noisy withdrawal.  

That some big companies have stepped away from the Chamber is less surprising to me than the fact that the Chamber has maintained such strength with small business owners, while advocating for many big business positions that don't help, and may hurt, small businesses.  I can't help but wonder if the Chamber's success it not so much in promoting policies that benefit of member businesses, and instead that it promotes policies that are consistent with the ideologies of many who work for or own businesses.

If the latter is the case, as I suspect it is, that's a good business model for the Chamber, but not necessarily for the entities it represents.  Of course, if business owners, officers, and directors remain aligned with the Chamber, despite a lack of clear benefit to the entity, well, that too is protected by the business judgment rule. 

July 14, 2015 in Business Associations, Corporate Personality, Corporations, Current Affairs, Joshua P. Fershee | Permalink | Comments (1)

Tuesday, July 7, 2015

Note to U.K. Supreme Court: LLCs Don't Have Places of Incorporation (But You're Right on Pass-Through Taxation)

A recent unanimous decision from the Supreme Court of the United Kingdom, Anson v. Commissioners for Her Majesty’s Revenue and Customs [2015] UKSC 44, determined that a U.S. limited liability company (LLC) formed in Delaware will be treated for U.K. tax purposes as a partnership, and not a corporation. This is a good thing, as it provides the LLC members the ability to reap more completely the benefits of the entity's choice of form.

What is not so good is that the court left unaddressed a lower court determination as follows, was quoted in para. 47: 

“Delaware law governs the rights of the members of [the LLC] as the law of the place of its incorporation, and the LLC agreement is expressly made subject to that law. However, the question whether those rights mean that the income of [the LLC] is the income of the members is a question of domestic law which falls to be determined for the purposes of domestic tax law applying the requirements of domestic tax law ….” (para 71) (emphasis added)

An LLC does not have a place of incorporation!  It has a place of formation.  Here is the link to Delaware's Certificate of Formation, which is to be filed in accordance with the Limited Liability Company Act of the State of Delaware: https://corp.delaware.gov/llcform09.pdf. In contrast, you can find the Certificate of Incorporation, which is to be filed in accordance with the General Corporation Law of the State of Delaware, here: http://www.corp.delaware.gov/incstk.pdf

I'm glad the high U.K. court recognized that partnership taxation status can be proper for a U.S. LLC. But, just as You Can’t Pierce the Corporate Veil of an LLC Because It Doesn't Have One, I wish they'd made clear that you can't incorporate an LLC.  

July 7, 2015 in Corporate Governance, Corporate Personality, Corporations, Delaware, International Business, Joshua P. Fershee, LLCs, Unincorporated Entities | Permalink | Comments (0)

Tuesday, June 30, 2015

It May Be Dumb, But Short-Termism Can Be A Valid Business Strategy

Last week, S.E.C Commissioner Daniel M. Gallagher, gave a speech, Activism, Short-Termism, and the SEC: Remarks at the 21st Annual Stanford Directors’ College. I agree with many of Commissioner Gallagher's views on short-termism, and (I will semi-shamelessly note) he cited one of my earlier posts about the role of activists on board decision making. In his remarks, he said, with regard to short-termsim (i.e., companies operating for short term rather than long-term gains):

The current picture is bleak . . . 

Clearly, there’s a way for all the parties . . . to co-exist peacefully. The SEC sets a level playing field; companies manage themselves for the long-term with the vigorous oversight of the board; and activists put pressure on those companies that fall short of that ideal.[47] Unfortunately, we are not in that happy place. Rather, there seems to be a predominance of short-term thinking at the expense of long-term investing. Some activists are swooping in, making a lot of noise, and demanding one of a number of ways to drive a short-term pop in value: spinning off a profitable division, beginning a share buy-back program, or slashing capital expenditures or research and development expenses. Having inflated current returns by eliminating corporate investments for the future, these activists can exit their investment and move on.

. . . .

[47] See, e.g., Joshua Fershee, Shareholder Activists Can Add Value and Still Be Wrong (Apr. 28, 2015) (positing that activists can signal to boards when the company’s strategy may be inefficient; it is then the board’s responsibility to “use the tools before it to make decisions in the best interests of the entity” — that shareholder activists can improve long-term value even if following their recommendations blindly would not).

I absolutely agree with the Commissioner that too many companies are using a short-term philosophy to guide their decision making and that directors are allowing non-controlling institutional investors too much influence in the boardroom.  But, as a believer in director primacy, I see that as a director failure, not an S.E.C. failure or an institutional investor/activist failure. Directors need to make the decisions for the entity based on their view of what is best for the entity, not on someone else's  view. 

Commissioner Gallagher is spot on when he notes his concern "that some institutional investors are paying insufficient attention to their fiduciary obligations to their clients when they determine whether to support a particular activist’s activity."  

That concern, though, has nothing to do with how the board of a company responds to its activist institutional investors that urge short-termist actions.  The institutional investor activist in that case should be held accountable to its clients, and perhaps it should not be urging such behavior, but that is not relevant to how a board of a company in which an institutional investors owns stock responds to such pressure.  

It could be that some boards really believe that short-termism is how best to run a company.  The level of complaining about activists suggests otherwise, but then it is up to boards to reject the activist's requests.  If boards are being unduly influenced by non-controlling outside forces, then shareholders need to take a break from their rational apathy, and do something.  If controlling shareholders are pushing short termism to the detriment of non-controlling shareholders, boards should not follow the controlling shareholder's request or (again) non-controlling shareholders need to push back to ensure the board and the controlling shareholders are honoring their fiduciary obligations.  

If it's just that directors like short termism as a strategy, though, and it's not a decision made for any other reason than directors think it's the right one, I believe those directors are wrong.  But that's not my call. I'm not on the board. 

June 30, 2015 in Corporate Governance, Corporations, Joshua P. Fershee, Securities Regulation | Permalink | Comments (1)

Tuesday, June 23, 2015

Freedom To Do Better Is Also An Obligation

So, I'm on vacation, which is not something I do very often, at least unrelated to work.  It's been great, and we're lucky to be able to do this (and to vacation as all). It's ungodly hot, but hey, that's the beach. I guess. Like I said, we don't do it like this very often.

Anyway, I recently read a piece that talked about freedom in way that really resonated for me.  It is applicable personally, and it is applicable professionally.  Law schools, collectively, could stand to pay attention, as well. We have choices, we just have to recognize it. I'm no philosopher, but here's the gist of the post that resonated with me, from Rapitude.com:

Sartre believed that we have much more freedom than we tend to acknowledge. We habitually deny it to protect ourselves from the horror of accepting full responsibility for our lives. In every instant, we are free to behave however we like, but we often act as though circumstances have reduced our options down to one or two ways to move forward. 

This is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves. It really seems like you must get up at 7:00 every Monday, because constraints such as your job, your family’s schedule, and your body’s needs leave no other possibility. But it’s not true — you can set your alarm for any time, and are free to explore what’s different about life when you do. You don’t have to do things the way you’ve always done them, and that is true in every moment you’re alive. Yet we feel like we’re on a pretty rigid track most of the time.

We often think of freedom as something that can only make life easier, but it can actually be overwhelming and even terrifying. Think about it: we can take, at any moment, any one of infinite roads into the future, and nothing less than the rest of our lives hinges on each choice. So it can be a huge relief to tell ourselves that we actually have fewer options available to us, or even no choice at all.

In other words, even though we want the best life possible, if life is going to be disappointing, we’d at least like that to be someone else’s fault.

As law faculty, we don't always know what to do to make major improvements, but it's on us to work to make that happen.  I think we do a lot of things right, but there's a lot (a lot!) we can do better. And that's our job -- to figure out how to be better. What to do is not an easy answer, but suggesting that we can't make changes is junk.  Again, the idea that we can't change, .... "is bad faith: when we convince ourselves that we’re less free than we really are, so that we don’t have to feel responsible for what we ultimately make of ourselves." 

June 23, 2015 in Joshua P. Fershee, Law School | Permalink | Comments (1)

Tuesday, June 16, 2015

Polls and the Dumbification of America: Energy Policy & Beyond

Public opinion polls often make news, but they don't necessarily improve discourse or policy decisions.  This is true in business and politics, at least where the polls are created primarily for news purposes. Not all polls are bad, of course, and groups like Pew and some others can offer useful starting points for policy discussions. Still we should be skeptical of public opinion polls. 

A new poll released today provides a good example of how unhelpful polls can be. Robert Morris University (RMU) today issued a press release (about a new poll) that says Pennsylvanians "expressed both overwhelming support and strong environmental misgivings, about" hydraulic fracturing (fracking). This framing of the poll does not seem to reveal any inherent inconsistencies. It would be entirely reasonable for people to recognize the potential value fracking for oil and gas can have, while at the same time being worried about the environmental risks that come with fracking (or any other industrial process).  

In fact, I have argued that this is the proper way to consider risks and benefits to help ensure oil and gas operations are as environmentally sound as possible to ensure sustainable development. Unfortunately, the poll indicates some internal inconsistencies among those polled that suggest people don't really understand either: (1) the questions or (2) how the world works.   Here are some of the results of the poll: 

  • Support fracking: 57.1% (PA) & 56% (U.S.)
  • Think fracking will help the U.S. economy: 74.2% (PA) & 73% (U.S.)
  • Say fracking will move U.S. toward Energy Independence: 69.9% (PA)

These numbers suggest reasonable-to-strong support for the drilling process. Okay so far, but here's the kicker: 60.1%  strongly or somewhat agree with this: “The environmental impact of gas drilling outweighs any resulting reduced energy costs or energy independence.

How can one agree with this statement at all and still support fracking, as it at appears at least 17% of those polled did?1 If you think that the environmental impacts outweigh "any" of those benefits, why would you support any drilling process? I'm confused. (Editor's note: a reader suggested that perhaps some people think that jobs or royalties might make the environmental impacts worth it, but not lower energy costs or energy independence.  Maybe, though I find that hard to believe, and if true, it doesn't make me feel any better about what the poll suggests.) 

Again, it makes sense to me that someone might support the drilling process, and still express reservations or concerns about it. It just doesn't make sense to me that, in the same poll, presumably within a few moments of answering the question about supporting fracking, that someone would turn around and say, essentially, "I support fracking, but some key potential benefits don't outweigh the risks."  This is seems like a John Kerry moment for those being polled: "I was for it, before I was against it." 

As I have noted before, there are studies that suggest polls like this make us dumb. As a Joe Carter article explained about a 2011 public opinion poll relating to President Obama's performance: 

On the vast majority of the items tested (8 of 11) the public expresses disapproval of Obama’s job performance and yet the overall result implies that they approve of the job he is doing. How does that make any sense? It doesn’t. By the alchemical process of applied statistics, the pollsters have turned our disapproval into approval. Unfortunately, such distortions are a common failing of opinion polls.

I'm not sure if the fracking poll makes us dumber, or just shows we tend to be dumb. Probably both, and it's not very encouraging. As Mr. Carter explains, public opinion polls "are nothing more than public perceptions produced by pollsters, mere aggregations of our ignorance. And we all become dumber by treating them seriously." The results of the RMU poll suggest he's right.  

1 From the release, the most sensible explanation of the data presented is as follows: if 60.1% of people agreed to some degree with the statement, then 39.9% did not agree. Those 39.9% of people are presumably pro-fracking relative to the 60.1%. At the same time, 57.1% of those polled stated that they support fracking, and 57.1% minus 39.9% is 17.2%, suggesting that 17.2% of of those polled said they support fracking but don't think the risks outweigh the benefits.  Admittedly, the poll answers would not likely break down this cleanly, but in that case the data makes even less sense.  

 

June 16, 2015 in Current Affairs, Joshua P. Fershee, Law and Economics, Legislation | Permalink | Comments (1)

Tuesday, June 9, 2015

Exam Monitoring in the Digital Age

Exam time has come and gone and grades are filed. I have never had any trouble, as far as a I know, with cheating in my exams.  My expectation is that most problems arise from plagiarism in writing assignments.   There may be people trying to cheat on my exams, I suppose, but I am not sure it would prove helpful.   I change my exams and take steps to try to make the exam as fair possible, so that cheaters, should there be any, can't get much of an advantage.  

I was interested to see the report that China took proctoring to new heights this week, according to a news report in The Guardian, China deploys drones to stamp out cheating in college entrance exams:

Authorities in China are employing surveillance drones in an effort to stamp out cheating in college entrance exams.

But this year officials have unleashed a six-propeller drone, flown over two testing centres in Luoyang in Henan province on Sunday – the first day of the exam – to scan for signals being sent to devices which may have been smuggled in. No such signals were detected, local reports said.

I suppose it makes sense to add enforcement mechanisms, especially with the stake so high for the exams.  Drones sure make my walking of the aisles seems a little outdated. 

Apparently some employers are taking steps to combat cheating, too.  Potknox, a cloud-based online assessment tool, is used by some employers to screen applicants. According to the Potknox Blog, here, there are ways to combat cheaters. Among other things, the program can take random pictures of the test-taker (which can catch them on the phone) and random screenshots (checking Wikipedia).  

Law schools that use exam software can lock out the internet, which can help limit such things, though I wonder just how much smartphones have changed the game.  I have never caught anyone looking at a phone during an exam, but these days, one could get a basic definition of the business judgment rule or the Howey Test pretty quickly, I suppose. I'd be shocked if anyone could cheat their way to a high grade on my exams, but one who is struggling might find it useful to get by.

I'll have to give some thought about other ways to catch cheating. I have almost no interest in catching cheaters, because that's awful for everyone.  However, I have zero interest in sending people out into the legal profession who would do such a thing, so I'll keep looking. 

June 9, 2015 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (2)

Tuesday, June 2, 2015

The Academic Importance of Non-Academic Skills

NPR recently posted a story titled, Nonacademic Skills Are Key To Success. But What Should We Call Them? The story, by Anya Kamenetz, is about labeling non-cognitive skills (or skill areas) that are important -- I would argue essential -- to success.  The listed areas are as follows: (1) character, (2) non-cognitive traits and habits, (3) social and emotional skills, (4) growth mindset, (5) 21st Century skills, (6) soft skills, and (7) grit.  

Ms. Kamenetz explains:

More and more people in education agree on the importance of learning stuff other than academics.

But no one agrees on what to call that "stuff".

There are least seven major overlapping terms in play. New ones are being coined all the time. This bagginess bugs me, as a member of the education media. It bugs researchers and policymakers too.

"Basically we're trying to explain student success educationally or in the labor market with skills not directly measured by standardized tests," says Martin West, at the Harvard Graduate School of Education. "The problem is, you go to meetings and everyone spends the first two hours complaining and arguing about semantics."

 

Whatever you call it, it matters.  

Beyond the semantics, it would be easy to debate the relative importance of these areas, and I am not sure I'd organize (or label) my own list in this way, but the concept behind the story is critically important to legal education.  As we in law schools strive to prepare practice-ready lawyers (at least, that's a primary focus of those with whom I have taught), I have often noticed that the skills students lack are often not information based.  Many times, it's that students have a hard time with deadlines, responsiveness, accountability, and thoroughness. 

Though it's less true today that it may have been ten, twenty, and thirty years ago, it's easy to get caught up in the idea that students might not have been taught how to draft a complaint, or file a motion, or create an LLC.  These are all things a lawyer should be able to do, of course, but I am finding that just showing students how to file a motion or form an LLC does not mean they are ready to actually do it.  That is, I am confident that some students I have taught how to form an LLC (and did well in my class) would not be ready to do that on their own. And I know some students who weren't in my class and have never seen an LLC statute who would be ready to figure it out. Why?  Life skills.  

Anyone who worked in a BigLaw job saw people who were clearly not cut out to do the job, even though the folks there come with a very serious pedigree. I sure saw people who couldn't (or wouldn't) do the work.  I worked with some truly brilliant and wonderful people, and I worked with some folks who had no idea (or at least no interest) in doing the work required.  For that matter, I also worked with some brilliant and wonderful partners, and just a couple smart partners who did good work but seemed committed to making people cry.  (That's for a different post). 

How, in addition to cognitive skills, do we teach deadlines, responsiveness, accountability, and thoroughness? I think it's through clinics and externship, as part of it, but it's also through committed efforts in courses throughout the curriculum.  We often teach first-year students about hard deadlines in their writing course, and we do it to some degree with rigid exam schedules, but that lacks the constant nature of deadlines (and moving parts) we see in practice. We can do it in other classes, with additional assignments, and I think it's worth trying. 

For my seminar courses, I have added small assignments and I don't remind people. They do it, or they don't. When students ask for an extension or change in their assignment date, I allow it if it fits my schedule and the class schedule. I'll decline or add a penalty if it causes others a problem. (They know this up front.)  It allows me to have conversations throughout the course about the importance of deadlines, and to talk more realistically about how things work in the real world.  I know I'm not solving everything, but I do think talking about these things candidly forces students to engage with these life skills in a way that might not otherwise.  

It's easy to think a lot of the life skills are things you have or you don't, but that's not true.  They just come to some people more easily. Others can be taught, if they want to be. For those who want to learn, I think it's our job to teach them.  And for those who don't want or care to learn these skills, if we offer the education, it's one less thing they can blame when they're shown the door or otherwise don't get what they want.  

[Author's note:  My colleague Steve Bradford's post "Practice-Ready" Law Graduates? is a worthwhile companion to this post.]

June 2, 2015 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (3)

Wednesday, May 27, 2015

Humblebragging is Empirically, Not Just Anecdotally, Ineffective

Last month, Ovul Sezer, Francesca Gino, and Michael I. Norton of  Harvard Business School posted Humblebragging: A Distinct – And Ineffective – Self-Presentation Strategy to SSRN (available here).  

Here is the full article abstract: 

Humblebragging – bragging masked by a complaint – is a distinct and, given the rise of social media, increasingly ubiquitous form of self-promotion. We show that although people often choose to humblebrag when motivated to make a good impression, it is an ineffective self-promotional strategy. Five studies offer both correlational and causal evidence that humblebragging has both global costs – reducing liking and perceived sincerity – and specific costs: it is even ineffective in signaling the specific trait that that a person wants to promote. Moreover, humblebragging is less effective than simply complaining, because complainers are at least seen as sincere. Despite people’s belief that combining bragging and complaining confers the benefits of both self-promotion strategies, humblebragging fails to pay off.

Although the authors accurately explain that humblebragging is "bragging masked by a complaint,"  I am partial to the Urban Dictionary definition:

Subtly letting others now about how fantastic your life is while undercutting it with a bit of self-effacing humor or "woe is me" gloss.
 
Uggggh just ate about fifteen piece of chocolate gotta learn to control myself when flying first class or they'll cancel my modelling [sic] contract LOL :p #humblebrag

I think most of us know someone who is a user of the humblebrag.  I used to think it was just a fairly common technique among lawyers and academics, though I am now more of the mind that it is a "people" thing, with lawyers and academics perhaps leading the way.  I'm rather glad to see an article that shows that humblebragging is empirically ineffective in its goals.  In my experience, I have also found that it's also not especially effective in getting people to like the humblebragger, either.  

Now, if only blatant, unrepressed, old-school bragging weren't so effective in some circles. we could make some real progress.  

May 27, 2015 in Jobs, Joshua P. Fershee, Research/Scholarhip | Permalink | Comments (0)

Tuesday, May 19, 2015

Delaware LLC Case Sends Wrong Signal, Unnecessarily Expands Equitable Standing

Vice Chancellor Laster recently issued an opinion in In re Carlisle Etcetera, LLC (available here), that has the potential to encourage (or at least fail to punish) sloppy practices and unnecessarily expands equitable standing for judicial dissolution.  In doing so, the case increases litigation risk for LLCs. 

The case involves an LLC made up of two member parties that formed Carlisle Etcetera, LLC. (Carlisle): WU Parent and Tom James Co. (James). The LLC agreement called for a manager-managed board, that would serve as sole manager.  WU Parent appointed two board designees, as did James.  Board decisions required "unanimous approval."  At some point, for tax reasons, WU Parent assigned its membership interest to WU Sub. Thereafter, Carlisle identified WU Sub as a 50% member interest in tax filings and the LLC's accountants referred to WU Sub as "an equal member" of the LLC.  The parties discussed an updated LLC agreement that would have made clear that an initial member of the LLC could transfer ownership to a wholly owned affiliate that would retain membership status, though that agreement was never finalized.  

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May 19, 2015 in Delaware, Joshua P. Fershee, LLCs | Permalink | Comments (0)

Tuesday, May 12, 2015

Sports Law Grading Break: A Little Perspective on Deflategate

I had planned to write a post about Delaware LLCs and who has standing to request judicial dissolution, but that post is going to wait.  I'm knee deep in Sports Law exam grading, and so sports is on my mind.  The big thing going on right now is, of course, Tom Brady's four-game suspension for his apparent participation in having footballs deflated to a psi that was not in compliance with league rules.  

The science on the benefits of deflating footballs is not clear, as noted here.  That, of course, is irrelevant to whether the rules were broken.  Some have argued that the air pressure rules are stupid, especially given that the league not long ago change the rules to allow each team to prepare their own footballs for use on offense. Andy Benoit of SI.com explains

With football being so much about strategy, the more comfortable the ball is for a quarterback and his receivers, the more entertaining the game becomes.

The NFL already agrees with this. Why do you think officials and ball boys go to such lengths to try to keep a football dry during a rainy game? Or, bringing it back to the inflate/deflate issue (or inflate/deflate controversy, since America has decided to be dramatic, if not hysterical, about this), why did the NFL permit quarterbacks to prepare their own balls before games in the first place?

The problem is, the league didn’t go far enough here. It should abolish all parameters regarding the ball’s air. Tom Brady didn’t cheat. Tom Brady’s job is to throw the football. Unfortunately, he had to go too far out of his way to do his job well.

I wouldn't think it would take a lawyer to explain that this reasoning is flawed, but perhaps it does. Even where a rule is stupid, counterproductive, or even obstructionist, it is still a rule. Failing to follow it leads to sanctions.  If a speed limit is too low, it can limit my ability to get to a meeting on time or make it so the FedEx driver can't deliver as many packages in a day.  But if either one of us gets clocked by a police officer's radar going 15 mph over the speed limit, we're going to get a ticket. And it's no defense to say, "But it's making it harder for me to do my job well!" 

Brady, through his agent, has vowed to appeal, as is his right.  Some people seem very concerned with Brady's image, and other have even suggested that the suspension could keep Brady from a future in politics.  Maybe, but given that we live in a country that has re-elected many people who have tarnished their own images while in office, I'm not going to be too concerned about this.  

The NFL, of course, has its own image issues, much of which is self-imposed.  The sanctions against Brady seem reasonable but severe, if acting in a vacuum.  But we don't, and it's hard to to look at other relative punishments for guidance.  The NFL has been aggressive with suspensions in other areas, such as Sean Payton's year-long suspension for BountyGate. Saints fans were certainly not happy with the outcome of the NFL's punishment.

On the other hand, as the Washington Post reported, A lot of people noticed that Tom Brady got twice as long a suspension as Ray Rice’s initial punishment.  The NFL could argue, of course, that Brady broke the league's rules, while Rice was subject to punishment from thecriminal justice system, too.  And they might, if they wanted to remain as tone deaf on domestic violence as they have been in the past.  

Why the NFL has this inflation rule, though, is a fair question. As Andy Benoit noted in the article linked above, why not just let each team provide footballs with whatever inflation they want?  If it is easier to catch a deflated ball, then it's also easier to intercept.  The league knows that offense sells tickets, so why not provide an advantage to all teams, if there is one to be had?  Seems like a win-win option, and it reduces the number of things NFL officials have to worry about enforcing. Less regulation of regulations that are hard to enforce and have dubious value to the integrity of game helps everyone involved, and it reduces people trying to game the system through largely irrelevant technical rule enforcement. (I'm looking at you, pine tar.)

Still, a rule is a rule, and if you get caught knowingly breaking a rule, there will (and should be) sanctions.  And let's be honest: The New England Patriots, with Bill Belichick and Tom Brady know what they are doing better than most.  They are arguably the most successful coach and quarterback combination in NFL history, and they are very, very good at what they do. They only do things they think will help them win, and if they do something risky, there's a good chance they're correct that there's an advantage to be had.  

Respect them for their skills, and hold them accountable for actions. And let's keep it all in perspective. It's still just football, and this time, no one got physically hurt.   

May 12, 2015 in Current Affairs, Games, Joshua P. Fershee, Sports, Teaching | Permalink | Comments (1)

Tuesday, May 5, 2015

Do Book Rentals Negatively Impact Learning?

Over the last few years, book stores and publishers have been evolving in how they offer books. Some textbooks are available electronically, and others are available for rent.  Although I always try to be thoughtful about how students learn throughout the year, I find that I am especially sensitive to such thoughts when it's time to grade exams and papers.  I obviously can't speak for all my fellow law professors, but I know a lot of us agree that we really like our students, and we want (and expect) them to succeed.  

The cost of books matters.  This article reports that students often spend $1200 a year on books and supplies, and further revealed:  

Of the students surveyed, 65% said they decided against buying a textbook because of the high cost, and 94% of those students said they were concerned that their decision would hurt their grade in that course. Nearly half of the students surveyed said the cost of textbooks affected which courses they took.

This was not a law-specific survey, and I think (and hope) most law students do buy (or rent) their books. I absolutely support trying to make books more affordable, but it cannot come at the expense of content.  I have taught some of my courses with all free materials, but that does not work for me in all cases.  

This year, my thoughts on the learning process have turned, in part, to textbook rentals. Some (and perhaps many) students have moved on to book rentals instead of purchases.  I am sympathetic to how much books cost, and I can understand why students would look for savings where they can.  I am, how, concerned that rented books could have a negative impact on learning because of limits (or perceived limits) on how a renter can treat the books.  

Barnes & Noble, for example, has the following book rental policy: 

Rules of Renting
Textbook rentals allow us to reuse and recycle books. We hope that you return your rental textbook to us in a condition for someone else to reuse later. If the textbook is returned with excessive highlighting or writing, missing pages, and/or damaged spines or covers, you will be charged for the replacement of the book. 

This seems reasonable enough, but I worry that the concern about limiting highlighting and writing in the book could serve to limit student engagement with the content.  There is other language that suggests that it's not just "excessive highlighting or writing" that could be a concern. Also from the B&N website:

Treat with Care 
Over the course of your studies be aware that other students will be renting the textbook after you, so please limit highlighting and writing in the book.

This is not merely advising against "excessive" notation -- it is also requesting "limit[ed]" highlighting and writing in the book.  I am someone who likes to write in the margins, for example, and connect thoughts or ideas with circles and lines in the text.  I am also not averse to highlighting important passages.  (As a side note, I get the point on truly excessive highlighting.  I bought one book that had so much highlighting it was easier to pick out what was not highlighted. Kind of annoying and amusing at the same time.  I was able to work with it, but I was more careful with future purchases.) 

As a first-year student, I wrote every term I didn't know (or suspected was a term of art) in the margins to look up in Black's Law Dictionary.  I sometimes even wrote the definition in the margin. This kind of connection with the material, I think, was an important part of my learning process. I realize not everyone learns this way, but for those of us who do, I fear that the textbook rental will limit that experience.

Obviously, one who knows they learn better by writing in books can just choose to buy, instead of rent. Unfortunately, at least some of us wouldn't know that's they way we learn until after we get started. I can't say that I would have known, anyway.  My (lax) undergraduate study habits were not in any way similar to my law school habits, and I was more than five years removed from school when I went back to law school.   

I don't have a great answer right now, and I have not been able to readily find any studies to support my concerns on book rentals (or allay my fears).  For students, I would say to think about how you learn and consider whether a book rental runs the risk of negatively impacting your education. For educators, I think we need to keep thinking about how students interact with the learning material, and we need to be aware of, and adjust to, the outside forces that may change the student learning process.  Comments on all of this are most certainly welcome.  

May 5, 2015 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (1)

Tuesday, April 28, 2015

Shareholder Activists Can Add Value and Still Be Wrong

Last week, the Deal Professor, Steven Davidoff Solomon, wrote an article titled, The Boardroom Strikes Back. In it, he recalls that shareholder activists won a number of surprising victories last year, and more were predicted for this year. That prediction made sense, as activists were able to elect directors 73% of the time in 2014.  This year, though, despite some activist victories, boards are standing their grounds with more success.  

I have no problem with shareholders seeking to impose their will on the board of the companies in which they hold stock.  I don't see activist shareholder as an inherently bad thing.  I do, however, think  it's bad when boards succumb to the whims of activist shareholders just to make the problem go away.  Boards are well served to review serious requests of all shareholders, but the board should be deciding how best to direct the company. It's why we call them directors.  

As the Deal Professor notes, some heavy hitters are questioning the uptick in shareholder activism: 

Some of the big institutional investors are starting to question the shareholder activism boom. Laurence D. Fink, chief executive of BlackRock, the world’s biggest asset manager, with $4 trillion, recently issued a well-publicized letter that criticized some of the strategies pushed by hedge funds, like share buybacks and dividends, as a “short-termist phenomenon.” T. Rowe Price, which has $750 billion under management, has also criticized shareholder activists’ strategies. They carry a big voice.

I am on record being critical of boards letting short-term planning be their primary filter, because I think it can hurt long-term value in many instances.  I don't, however, think buybacks or dividends are inherently incorrect, either.  Whether the idea comes from an activist shareholder or the board doesn't really matter to me.  The board just needs to assess the idea and decide how to proceed.  

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April 28, 2015 in Agency, Business Associations, Corporate Governance, Corporations, Financial Markets, Joshua P. Fershee, Law and Economics | Permalink | Comments (1)

Tuesday, April 21, 2015

Triggering Compromise in North Dakota: Oil, Taxes, and Planning Ahead

In North Dakota, the state has seen drastically falling revenues due to low oil prices.  Lower revenues makes it more challenging for the communities in that state that are still trying to provide the necessary infrastructure and services that remain a challenge due to the enormous growth over the last several years.  The response from some in the North Dakota legislature? Cut taxes

Oil companies always seek lower taxes because they are rational actors.  Lower taxes means higher revenues. This was true with sky high oil prices and is even more true with lower prices. From a company perspective, the position makes sense.  From a legislative perspective, the position should be more nuanced. 

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April 21, 2015 in Financial Markets, Joshua P. Fershee, Law and Economics | Permalink | Comments (0)

Tuesday, April 14, 2015

Green Energy is Energy

Energy is big business, and there is evidence that renewables are starting to play along with the more traditional big-time players.  The Economist recently published the article, Renewable Energy: Not a Toy, which reports that renewable energy installations are continuing to increase even as subsidies fall because prices are continuing to drop. The energy sector is likely to continue to diversify, in part because diversification is good for resilience and for financial management.  The Economist article notes:

Nearly half of last year’s investment was in developing countries, notably China, whose energy concerns have more to do with the near term than with future global warming. It worries about energy security, and it wants to clean up its cities’ air, made filthy partly by coal-burning power plants.

Sometimes lost in the discussion about cleaner energy is that climate concerns are not the only reasons to consider other resources. Cleaner air, more stable prices, and locally sourced energy can all be good reasons to consider renewable energy sources along side more traditional resources. Prices, are the big one, of course, but when it's close, other considerations can more easily be part of the analysis.  It appears we're approaching that point, which means more opportunity, along with more upheaval. That's why some of us like the energy business so much. If nothing else, it's usually interesting,  

April 14, 2015 in Current Affairs, Financial Markets, International Business, Joshua P. Fershee, Law and Economics | Permalink | Comments (1)