Wednesday, April 26, 2017
More than a few legal blogs and scholars have taken note of a recent paper by Adam Bonica (Stanford University), Adam S. Chilton (University of Chicago), Kyle Rozema (Northwestern University) and Maya Sen (Harvard University), “The Legal Academy’s Ideological Uniformity.” The paper finds that those in the legal academy are more liberal than those in legal profession generally. Anecdotally, I have to say I am not surprised.
The abstract of the piece is as follows:
We find that approximately 15% of law professors are conservative and that only approximately one out of every twenty law schools have more conservative law professors than liberal ones. In addition, we find that these patterns vary, with higher-ranked schools having an even smaller presence of conservative law professors. We then compare the ideological balance of the legal academy to that of the legal profession. Compared to the 15% of law professors that are conservative, 35% of lawyers overall are conservative. Law professors are more liberal than graduates of top 14 law schools, lawyers working at the largest law firms, former federal law clerks, and federal judges. Although we find that professors are more liberal than the alumni at all but a handful of law schools, there is a strong relationship between the ideologies of professors from a law school and the ideologies of alumni from that school. However, this relationship is weaker for schools with more conservative alumni.
Jonathan Adler recently discussed the paper in a piece for The Volokh Conspiracy, How ‘ideologically uniform’ is the legal academy? Adler notes, that the paper's "findings are based upon an examination of reported political donations. While this is an admittedly imperfect measure of ideology, it does allow for comparisons across population groups." I agree on both counts.
I am particularly interested in (and a bit skeptical of) the use of political donations as the proxy for ideology. I understand why the authors used that proxy: the information is available and it does, as Adler says, provide for comparisons. My skepticism is not about their process or choice, but merely about whether it tells us very much about legal ideology. I think it tells us primarily about political party. And even there, in a primarily two-party system, it only tells us about preferences between those two parties, and if the data is primarily presidential, about those two specific candidates.
My point is that legal ideology is often different that political party choice. When choosing between two parties, we all have priorities of our views, too. For example, I am a far bigger believer in the ability of markets to solve problems than many of my colleagues. I am more skeptical of government intervention and increased regulation than many of my colleagues. But because of a few priorities that tip my balancing test, I would almost certainly come out "liberal" in using my modest contributions to political parties as the assessment of my ideology.
In assessing legal ideology, though, I would argue diversity comes more from how we view the law than particular candidates or certain social issues. Obviously, it is much harder to assess that, but I think it should matter when considering how law schools teach.
Some legal programs (like SEALS) have been seeking diversity of viewpoints, along with other measures of diversity, for panel and discussions groups. This is a good thing. It's not always easy to assess, though. Maybe we should just ask. Here's how I'd assess my own legal ideology: When it comes to economic regulation, my thinking is much more in line with former law professor and SEC Commissioner Troy A. Paredes than I am with, say, Elizabeth Warren. When it comes to business entities law, I am far more Bainbridge than Bebchuck. For environmental law, more Huffman or Adler than Parenteau. Of course, I have at various times agreed and disagreed with them all.
I, like many others, am very skeptical of an ideological litmus test or quota system. And yet I also think there is value in embracing different perspectives and viewpoints. Ultimately, I don't care how someone votes when I assess whether they are a good legal scholar, a good colleague, and a good teacher. I do care that they value diversity of all kinds (including ideological), and I care that they believe in encouraging and faciltitating productive discourse. There is little value in lockstep thinking in any arena, and that is particularly true in legal education. I'm glad this discussion is part of how we consider moving forward in legal education.
Monday, April 24, 2017
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.
Wednesday, March 1, 2017
Businesses from small farmers to cruise lines are anxiously awaiting President Trump's policy on Cuba and how/if he will rescind President Obama's Executive Orders relaxing restrictions on doing business with the island.
If you're in the South Florida area next Friday March 10th, please consider attending the timely conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges from 8:00 am-4:30 pm at the Andreas School of Business, Barry University. The Florida Bar has granted 6.5 CLE credits, including for ethics and for certifications in Business Litigation and International Law. The Miami-Dade Commission on Ethics and Public Trust is organizing the event.
As a member of the Commission and an academic who has just completed my third article on Cuba, I'm excited to provide the opening address for the event. I'm even more excited about our speakers John Kavulich, President, U.S. Cuba Trade and Economic Council Inc; the general counsel of Carnival Cruise Lines; mayors of Miami Beach, Coral Gables, and Doral; director of the Miami International Airport; a number of academic experts from local universities; Commissioners Nelson Bellido and Judge Lawrence Schwartz; and outside counsel from MDO Partners, Akerman LLP, Holland & Knight, Greenberg Traurig, Squire Patton Boggs, and Gray Robinson.
It promises to be a lively and substantive discussion.
Registration closes on Monday, March 6th. The $50 admission fee includes breakfast, lunch, and all materials. Go to ethics.miamidade.gov or call 305-579-2594 to register or for more information. You can also leave comments below or email me at email@example.com.
Friday, February 17, 2017
Last week Runner’s World reported:
Mariya Savinova-Farnosova, a Russian middle distance runner, was given a four-year ban for doping by the Court of Arbitration for Sport on Friday. She will also be stripped of two gold medals she won at the 2011 world outdoor championships and 2012 London Olympics, as well as a 2013 world silver medal, all in the 800 meters.
As a result, U.S. athlete Brenda Martinez will likely soon be upgraded to a silver medal for her performance in the 800 meters at the 2013 world championships and American Alysia Montaño will receive bronze medals for her races at the 2011 and 2013 world championships. Officials will first need to verify the new results.
In this post, I’ll examine how the presumably clean athletes—like Brenda Martinez and Alysia Montaño in this case—should be treated with regards to their endorsement contracts. The main question is:
- Should the clean athletes be awarded their endorsement contract performance bonuses based on world rankings than have been revised to exclude doping athletes?
Respected law firm Reed Smith has some helpful contract interpretation materials available here, which is relevant to the discussion. All of the following is merely an academic exercise and not legal advice.
Contract Drafting and the Text of the Contract.
As with any contractual issue, we should start with the text of the contracts. Since few of these endorsement contracts are publicly available, I will use the language in Nike’s endorsement contract that was filed in the Nike v. Berian case last year.
A great many contract disputes could be avoided with clear drafting. If an endorsement contract stated that performance bonuses would be paid based on any revised rankings that remove doping athletes, then I imagine that language would control and the clean athletes would promptly get paid the difference between their old and new ranking. Doping has been uncovered frequently enough in sports like cycling and track & field (aka “athletics”) that such a contractual clarification might be helpful to include on the front end of the drafting process.
The proposed Nike contract in the Berian case does contain promised performance bonuses, based on world rankings, with additional bonuses for Olympic and World Championship Medals (pg. 14), but I did not see any guidance regarding world rankings that are revised due to doping. The potential bonuses in the Berian case were fairly significant, with the top bonus of $150,000 exceeding the proposed annual base pay of $125,000. The contract does allow Nike to terminate the contract due to any sponsored athlete’s doping offense (pg. 9), but, again, I don’t see anything about doping by the athlete’s competitors.
As the Reed Smith contract interpretation flowchart correctly states, judges attempt to construe contracts in accordance with the parties’ intent. We first look at the text of the contract, and can only look at the contract language if the wording in unambiguous. If the contract language is ambiguous (reasonably susceptible to more than one interpretation) then the court may be able to look beyond the contract (parol evidence) to determine the intent of the parties.
Here, I think the parties' intent might be interpreted either way. On one hand, the athlete could argue that the intent was to award bonuses based on the fair world rankings, which would exclude drug cheats. On the other hand, the sponsor could argue that they were paying for publicity, and that the revised rankings publicity is typically significantly less than the publicity surrounding achievement during the actual Olympics or World Championships.
As a practical matter, like most legal disputes, it probably makes sense for the athlete and the sponsoring company to settle the matter outside of court. An example of a principled negotiation could involve the sponsor paying the difference in the performance bonuses, and the athlete promising to do an anti-doping ad for the sponsor or a few extra appearances related to the new rankings.
It future posts, I may write about the appropriate punishment for athletes who use performance enhancing drugs. For example, is jail time appropriate? I may also post on ways to further compensate the clean athletes for their lost earnings, publicity, and recognition.
Wednesday, January 25, 2017
Spoiler alert: wrongful refusal of demand and bad faith standards are the same in recent Delaware Court of Chancery case: Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017, Op by VC Montgomery-Reeves).
But sometimes a reminder that the law is the same and can be clearly stated is worth a blog post in its own right. Professors can use this as a hypo or case note and those in the trenches can update case citations to a 2017 (and 2016) case.
In Andersen v. Mattel, Inc., VC Montgomery-Reeves dismissed a derivative suit, holding that plaintiff did not prove wrongful refusal of pre-suit demand. The derivative action claimed that the Mattel board of directors refused to bring suit to recover up to $11.5 million paid in severance/consulting fees to the former chairman and chief executive officer who left in the wake of a falling stock price. Plaintiff challenged disclosure discrepancies over whether Stockton resigned or was terminated and the resulting entitlement to severance payments. Mattel's board of directors unanimously rejected the demand after consultation with outside counsel, 24 witness interviews and a review of approximately 12,400 documents.
The relied upon case law is unchanged, but the clear recitation of the law is worth noting:
Where, as here, a plaintiff makes demand on the board of directors, the plaintiff concedes that the board is disinterested and independent for purposes of responding to the demand. The effect of such concession is that the decision to refuse demand is treated as any other disinterested and independent decision of the board—it is subject to the business judgment rule. Accordingly, the only issues the Court must examine in analyzing whether the board’s demand refusal was proper are “the good faith and reasonableness of its investigation. (internal citations omitted)
To successfully challenge the good faith and reasonableness of the board's investigation, Plaintiff's complaint was required to state particularized facts raising a reasonable doubt that:
(1) the board’s decision to deny the demand was consistent with its duty of care to act on an informed basis, that is, was not grossly negligent; or (2) the board acted in good faith, consistent with its duty of loyalty. Otherwise, the decision of the board is entitled to deference as a valid exercise of its business judgment.
First, Plaintiff challenged the board's demand refusal on the grounds that they did not disclose the investigation report or the supporting documents in conjunction with the demand refusal. The Court was unpersuaded given that Plaintiff had the right to seek the report and records through a Section 220 demand, but chose not to do so.
Second, Plaintiff challenged the board's demand refusal on the grounds that it failed to form a special committee. Absent any facts that the Mattel board considering the demand was not independent, there was no requirement for the board to form a special committee.
Third, and final, Plaintiff challenged the board's good faith in rejecting the demand on the grounds that Stockton's employment was not voluntarily terminated. The court cautioned that:
[T]he question is not whether the [b]oard’s conclusion was wrong; the question is whether the [b]oard intentionally acted in disregard of [Mattel’s] best interests in deciding not to pursue the litigation the Plaintiff demanded. [T]he fact that the [b]oard’s justifications for refusing [the] demand fall within ‘the bounds of reasonable judgment’ is fatal to [the] claim that the refusal was made in bad faith. (citing to Friedman v. Maffei, (Del. Ch. Apr. 13, 2016))
Francis Pileggi at the excellent Delaware Corporate and Commercial Litigation Blog first brought this case to my attention. Practitioners and Professors alike should be certain to include his blog on your weekly round up. He is a sure source of concise and insightful summaries of the latest Delaware court developments.
Tuesday, January 17, 2017
Here we go again. Oregon Federal District Court has a new rule on the books:
In diversity actions, any party that is a limited liability corporation (L.L.C.), a limited liability partnership (L.L.P.), or a partnership must, in the disclosure statement required by Fed. R. Civ. P. 7.1, list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens. If any owner/member/partner of the L.L.C., L.L.P., or partnership is another L.L.C., L.L.P., or partnership, then the disclosure statement must also list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens.
The certification requirements of LR 7.1-1 are broader than those established in Fed. R. Civ. P. 7.1. The Ninth Circuit has held that, “[L]ike a partnership, an LLC is a citizen of every state of which its owners/members/partners are citizens.” Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Early state citizenship disclosure will help address jurisdictional issues. Therefore, the disclosure must identify each and every state for which any owner/member/partner is a citizen. The disclosure does not need to include names of any owner/member/partner, nor does it need to indicate the number of owners/members/partners from any particular state.
For federal law purposes, it appears that the rule has excluded LLCs, despite the intent (and likely specific purpose) of the rule. Interestingly, Oregon law, has extended "unless context requires otherwise" the concept of LLCs to apply to partnership and corporate law. Oregon law provides:
Unless the context otherwise requires, throughout Oregon Revised Statutes:
(1) Wherever the term “person” is defined to include both a corporation and a partnership, the term “person” shall also include a limited liability company.(2) Wherever a section of Oregon Revised Statutes applies to both “partners” and “directors,” the section shall also apply:(a) In a limited liability company with one or more managers, to the managers of the limited liability company.(b) In a limited liability company without managers, to the members of the limited liability company.(3) Wherever a section of Oregon Revised Statutes applies to both “partners” and “shareholders,” the section shall also apply to members of a limited liability company.
Friday, December 30, 2016
At the end of every semester I resolve to give less work to my students so that I don't have so much to grade. This upcoming semester I may actually keep that resolution, but I do plan to keep my blogging assignment. In each class, I provide an extra credit or required post or series of posts of between 200-500 words so that students can learn a fundamental legal skill—communicating clearly, correctly, and concisely.
If you are reading this post, then you are already a fan of legal blogs. Academics blog to get their ideas out quickly rather than waiting for the lengthy law review cycle to publicize their thoughts. Academics can also refine ideas they are incubating by blogging and receiving real time feedback from readers. Practicing lawyers blog (or should) for a slightly different reason. Blogging can enhance a lawyer’s reputation and visibility and ultimately lead to more business.
Yesterday, I met with an attorney who will speak to the students in my new course on Legal Issues for Startups, Entrepreneurs, and Small Businesses. I mentioned to him that I found his blog posts enlightening and that they filled a gap in my knowledge base. Although I practiced for almost twenty years before entering academia and had a wide range of responsibility as a deputy general counsel, I delegated a number of areas to my colleagues or outside counsel. That attorney is now part of a growing trend. In 2011, when I left practice, lawyers rarely blogged and few utilized social media. Now, many recognize that lawyers must read legal blogs to keep up on breaking developments relevant to their practice. However, most lawyers understandably complain that they do not have the time to get new clients, retain their existing clients, do the actual legal work, and also blog.
Leaving blogging to the wayside is a mistake, particularly for small or newer firms. A 2016 Pew Research Center Study revealed that only 20% of people get their news from newspapers yet almost 40% rely on social media, which often provides summaries of the news curated to the consumer’s interests. The potential client base’s changing appetite for instant information in a shorter format makes blogging almost a necessity for some lawyers. Indeed, consumers believe that hiring a new lawyer is so overwhelming that some clients are now crowdsourcing. But when they receive multiple “offers” to represent them, how do/should consumers choose? Perhaps they will pick the firm with a social media presence, including a blog that highlights the firm’s expertise.
I read several blogs a day. Admittedly, I have a much longer attention span than many of our students and the lay public. I also get paid to read. Nonetheless, I consider reading blogs an essential part of my work as an academic. In prepping for my new course, I have found posts on startups and entrepreneurship particularly helpful in providing legal information as well as insight into the mindset of entrepreneurs. If I were a busy founder running a new startup, I would likely try to learn as much as possible as quickly as possible online about certain topics prior to retaining a lawyer. Some lawyers, however, don’t really know how to speak to clients without talking down to them, much less write anything “short” and free of jargon. A lawyer/blogger who wrote in a way that I could understand, without all of the legalese, would be more likely to get my business.
Thus, even though I want to grade fewer papers, I also want my students to leave my class with the critical skill of communicating complex topics to the public in digestible chunks (and in line with state bar rules on social media). Over the years, I have advised students to volunteer to update or start a blog for their internship employers. Many have told me that they enjoyed these projects and that their employers have found value in this work. This blogging practice also puts students in the position to start to blog after graduation.
I’ll end this post with a plug for my blogging colleagues who will attend AALS next week in San Francisco. I encourage you to attend some of the socioeconomic panels highlighted here. Please introduce yourself if you attend the panel next Wednesday morning at 9:50 on whistleblowers with me, Professor Bill Black of UMKC; Professor June Carbone of Minnesota; and Professor Ben Edwards of Barry. If you have an interest in the intersection between ethics and business, please swing by next Friday at 1:30 and see me and co-panelists Christopher Dillon from Gibson Dunn; Mina Kim, GC of Sunrun; Professor Eric Orts of Wharton; Professor Joseph Yockey of Iowa; Professor Brian Quinn of Boston College; Dean Gordon Smith of BYU; Professor Lori Johnson of UNLV; and Professor Anne Choike of Michigan.
If you have legal blogs you want to recommend and/or will be speaking at AALS and want to call attention to your session, feel free to comment below. Happy New Year and happy blogging.
Friday, November 18, 2016
Call for Proposals: “Teaching Cultural Competency and Other Professional Skills Suggested by ABA Standard 302”
The following comes to us from Prof. Kelly Terry, Co-Director, Institute for Law Teaching and Learning. Submit proposals to her at firstname.lastname@example.org by 2/1/17 .
Call for Proposals for the Institute for Law Teaching and Learning’s Summer 2017 Conference, “Teaching Cultural Competency and Other Professional Skills Suggested by ABA Standard 302.” The conference will take place July 7-8, 2017 at the University of Arkansas at Little Rock William H. Bowen School of Law.
The Institute invites proposals for workshop sessions addressing how law schools are responding to ABA Standard 302’s call to establish learning outcomes related to “other professional skills needed for competent and ethical participation as a member of the legal profession,” such as “interviewing, counseling, negotiation, fact development and analysis, trial practice, document drafting, conflict resolution, organization and management of legal work, collaboration, cultural competency and self-evaluation.” The conference will focus on how law schools are incorporating these skills, particularly the skills of cultural competency, conflict resolution, collaboration, self-evaluation, and other relational skills, into their institutional outcomes, designing courses to encompass these skills, and teaching and assessing these skills. The deadline to submit a proposal is February 1, 2017.
Friday, October 21, 2016
Sadly, I am still in the midst of grading business associations and civil procedure midterms so I cannot finish my substantive post on Wells Fargo yet. WF is the gift that keeps on giving from a teaching perspective, though. Yesterday I showed students some of the litigation that has come out of the debacle to illustrate the difference between a direct and derivative suit (and to reinforce some civil procedure principles too).
Last night I took a break from grading to go to a Meetup called Ask a Start Up Lawyer. I hope to teach a 2-credit skills course on legal issues for startups, small businesses, and entrepreneurs next semester and I have found that going to these sessions and listening to actual entrepreneurs ask their questions helpful. Last night's meetup was partcularly enlightening because a number of international entrepreneurs here in Miami for a State Department initiative attended. While in the past some of these sessions have focused on funding options and entity selection, last night's "students" mainly wanted to learn about intellectual property and international protection. Many of them come from countries with no copyright law, for example. Others come from countries where owning shares is a rarity. Although my course will focus on domestic entities, given the South Florida market in which I teach, I may need to add some of these comparative components to my already ambitious draft syllabus covering tax, employment, entity selection, governance, IP, business torts, basic securities regulation, social entrepreneurship, and exit strategies.
If you have taught a course like this or have any ideas on materials to use, please comment below or send me a message at email@example.com.
Friday, October 14, 2016
As a professor who moved from a law school to a business school, I remain amazed how little the two legal scholarly worlds overlap. I do, however, think the overlap is increasing somewhat, as more professors move between the two types of schools and the conferences and journals becoming a bit less segregated. That said, I imagine that many of our law professor readers may have missed legal studies professor Larry DiMatteo's (University of Florida, Warrington College of Business) 2010 American Business Law Journal article on strategic contracting. I had not read it until I moved to a business school and met Larry at a legal studies conference. Larry's article is proving useful in my current work, so I thought I would share it here with our readers. Abstract reproduced below:
This paper uses sources taken from the legal literature, as well as literature from strategy and human resource management. It explores Professor Gilson’s noted remark in the Yale Law Journal that “business lawyers serve as transaction cost engineers and this function has the potential for creating value.” This exploration focuses on the strategic use of contract law in gaining a competitive advantage and to create value. It begins by differentiating two frames of the contract paradigm. One is the internal frame in which contract law’s inherent flexibility allows for its use as a source of competitive advantage. The second frame is external since it focuses on the use of the contract paradigm in non-contractual contexts.
The paper examines the use of contract to create value and uses for examples, the commodification of information, licensing and IT outsourcing, and franchising. From there, the paper explores the use of contracts to sustain a competitive advantage (strategic contracting) and to create shared competitive advantages (strategic collaboration). It uses the creation and use of patent pools to illustrate both strategic uses of contract law. The next part focuses on the use of contracts to mitigate uncertainty in business transactions. It explores the strategic use of existing contract doctrines, the use contracts to insure performance and to deter opportunistic behavior, and the use of contracts to develop a preventive legal strategy. This is followed by the examination of contracting for innovation and contracts’ role in creating private governance structures, such as strategic joint venturing.
The final parts explore the use of contract as metaphor in nexus of contact theory in corporate law, psychological contract theory in employment law, and the potential abuse of the freedom of contract paradigm in limited liability company law. The paper then examines strategic responses to regulation by asking whether strategic avoidance or non-compliance to regulations has a place in a company’s legal strategy? The paper concludes by asking how does strategic contracting impact contract law? It answers the question by arguing that contract law change is inevitable due to a feedback loop.
Thursday, July 14, 2016
Two weeks ago, I blogged about the potential unintended consequences of (1) Dodd-Frank whistleblower awards to compliance officers and in-house counsel and (2) the Department of Justice’s Yates Memo, which requires companies to turn over individuals (even before they have determined they are legally culpable) in order to get any cooperation credit from the government.
Today at the International Legal Ethics Conference, I spoke about the intersection of state ethics laws, common law fiduciary duties, SOX §307 and §806, and the potential erosion of the attorney-client relationship. I posed the following questions regarding lawyer/whistleblowers and the Yates Memo at the end of my talk:
- How will this affect Upjohn warnings? (These are the corporate Miranda warnings and were hard enough for me to administer without me having to tell the employee that I might have to turn them over to the government after our conversation)
- Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ?
- Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ?
- Will companies turn people over to the government before proper investigations are completed just to save the company?
- Will executives cooperate in an investigation? Why should they?
- What’s the intersection with the Responsible Corporate Officer Doctrine (which Stephen Bainbridge has already criticized as "running amok")?
- Will there be more claims/denials for D & O coverage?
- Will individuals who cooperate get cooperation credit in their own cases?
- Will employees turn on their superiors without proper investigation?
- How will individuals/companies deal with parallel civil/criminal enforcement proceedings?
- What about indemnification clauses in employment contracts?
- Will there be more trials because there is little incentive for a corporation to plead guilty?
- What about data privacy restrictions for multinationals who operate in EU?
- How will this affect voluntary disclosure under the US Federal Sentencing Guidelines for Organizational Defendants, especially in Foreign Corrupt Practices Act cases?
- What ‘s the impact on joint defense agreements?
- As a lawyer for lawyers who want to be whistleblowers, can you ever advise them to take the chance of losing their license?
I didn’t have time to talk about the added complication of potential director liability under Caremark and its progeny. During my compliance officer days, I used Caremark’s name in vain to get more staff, budget, and board access so that I could train them on the basics on the US Federal Sentencing Guidelines for Organizations. I explained to the Board that this line of cases required them to have some level of oversight over an effective compliance program. Among other things, Caremark required a program with “timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning the [company’s] compliance with law and its business performance.”
I, like other compliance officers, often reviewed/re-tooled our compliance program after another company had negotiated a deferred or nonprosecution agreement with the government. These DPAs had an appendix with everything that the offending company had to do to avoid prosecution. Rarely, if ever, did the DPA mention an individual wrongdoer, and that’s been the main criticism and likely the genesis of the Yates Memo.
Boards will now likely have to take more of a proactive leadership role in demanding investigations at an early stage rather than relying on the GC or compliance officer to inform them of what has already occurred. Boards may need to hire their own counsel to advise on them on this and/or require the general counsel to have outside counsel conduct internal investigations at the outset. This leads to other interesting questions. For example, what happens if executives retain their own counsel and refuse to participate in an investigation that the Board requests? Should the Board designate a special committee (similar to an SLC in the shareholder derivative context) to make sure that there is no taint in the investigation or recommendations? At what point will the investigation become a reportable event for a public company? Will individual board members themselves lawyer up?
I will definitely have a lot to write about this Fall. If you have any thoughts leave them below or email me at firstname.lastname@example.org.
July 14, 2016 in Compliance, Conferences, Corporate Governance, Corporations, Ethics, Lawyering, Marcia Narine Weldon, Securities Regulation, Shareholders, White Collar Crime | Permalink | Comments (1)
Friday, July 1, 2016
This post concerns the rights and responsibilities of whistleblowers. I sit on the Department of Labor Whistleblower Protection Advisory Committee. These views are solely my own.
Within a week of my last day as a Deputy General Counsel and Chief Compliance Officer for a Fortune 500 company and shortly before starting my VAP in academia, I testified before the House Financial Services Committee on the potential unintended consequences of the proposed Dodd-Frank whistleblower law on compliance programs. I blogged here about my testimony and the rule, which allows whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act to receive 10 to 30 percent of the amount of the recovery in any action in which the Commission levies sanctions in excess of $1 million dollars. During my testimony in 2011, I explained to some skeptical members of Congress that:
…the legislation as written has a loophole that could allow legal, compliance, audit, and other fiduciaries to collect the bounty although they are already professionally obligated to address these issues. While the whistleblower community believes that these fiduciaries are in the best position to report to the SEC on wrongdoing, as a former in house counsel and compliance officer, I believe that those with a fiduciary duty should be excluded and have an “up before out” requirement to inform the general counsel, compliance officer or board of the substantive allegation or any inadequacy in the compliance program before reporting externally.
Thankfully, the final rule does have some limitations, in part, I believe because of my testimony and the urgings of the Association of Corporate Counsel, the American Bar Association and others. In a section of the SEC press release on the program discussing unintended consequences released a few weeks after the testimony, the agency stated:
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
- The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
- The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
- At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
At least two compliance officers or internal audit personnel have in fact received awards—one for $300,000 and another for $1,500,000. When I served on a panel a couple of years ago with Sean McKessy, Chief of the Office of the Whistleblower, he made it clear that he expected lawyers, auditors, and compliance officers to step forward and would not hesitate to award them.
Compliance officers have even more incentive to be diligent (or become whistleblowers) because of the DOJ Yates Memo, which requires companies to serve up a high ranking employee in order for the company to get cooperation credit in a criminal investigation. I blogged about my concerns about the Memo’s effect on the attorney-client relationship here, stating:
The Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?
The US Chamber of Commerce shares my concerns and issued a report last month that echoes the thoughts of a number of defense attorneys I know. I will be discussing these themes and the Dodd-Frank Whistleblower aspect at the International Legal Ethics Conference on July 14th at Fordham described below:
Current Trends in Prosecutorial Ethics and Regulation
Ellen Yaroshefsky, Cardozo School of Law (US) (Moderator); Tamara Lave, University of Miami Law School (US); Marcia Narine, St. Thomas University School of Law (US);Lawrence Hellman, Oklahoma City University School of Law (US); Lissa Griffin, Pace University Law School (US); Kellie Toole, Adelaide Law School (Australia); and Eric Fish,Yale Law School (US)
Nationally and internationally, prosecutors' offices face new, as well as ongoing, challenges and their exercise of discretion significantly affects individuals and entities. This panel will explore a wide range of issues confronting the modern prosecutor. This will include certain ethical obligations in handling cases, organizational responsibility for wrongful convictions, the impact of the exercise of prosecutorial discretion in whistleblower cases, and the cultural shifts in prosecutors' offices.
To be clear, I believe that more corporate employees must go to jail to punish if not deter abuses. But I think that these mechanisms are the wrong way to accomplish that goal and may have a chilling effect on the internal investigations that are vital to rooting out wrongdoing. If you have any thoughts about these topics, please leave them below or email me at email@example.com. My talk and eventual paper will also address the relationship between Sarbanes-Oxley, the state ethical rules, and the Catch-22 that in house counsel face because of the conflicting rules and the realities of modern day corporate life.
July 1, 2016 in Compliance, Conferences, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Lawyering, Marcia Narine Weldon, Securities Regulation, White Collar Crime | Permalink | Comments (1)
Saturday, May 28, 2016
A former law student of mine who practices in Delaware just alerted me to this Delaware Online article.
The article describes the proposed bill as follows:
House Bill 371 would restrict the number of corporate shareholders who can petition the court for a stock appraisal to only those who own $1 million or more of a company's stock or 1 percent of the outstanding shares, depending on which is less. Currently, any shareholder can ask the court to appraise their shares. Those motions are typically filed when a company is the target of an all-cash acquisition and the shareholder wants to ensure the buyer is paying a fair price for the stock. (emphasis added)
Corporate governance expert Charles Elson is quoted as saying:
. . . he understands the argument on both sides. "Anytime you attempt to restrict the rights of a smaller shareholder, it is going to be controversial whether or not the approach is warranted"
The article cites co-authored work by my Nashville neighbor, Randall Thomas (Vanderbilt Law):
A study published earlier this month by four noted corporate law professors, including Wei Jang of Columbia Business School and Randall S. Thomas of Vanderbilt Law School, found that hedge funds have accounted for nearly 75 percent of the amount awarded in all appraisal actions over the last few years. The study also found that 32 percent of the cases involved stakes below $1 million or 1 percent of a company's stock.
Go read the entire article.
Tuesday, May 24, 2016
Some time ago, I wrote the post Better Teaching Idea: Try to Notice When the Wind Is at Your Back. That post emerged from some observations while running, and today's post has the same origin.
This month I have been trying to up my miles again for no particular reason. I don't run for races. I run to run. And to feel like I am at least doing something to stay in some semblance of good shape (it's not really working). I now run 4 miles most days. Maybe a little more or less, but that's the norm this month. The past two days, I ran from my house, which is at the top of a hill. It is more of a mountain when I am running up it. (I promise, I am getting somewhere with this.)
I often go down to the rail trail along the river, which is a mostly flat, pretty place to run. The last two days, I have been running from my house. This means that if I want to get any distance in, I need to go down the mountain. And, of course, it means I need to get back to the top. Now, I could stay at the top. It's relatively flat on our street, and I can run a quarter of a mile down and back and stay at the top of the mountain. That's a lot of down and backs to get in four miles. No thanks. It's easier, but not much fun. (Note: you can follow along my running escapades on Twitter @jfershee and Nike+.)
My usual route from my house takes my down the mountain, then back up the mountain, where I turn around and retrace my steps. That means I am running up the steepest part of the run at mile 3.5. It's not always my favorite part of the run, even if it is my most triumphant. As I was slogging my way back up the mountain, my mind wandered and I caught myself thinking again, "It would have been a lot easier to just stay at the top." And it is. It's true in running, and it's true in most everything else we do.
It doesn't matter how you get to the top. Once you're there, it's easier to stay there than it was to get there. It may take a lot of work to get to the top. For most people, it does. But someone can just take you to the top, too. Once you're there, it's easier to stay there. And once you leave, it's hard to get back up.
Knowing all of this is important. And it is important to remember that not everyone has the same amount to climb to get to the top of whatever it is they are climbing. I did not come from money, but I had everything I needed. I am a straight, white male. The data show that starts you ahead of the game. I went to good public schools. I went to college. And law school. This required a lot of work to move ahead, but the opportunity was there for me in a way it isn't for many.
It's easy to start thinking that everyone is starting from the same point. And it's a lot easier to notice the people who are ahead of you on the way up. It's not that often that we look back, which can skew our perspective in unproductive ways.
As teachers, it's important to recognize that we can be part of helping our students move up their mountain. And they may not be starting from the same place we were. They may have further to go. Some may have less. It's our job to help them get where they want go. As a corollary, it's also important to remember that just because they might have farther to go, it's not our job to limit the mountains they can climb. To the contrary, it's our job to help them see that the sky truly is the limit.
That's my take away for the day: as hard as it is to keep climbing to the top, don't ever think you're doing it alone. Appreciate who helped you. Keep slogging. And when you get to the top, don't forget to see if you can help someone else up.
Monday, May 9, 2016
[Please keep in mind as you read this post that my daughter is a Starbucks partner. Any pro-Starbucks bias in this post is unintended. But you should factor in my affiliation accordingly.]
Maybe it's just me, but the publicity around the recent suit against Starbucks for putting too much ice in their iced beverages made me think of Goldilocks and her reactions to that porridge, those chairs, and those beds. First it was McDonald's, where the coffee was too hot. Now it's Starbucks, where the coffee is too cold--or, more truthfully, is too watered down from frozen water . . . . (And apparently I missed a Starbucks suit earlier this year on under-filing lattes . . . .)
Different types of tort suits, I know. I always felt bad about the injury to the woman in the McDonald's case, although the fault issue was truly questionable. The recent Starbucks case just seems wrong in so many ways, however. This is a consumer dispute that is best addressed by other means. I admit to believing this most recent suit is actually an abuse of our court system.
How might a customer who is truly concerned about a substandard beverage attempt to remedy the wrong?
Monday, April 18, 2016
Imagine This: First-Semester Second-Year Students in Your Business Associations Class Who Already Have a Sense of Transactional Practice . . .
This is not a pipe dream! I honestly believe that in the fall of 2017, this will be a reality for me. (I typically teach Business Associations in the fall semester to a large number of students who understand "cases," not "deals.")
The reason for my good spirits and honest belief in the positive change in my students? Our new 1L curriculum, which is rolling out this fall. No doubt, we will find some changes that need to be made as we implement our relatively bold plan. But I am truly excited that the new first-year curriculum exposes every student to a transactional experience in the first year of law school.
There are many reasons for implementing this kind of change, of course. Among other things, this new approach to the first year at UT Law responds to suggestions that we got from our students and represents an effort to better connect the 1L year to our upper division curriculum (on which we have spent a lot of time over the years). The new 1L transactional offering is part of a larger plan constructed by a College of Law committee, chaired by my colleague (and e-discovery queen) Paula Schaefer, that spent several years looking at our overall curriculum and that of many other schools before fashioning a number of alternative options for the faculty to review.
The implementation involves a lot of work. Many colleagues are chipping in to construct new courses and re-fashion existing courses to meet the new curricular requirements. It takes a village. I am grateful for all of the work being put in. I work with a great bunch of folks.
An article in the National Jurist last week describes the new 1L curriculum in general. Our academic policies, however, add some detail. I quote from them below, with some reformatting for easier reading in this space.
For students entering in or after Fall 2016, the first-year curriculum is as follows:
Civil Procedure I* (3)
Contracts I (3)
Criminal Law (3)
Lawyering & Professionalism (1) Legal Process I (3)
Torts I* (3)
Civil Procedure II (3)
Contracts II (3)
Legal Process II (3)
Torts II (2)
Transactional Lawyering Lab (1)
*First-year students enroll in an experiential section of either Civil Procedure I or Torts I. The experiential sections include three graded, simulation-based assignments. Each simulation places students in the role of lawyer, raises professionalism issues, requires students to perform a lawyering skill, and results in a written and/or oral work product. In addition to a final examination, the course also includes a midterm exam that includes at least one essay question.
We are pretty excited to get this new curricular show on the road. I look forward to sharing more with you as we see how students react in the short term and long term. But my UT Law colleagues and I are very hopeful that this new approach to the first year will lay a strong foundation for upper division academic work and for practice.
Friday, March 11, 2016
Some of our December graduates haven just taken the Florida bar exam. As always, I asked them about the business associations questions. Florida drastically changed its LLC rules in 2014, but still hasn’t asked any questions about LLCs, focusing instead on partnerships and corporations (at least according to the students). From a review of the released questions, the bar didn’t ask about LLCs before the amendments either.
I teach BA again next year and I’m struggling with what to emphasize. Business Associations is not required in many Florida law schools, but it is at St. Thomas, and many students enter the class with trepidation. Most will only take the one required course and won’t go on to advanced classes in securities regulation, corporate taxation, or other drafting courses. I try to focus the required BA class on skills that graduates will need in the workplace in addition to preparing them for the bar by using released test questions. Now I wonder how to balance the tension between the rise of LLCs and the many changes in laws related to securities regulation with the bar’s continued focus on partnerships and traditional corporations.
Yesterday the Obama administration added Miami to the list of tech hire jurisdictions. The Kauffman Index ranks Miami as second in the country for startups. Last month, a blogger highlighted my city’s proximity to Latin America and our emerging tech scene. With these realities in mind, should I add even more to what I already teach about legal issues that entrepreneurs and startups face even if that’s not what the Florida bar tests? I never want to “teach to the test” but I also want to make sure that I am responsible in my pedagogy, which for me includes marking up operating agreements, spending time demystifying IPO filings, and introducing them to hybrid entities that entrepreneurs ask about.
Unlike 20 other states, Florida has not adopted the Uniform Bar Exam, but I believe that any test that asks students to do the kind of critical analysis they would have to do in practice is a good thing. This week the Florida bar established a new committee to consider the issue, but I don’t have high hopes for a quick change to the bar exam. Lawyers here recently killed a proposal for reciprocity, and some see the UBE as a back door effort to flood Florida with out of staters.
So I have a conflict. How do other professors tackle the coverage issue? Comment below or feel free to email me at firstname.lastname@example.org.
Wednesday, March 9, 2016
It has been a crazy busy couple of weeks, and one thing I rely on the keep sane (or sane-ish) is music. This morning I was listening to the most recent Public Enemy album, Man Plans God Laughs, which includes a song called "Corplantationopoly." (The album is solid, and while it will never top Nation of Millions or Fear of a Black Planet, Chuck D is still powerful to hear.) This got me to thinking about songs that reference business as part of their lyrics and/or theme.
With the availability of the internet, of course several such lists have already been compiled. Here is a sampling:
It's like the more money we come across
The more problems we see
My car is parked outside, I'm afraid it doesn't work
I'm looking for a partner, someone who gets things fixed
Ask yourself this question, do you want to be rich?
We don't pull the strings
It's all in the past now
Money changes everything
It was only everything
Before money became king.
Friday, February 12, 2016
Even though I have never participated in a single Yoga class, I enjoyed my co-editor Joan Heminway’s Yoga Analogy Post from a couple weeks ago. Her post inspired this analogy post about running and the law.
While I am not the most consistent runner among the BLPB editors---that title goes to Josh Fershee---I have been running 3+ times a week consistently for the last 6 months or so, following a few very inconsistent years.
Below the break, I discuss some parallels between running (particular long-distance running) and the practice of law. Due to these parallels, as a hiring partner, I believe I would look favorably on an applicant who was a distance runner.
Also about distance running, is anyone else really excited about watching the Olympic Trials for the Marathon on NBC tomorrow? Not a great spectator sport, to be sure, but I love that so many people with normal jobs are running. Nashville-area elementary school teacher Scott Wietecha qualified for the Trials (though he has chosen not to run, due, at least in part, the some health issues). Scott has details and predictions here; after reading his long post, I can quickly see that he is even much more excited about watching the race than I am.
Thursday, February 4, 2016
For the past four weeks I have been experimenting with a new class called Transnational Business and Human Rights. My students include law students, graduate students, journalists, and accountants. Only half have taken a business class and the other half have never taken a human rights class. This is a challenge, albeit, a fun one. During our first week, we discussed CSR, starting off with Milton Friedman. We then used a business school case study from Copenhagen and the students acted as the public relations executive for a Danish company that learned that its medical product was being used in the death penalty cocktail in the United States. This required students to consider the company’s corporate responsibility profile and commitments and provide advice to the CEO based on a number of factors that many hadn’t considered- the role of investors, consumer reactions, the pressure from NGOs, and the potential effect on the stock price for the Danish company based on its decisions. During the first three weeks the students have focused on the corporate perspective learning the language of the supply chain and enterprise risk management world.
This week they are playing the role of the state and critiquing and developing the National Action Plans that require states to develop incentives and penalties for corporations to minimize human rights impacts. Examining the NAPs, dictated by the UN Guiding Principles on Business and Human Rights, requires students to think through the consultation process that countries, including the United States, undertake with a number of stakeholders such as unions, academics, NGOs and businesses. To many of those in the human rights LLM program and even some of the traditional law students, this is all a foreign language and they are struggling with these different stakeholder perspectives.
Over the rest of the semester they will read and role play on up to the minute issues such as: 1) the recent Tech Terror Summit and the potential adverse effects of the right to privacy; 2) access to justice and forum non conveniens, arguing an appeal from a Canadian court’s decision related to Guatemalan protestors shot by security forces hired by a company incorporated in Canada with US headquarters; 3) the difficulties that even best in class companies such as Nestle have complying with their own commitments and certain disclosure laws when their supply chain uses both child labor and slaves; 4) the Dodd-Frank conflict minerals debate in the Democratic Republic of Congo and the EU, where students will play the role of the State Department, major companies such as Apple and Intel, the NGO community, and socially-responsible investors debating some key corporate governance and human rights issues; 5) corporate codes of conduct and the ethical, governance, and compliance aspects of entering the Cuban market, given the concerns about human rights and confiscated property; 6) corporate culpability for the human rights impacts of mega sporting events such as the Super Bowl, World Cup, and the Olympics; 7) human trafficking (I’m proud to have a speaker from my former company Ryder, a sponsor of Truckers Against Traffickers); 8) development finance, SEC disclosures, bilateral investment treaties, investor rights and the grievance mechanisms for people harmed by financed projects (the World Bank, IMF, and Ex-Im bank will be case studies); 9) the race to the bottom for companies trying to reduce labor expenses in supply chains using the garment industry as an example; and 10) a debate in which each student will represent the actual countries currently arguing for or against a binding treaty on business and human rights.
Of course, on a daily basis, business and human rights stories pop up in the news if you know where to look and that makes teaching this so much fun. We are focusing a critical lens on the United States as well as the rest of the world, and it's great to hear perspectives from those who have lived in Europe, Africa, Asia, and South America. It's a whole new world for many of the LLM and international students, but as I tell them if they want to go after the corporations and effect change, they need to understand the pressure points. Using business school case studies has provided them with insights that most of my students have never considered. Most important, regardless of whether the students embark on a human rights career, they will now have more experience seeing and arguing controversial issues from another vantage point. That’s an invaluable skill set for any advocate.
February 4, 2016 in Business Associations, Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Business, International Law, Investment Banking, Law School, Lawyering, Marcia Narine Weldon, Securities Regulation, Teaching | Permalink | Comments (0)