Tuesday, February 13, 2018
I suspect click-bait headline tactics don't work for business law topics, but I guess now we will see. This post is really just to announce that I have a new paper out in Transactions: The Tennessee Journal of Business Law related to our First Annual (I hope) Business Law Prof Blog Conference co-blogger Joan Heminway discussed here. The paper, The End of Responsible Growth and Governance?: The Risks Posed by Social Enterprise Enabling Statutes and the Demise of Director Primacy, is now available here.
To be clear, my argument is not that I don't like social enterprise. My argument is that as well-intentioned as social enterprise entity types are, they are not likely to facilitate social enterprise, and they may actually get in the way of social-enterprise goals. I have been blogging about this specifically since at least 2014 (and more generally before that), and last year I made this very argument on a much smaller scale. Anyway, I hope you'll forgive the self-promotion and give the paper a look. Here's the abstract:
The emergence of social enterprise enabling statutes and the demise of director primacy run the risk of derailing large-scale socially responsible business decisions. This could have the parallel impacts of limiting business leader creativity and risk taking. In addition to reducing socially responsible business activities, this could also serve to limit economic growth. Now that many states have alternative social enterprise entity structures, there is an increased risk that traditional entities will be viewed (by both courts and directors) as pure profit vehicles, eliminating directors’ ability to make choices with the public benefit in mind, even where the public benefit is also good for business (at least in the long term). Narrowing directors’ decision making in this way limits the options for innovation, building goodwill, and maintaining an engaged workforce, all to the detriment of employees, society, and, yes, shareholders.
The potential harm from social benefit entities and eroding director primacy is not inevitable, and the challenges are not insurmountable. This essay is designed to highlight and explain these risks with the hope that identifying and explaining the risks will help courts avoid them. This essay first discusses the role and purpose of limited liability entities and explains the foundational concept of director primacy and the risks associated with eroding that norm. Next, the essay describes the emergence of social benefit entities and describes how the mere existence of such entities can serve to further erode director primacy and limit business leader discretion, leading to lost social benefit and reduced profit making. Finally, the essay makes a recommendation about how courts can help avoid these harms.
February 13, 2018 in Business Associations, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Delaware, Joshua P. Fershee, Law and Economics, Lawyering, Legislation, LLCs, Management, Research/Scholarhip, Shareholders, Social Enterprise, Unincorporated Entities | Permalink | Comments (0)
Wednesday, January 31, 2018
After spending a little time with the new tax bill, I couldn't help but think, "there must be a better way." That reminded me of an article from a little while back in the West Virginia Law Review, titled, Legislation's Culture, by Richard K. Neumann, of Hofstra University - School of Law (PDF). Here’s the abstract:
American statutes can seem like labyrinthine mazes when compared to some countries’ legislation. French codes are admired for their intellectual elegance and clarity. Novelists and poets (Stendhal, Valéry) have considered the Code civil to be literature. Swedish legislation might be based on empirical research into problems the legislation is intended to remedy, and the drafting style, though modern today, is descended from an oral tradition of poetic narrative.
Comparing these legislative cultures with our own reveals that the main problem with American legislation is not too many words. It is too many ideas — a high ratio of concepts per legislative goal. When American, French, and Swedish legislatures address similar problems, the French and Swedes draft using far fewer concepts than Americans do. In both countries, simple solutions are preferred over convoluted ones. The drafters of the Code civil thought the highest intellectual and legislative accomplishment to be simplicity. The Swedes got to approximately the same place through a cultural value that law be understandable to the public. Where the American legislative process can seem chaotic, there has been some respect for Cartesian rationality in France and for empirical evidence in Sweden.
Even if American statutes were to be translated into ordinary English, they would still be labyrinths because our legislatures insist on addressing every conceivable detail that legislators can imagine. The result is excessively conceptualized legislation, imposing large numbers of duties. Statutory concepts cost money. They create issues, which must be decided by publicly funded courts and agencies with additional costs to the parties involved. Every unnecessary statutory concept wastes social and economic resources. And to the extent law seems incomprehensible to the public, it loses moral authority.
Having studied law in Louisiana, I admit to a certain soft spot for the civil code, even if my fondness is rooted firmly in this country. (In fact, about one year ago, we lost a giant in the civil law, Athanassios Nicholas "Thanassi" Yiannopoulos. See, for example, his work, A.N. Yiannopoulos, Requiem for a Civil Code: A Commemorative Essay, 78 TUL. L. REV. 379 (2003), available via Hein Online here.)
I digress. Back to my point, I think this statement from Neumman is spot on: "[T]o the extent law seems incomprehensible to the public, it loses moral authority." Absolute truth. And the same applies to regulations.
Tuesday, December 19, 2017
A recent case in Washington state introduced me to some interesting facets of Washington's recreational marijuana law. The case came to my attention because it is part of my daily search for cases (incorrectly) referring to limited liability companies (LLCs) as "limited liability corporations." The case opens:
In 2012, Washington voters approved Initiative Measure 502. LAWS OF 2013, ch. 3, codified as part of chapter 69.50 RCW. Initiative 502 legalizes the possession and sale of marijuana and creates a system for the distribution and sale of recreational marijuana. Under RCW 69.50.325(3)(a), a retail marijuana license shall be issued only in the name of the applicant. No retail marijuana license shall be issued to a limited liability corporation unless all members are qualified to obtain a license. RCW 69.50.331(1)(b)(iii). The true party of interest of a limited liability company is “[a]ll members and their spouses.”1 Under RCW 69.50.331(1)(a), the Washington State Liquor and Cannabis Board (WSLCB) considers prior criminal conduct of the applicant.2
(b) No license of any kind may be issued to:. . . .(iii) A partnership, employee cooperative, association, nonprofit corporation, or corporation unless formed under the laws of this state, and unless all of the members thereof are qualified to obtain a license as provided in this section;
True party of interest: Persons to be qualified
Sole proprietorship: Sole proprietor and spouse.General partnership: All partners and spouses.Limited partnership, limited liability partnership, or limited liability limited partnership: All general partners and their spouses and all limited partners and spouses.Limited liability company: All members and their spouses and all managers and their spouses.Privately held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.Publicly held corporation: All corporate officers (or persons with equivalent title) and their spouses and all stockholders and their spouses.
Multilevel ownership structures: All persons and entities that make up the ownership structure (and their spouses).
(1) A corporation has the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws.(2) A duly appointed officer may appoint one or more officers or assistant officers if authorized by the bylaws or the board of directors.(3) The bylaws or the board of directors shall delegate to one of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.(4) The same individual may simultaneously hold more than one office in a corporation.
Requirement for and duties of board of directors.
(1) Each corporation must have a board of directors, except that a corporation may dispense with or limit the authority of its board of directors by describing in its articles of incorporation, or in a shareholders' agreement authorized by RCW 23B.07.320, who will perform some or all of the duties of the board of directors.(2) Subject to any limitation set forth in this title, the articles of incorporation, or a shareholders' agreement authorized by RCW 23B.07.320:(a) All corporate powers shall be exercised by or under the authority of the corporation's board of directors; and(b) The business and affairs of the corporation shall be managed under the direction of its board of directors, which shall have exclusive authority as to substantive decisions concerning management of the corporation's business.
(4) Persons who exercise control of business - The WSLCB will conduct an investigation of any person or entity who exercises any control over the applicant's business operations. This may include both a financial investigation and/or a criminal history background.
December 19, 2017 in Corporations, Current Affairs, Entrepreneurship, Family Business, Joshua P. Fershee, Legislation, Licensing, LLCs, Management, Nonprofits, Partnership, Shareholders, Unincorporated Entities | Permalink | Comments (0)
Thursday, October 5, 2017
On Monday, the Supreme Court heard argument on three cases that could have a significant impact on an estimated 55% of employers and 25 million employees. The Court will opine on the controversial use of class action waivers and mandatory arbitration in the employment context. Specifically, the Court will decide whether mandatory arbitration violates the National Labor Relations Act or is permissible under the Federal Arbitration Act. Notably, the NLRA applies in the non-union context as well.
Monday’s argument was noteworthy for another reason—the Trump Administration reversed its position and thus supported the employers instead of the employees as the Obama Administration had done when the cases were first filed. The current administration also argued against its own NLRB’s position that these agreements are invalid.
In a decision handed down by the NLRB before the Trump Administration switched sides on the issue, the agency ruled that Dish Network’s mandatory arbitration provision violates §8(a)(1) of the NLRA because it “specifies in broad terms that it applies to ‘any claim, controversy and/or dispute between them, arising out of and/or in any way related to Employee’s application for employment, employment and/or termination of employment, whenever and wherever brought.’” The Board believed that employees would “reasonably construe” that they could not file charges with the NLRB, and this interfered with their §7 rights.
The potential impact of the Supreme Court case goes far beyond employment law, however. As the NLRB explained on Monday:
The Board's rule here is correct for three reasons. First, it relies on long-standing precedent, barring enforcement of contracts that interfere with the right of employees to act together concertedly to improve their lot as employees. Second, finding individual arbitration agreements unenforceable under the Federal Arbitrations Act savings clause because are legal under the National Labor Relations Act gives full effect to both statutes. And, third, the employer's position would require this Court, for the first time, to enforce an arbitration agreement that violates an express prohibition in another coequal federal statute. (emphasis added).
This view contradicted the employers' opening statement that:
Respondents claim that arbitration agreements providing for individual arbitration that would otherwise be enforceable under the FAA are nonetheless invalid by operation of another federal statute. This Court's cases provide a well-trod path for resolving such claims. Because of the clarity with which the FAA speaks to enforcing arbitration agreements as written, the FAA will only yield in the face of a contrary congressional command and the tie goes to arbitration. Applying those principles to Section 7 of the NLRA, the result is clear that the FAA should not yield.
My co-bloggers have written about mandatory arbitration in other contexts (e.g., Josh Fershee on derivative suits here, Ann Lipton on IPOs here, on corporate governance here, and on shareholder disputes here, and Joan Heminway promoting Steve Bradford’s work here). Although Monday’s case addresses the employment arena, many have concerns with the potential unequal playing field in arbitral settings, and I anticipate more litigation or calls for legislation.
I wrote about arbitration in 2015, after a New York Times series let the world in on corporate America’s secret. Before that expose, most people had no idea that they couldn’t sue their mobile phone provider or a host of other companies because they had consented to arbitration. Most Americans subject to arbitration never pay attention to the provisions in their employee handbook or in the pile of paperwork they sign upon hire. They don’t realize until they want to sue that they have given up their right to litigate over wage and hour disputes or join a class action.
As a defense lawyer, I drafted and rolled out class action waivers and arbitration provisions for businesses that wanted to reduce the likelihood of potentially crippling legal fees and settlements. In most cases, the employees needed to sign as a condition of continued employment. Thus, I’m conflicted about the Court’s deliberations. I see the business rationale for mandatory arbitration of disputes especially for small businesses, but as a consumer or potential plaintiff, I know I would personally feel robbed of my day in court.
The Court waited until Justice Gorsuch was on board to avoid a 4-4 split, but he did not ask any questions during oral argument. Given the questions that were asked and the makeup of the Court, most observers predict a 5-4 decision upholding mandatory arbitrations. The transcript of the argument is here. If that happens, I know that many more employers who were on the fence will implement these provisions. If they’re smart, they will also beef up their compliance programs and internal complaint mechanisms so that employees don’t need to resort to outsiders to enforce their rights.
My colleague Teresa Verges, who runs the Investor Rights Clinic at the University of Miami, has written a thought-provoking article that assumes that arbitration is here to stay. She proposes a more fair arbitral forum for those she labels “forced participants.” The abstract is below:
Decades of Supreme Court decisions elevating the Federal Arbitration Act (FAA) have led to an explosion of mandatory arbitration in the United States. A form of dispute resolution once used primarily between merchants and businesses to resolve their disputes, arbitration has expanded to myriad sectors, such as consumer and service disputes, investor disputes, employment and civil rights disputes. This article explores this expansion to such non-traditional contexts and argues that this shift requires the arbitral forum to evolve to increase protections for forced participants and millions of potential claims that involve matters of public policy. By way of example, decades of forced arbitration of securities disputes has led to increased due process and procedural reforms, even as concerns remain about investor access, the lack of transparency and investors’ perception of fairness.
I’ll report back on the Court’s eventual ruling, but in the meantime, perhaps some policymakers should consider some of Professor Verges’ proposals. Practically speaking though, once the NLRB has its full complement of commissioners, we can expect more employer-friendly decisions in general under the Trump Administration.
 Murphy Oil USA v. N.L.R.B., 808 F.3d 1013 (5th Cir. 2015), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017); Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 l. Ed. 2d. 595 (2017); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, 137 S. Ct. 809, 196 L. Ed. 2d 595 (2017)
Tuesday, August 1, 2017
My colleague, Joan Heminway, yesterday posted Democratic Norms and the Corporation: The Core Notion of Accountability. She raises some interesting points (as usual), and she argues: "In my view, more work can be done in corporate legal scholarship to push on the importance of accountability as a corporate norm and explore further analogies between political accountability and corporate accountability."
I have not done a lot of reading in this area, but I am inclined to agree that it seems like an area that warrants more discussion and research. The post opens with some thought-provoking writing by Daniel Greenwood, including this:
Most fundamentally, corporate law and our major business corporations treat the people most analogous to the governed, those most concerned with corporate decisions, as mere helots. Employees in the American corporate law system have no political rights at all—not only no vote, but not even virtual representation in the boardroom legislature.
Those on the right, like Milton Friedman, argue that the shareholder-wealth-maximization requirement prohibits firms from acting in ways that benefit, say, local communities or the environment, at the expense of the bottom line. Those on the left, like Franken, argue that the duty to shareholders makes corporations untrustworthy and dangerous. They are both wrong.
August 1, 2017 in Business Associations, Corporations, CSR, Delaware, Joan Heminway, Joshua P. Fershee, Legislation, Management, Research/Scholarhip, Shareholders, Social Enterprise | Permalink | Comments (1)
Tuesday, July 25, 2017
I am speaking at a plenary session tomorrow during the the Energy Impacts Symposium at the Nationwide & Ohio Farm Bureau 4-H Conference Center in Columbus, Ohio. The program is exciting, and I look forward to being a part of it. The program is described as follows:
Energy Impacts 2017 is a energy research conference and workshop, organized by a 9-member interdisciplinary steering committee, focused on synthesis, comparison, and innovation among established and emerging energy impacts scholars from North America and abroad. We invite participation from sociologists, geographers, political scientists, economists, anthropologists, practitioners, and other interested parties whose work addresses impacts of new energy development for host communities and landscapes.
The pace, scale, and intensity of new energy development around the world demands credible and informed research about potential impacts to human communities that host energy developments. From new electrical transmission lines needed for a growing renewable energy sector to hydraulically fracturing shale for oil and gas, energy development can have broad and diverse impacts on the communities where it occurs. While a fast-growing cadre of researchers has emerged to produce important new research on the social, economic, and behavioral impacts from large-scale energy development for host communities and landscapes, their discoveries are often isolated within disciplinary boundaries.
Through facilitated interactive workshop activities, invited experts and symposium participants will produce a roadmap for future cross-disciplinary research priorities.
I will be talking about Community Development and the North Dakota Sovereign Wealth Fund, and we'll discuss the implications of the resource curse. I am of the view that the resource curse is correlative, not causative, and that natural resource extraction can prove harmful to local communities, but that it doesn't have to be. From North Dakota's $4.33 billion fund to Norway's Government Pension Fund Global, there are examples of funding that can provide for the future. But there are numerous examples of struggling communities and bankrupt local governments where funds benefited few. And even North Dakota and Norway provide stark contrasts in how the funds are used. The point, for me, is that generalizations overstate the role of the resource and understate the role of local decision making. What we prioritize matters, and often, I think, we can do better. It's not preordained. We can do better, as long as we decide to do so.
Tuesday, July 18, 2017
The more I read about social enterprise entities, the less I like about them. In 2014, my colleague Elaine Wilson and I wrote March of the Benefit Corporation: So Why Bother? Isn’t the Business Judgment Rule Alive and Well? We observed:
Regardless of jurisdiction, there may be value in having an entity that plainly states the entity’s benefit purpose, but in most instances, it does not seem necessary (and is perhaps even redundant). Furthermore, the existence of the benefit corporation opens the door to further scrutiny of the decisions of corporate directors who take into account public benefit as part of their business planning, which erodes director primacy, which limits director options, which can, ultimately, harm businesses by stifling innovation and creativity. In other words, this raises the question: does the existence of the benefit corporation as an alternative entity mean that traditional business corporations will be held to an even stricter, profit-maximization standard?
I am more firmly convinced this is the path we are on. The emergence of social enterprise enabling statutes and the demise of director primacy threaten to greatly, and gravely, limit the scope of business decisions directors can make for traditional for-profit entities, threatening both social responsibility and economic growth. Recent Delaware cases, as well as other writings from Delaware judges, suggest that shareholder wealth maximization has become a more singular and narrow obligation of for-profit entities, and that other types of entities (such as non profits or benefit corporations) are the only proper entity forms for companies seeking to pursue paths beyond pure, and blatant, profit seeking. Now that many states have alternative social enterprise entity structures, there is an increased risk that traditional entities will be viewed (by both courts and directors) as pure profit vehicles, eliminating directors’ ability to make choices with the public benefit in mind, even where the public benefit is also good for business (at least in the long term). Narrowing directors’ decision making in this way limits the options for innovation, building goodwill, and maintaining an engaged workforce, to the detriment of employees, society, and, yes, shareholders.
I know there are some who believe that I see the sky falling when it's just a little rain. Perhaps. I would certainly concede that the problems I see can be addressed through law, if necessary. I am just not a big fan of passing some more laws and regulations, so we can pass more laws to fix the things we added. My view of entity purpose remains committed to the principle of director primacy. Directors are obligated to run the entity for the benefit of the shareholders, but, absent fraud, illegality, or self-dealing, the directors decide what actions are for the benefit of shareholders. Period, full stop.
Tuesday, June 27, 2017
Reuters reports that minor league baseball players lost a claim for artificially low" wages. The court found, appropriately: "The employment contracts of minor league players relate to the business of providing public baseball games for profit between clubs of professional baseball players."
Samuel Kornhauser, the player's lawyer plan to ask the 9th Circuit to reconsider (probably en banc) or appeal to the U.S. Supreme Court. Kornhasuer, in an interview, stated:
"Obviously, we think it's wrong, and that the 'business of baseball' is a lot different today than it was in 1922. There is no reason minor leaguers should not have the right to negotiate for a competitive wage."
Kornhauser is certainly correct that things have changed in the last 100 years, though I would argue that the justification for the antitrust exemption was just as unfounded in 1922 as it is today. The origin is the Federal Baseball decision, and it was wrong then, and it is wrong now. But it is also the law of the land. The 1998 Curt Flood Act, as the court appropriately explains, "made clear [Congress intended] to maintain the baseball exemption for anything related to the employment of minor league players."
There is no question Congress can change the law, and there is no question Congress has not. This is one to be resolved via negotiation or legislation, issue, and not via the courts.
Wednesday, April 26, 2017
Last week, a reporter interviewed me regarding conflict minerals.The reporter specifically asked whether I believed there would be more litigation on conflict minerals and whether the SEC's lack of enforcement would cause companies to stop doing due diligence. I am not sure which, if any, of my remarks will appear in print so I am posting some of my comments below:
Just today, the GAO issued a report on conflict minerals. Dodd-Frank requires an annual report on the effectiveness of the rule "in promoting peace and security in the DRC and adjoining countries." Of note, the report explained that:
After conducting due diligence, an estimated 39 percent of the companies reported in 2016 that they were able to determine that their conflict minerals came from covered countries or from scrap or recycled sources, compared with 23 percent in 2015. Almost all of the companies that reported conducting due diligence in 2016 reported that they could not determine whether the conflict minerals financed or benefited armed groups, as in 2015 and 2014. (emphasis added).
The Trump Administration, some SEC commissioners, and many in Congress have already voiced their concerns about this legislation. I didn't have the benefit of the GAO report during my interview, but it will likely provide another nail in the coffin of the conflict minerals rule.
April 26, 2017 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Law, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (1)
Thursday, February 9, 2017
Shortly after the election in November, I blogged about Eleven Corporate Governance and Compliance Questions for the President-Elect. Those questions (in italics) and my updates are below:
- What will happen to Dodd-Frank? There are already a number of house bills pending to repeal parts of Dodd-Frank, but will President Trump actually try to repeal all of it, particularly the Dodd-Frank whistleblower rule? How would that look optically? Former SEC Commissioner Paul Atkins, a prominent critic of Dodd-Frank and the whistleblower program in particular, is part of Trump's transition team on economic issues, so perhaps a revision, at a minimum, may not be out of the question.
Last week, via Executive Order, President Trump made it clear (without naming the law) that portions of Dodd-Frank are on the chopping block and asked for a 120-day review. Prior to signing the order, the President explained, “We expect to be cutting a lot out of Dodd-Frank…I have so many people, friends of mine, with nice businesses, they can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.” An executive order cannot repeal Dodd-Frank, however. That would require a vote of 60 votes in the Senate. To repeal or modify portions, the Senate only requires a majority vote.
Some portions of Dodd-Frank are already gone including the transparency provision, §1504, which NGOs had touted because it forced US issuers in the extractive industries to disclose certain payments made to foreign governments. I think this was a mistake. By the time you read this post, the controversial conflict minerals rule, which requires companies to determine and disclose whether tin, tungsten, tantalum, or gold come from the Democratic Republic of Congo or surrounding countries, may also be history. The President may issue another executive order this week that may spell the demise of the rule, especially because others in Congress have already introduced bills to repeal it. I agree with the repeal, as I have written about here, because I don’t think that the SEC is the right agency to address the devastating human rights crisis in Congo.
As for the whistleblower provisions, it is too soon to tell. See #7 below.
Based on an earlier Executive Order meant to cut regulations in general and the President’s reliance on corporate raider/activist Carl Icahn as regulation czar, we can assume that the financial sector will experience fewer and not more regulations under Trump.
- What will happen with the two SEC commissioner vacancies? How will this president and Congress fund the agency? 3. Will SEC Chair Mary Jo White stay or go and how might that affect the work of the agency to look at disclosure reform?
President Trump has nominated Jay Clayton, a lawyer who has represented Goldman Sachs and Alibaba to replace former prosecutor Mary Jo White. Based on his background and past representations, we may see less enforcement of the FCPA and more focus on capital formation and disclosure reform. Observers are divided on the FCPA enforcement because 2016 had some record-breaking fines. As for the other SEC vacancies, I will continue to monitor this.
- How will the vow to freeze the federal workforce affect OSHA, which enforces Sarbanes-Oxley?
The Department of Labor enforces OSHA, and the current nominee for Secretary, Andy Pudzer, is a fast food CEO with some labor issues of his own. His pro-business stance and his opposition to increases in the minimum wage and the DOL white-collar exemption changes don’t necessarily predict how he would enforce SOX, but we can assume that it won’t be as much of a priority as rolling back regulations he has already publicly opposed.
- In addition to the issues that Trump has with TPP and NAFTA, how will his administration and the Congress deal with the Export-Import (Ex-IM) bank, which cannot function properly as it is due to resistance from some in Congress. Ex-Im provides financing, export credit insurance, loans, and other products to companies (including many small businesses) that wish to do business in politically-risky countries.
- How will a more conservative Supreme Court deal with the business cases that will appear before it?
I will comment on this after the confirmation hearings of nominee Neil Gorsuch. Others have already predicted that he will be pro-business.
- Who will be the Attorney General and how might that affect criminal prosecution of companies and individuals? Should we expect a new memo or revision of policies for Assistant US Attorneys that might undo some of the work of the Yates Memo, which focuses on corporate cooperation and culpable individuals?
Senator Jeff Sessions was confirmed yesterday after a contentious hearing. During his hearing, he indicated that he supported whistleblower provisions related to the False Claims Act, and many believe that he will retain retain the Yates Memo. Ironically, prior to that confirmation, President Trump fired Acting Attorney General Sally Yates, for refusing to defend the President’s executive order on refugees and travel.
- What will happen with the Consumer Financial Protection Bureau, which the DC Circuit recently ruled was unconstitutional in terms of its structure and power?
Despite, running on a populist theme, Trump has targeted a number of institutions meant to protect consumers. Based on reports, we will likely see some major restrictions on the Consumer Financial Protection Bureau and the rules related to disclosure and interest rates. Trump will likely replace the head, Richard Cordray, whom many criticize for his perceived unfettered power and the ability to set his own budget. The Financial Stability Oversight Council, established to address large, failing firms without the need for a bailout, is also at risk. The Volker Rule, which restricts banks from certain proprietary investments and limits ownership of covered funds, may also see revisions.
- What will happen with the Obama administration's executive orders on Cuba, which have chipped away at much of the embargo? The business community has lobbied hard on ending the embargo and eliminating restrictions, but Trump has pledged to require more from the Cuban government. Would he also cancel the executive orders as well?
I will comment on this in a separate post.
- What happens to the Public Company Accounting Board, which has had an interim director for several months?
The PCAOB is not directly covered by the February 3rd Executive Order described in #1, and many believe that the Executive Order related to paring back regulations will not affect the agency either, although the agency is already conducting its own review of regulations. In December, the agency received a budget increase.
- Jeb Henserling, who has adamantly opposed Ex-Im, the CFPB, and Dodd-Frank is under consideration for Treasury Secretary. What does this say about President-elect Trump's economic vision?
President Trump has tapped ex-Goldman Sachs veteran Steve Mnuchin, and some believe that he will be good for both Wall Street and Main Street. More to come on this in the future.
I will continue to update this list over the coming months. I will post separately today updating last week’s post on the effects of consumer boycotts and how public sentiment has affected Superbowl commercials, litigation, and the First Daughter all in the past few days.
February 9, 2017 in Compliance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Human Rights, International Business, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)
Tuesday, January 17, 2017
Here we go again. The Oregon Federal District Court has a rule with an incorrect reference to LLCs 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.
Tuesday, January 10, 2017
I am happy to say I just received my new article, co-authored with a former student, S. Alex Shay, who is now a Trial Attorney in the Office of the United States Trustee, Department of Justice. The article discusses property law challenges that can impeded business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia portion of the Marcellus Shale. The article is Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom, 49 John Marshall Law Review 413-447 (2015).
If you note the 2015 publication date, you can see the article has been a long time coming. The conference it is linked to took place in September 2015, and it has taken quite a while to get to print. On the plus side, I was able to do updates to some of the issues, and add new cases (and resolutions to cases) during the process. I just received my hard copies yesterday -- January 9, 2017 -- and I received a notice it was on Westlaw as of yesterday, too.
I always find it odd when law reviews use a specific year for an issue, as opposed to the actual publication year. I can understand how a January publication might have a 2016 date. That would have made sense, but dating the issue back to 2015, when I discuss cases decided in 2016 seems a little weird. I know there is a certain level of continuity that the dates can provide, but still, this seems too long.
When I was editor in chief of the Tulane Law Review, one of the things we prided ourselves on was not handing off any issue from our volume to the next board. A few years prior to our arrival, a committed group of Law Review folks caught up everything -- publishing, if memory serves (and legend was correctly passed on), two and a half volumes. And Tulane Law Review publishes six issues a year. They, apparently, did not sleep.
I am happy to have the article our, and the editors did good work. It just would have been nice to have it appear a little more timely and relevant than I think this "new" article does. For anyone who is interested, here's the abstract (article available here):
This article focuses on key property challenges appearing as part of the West Virginia Marcellus Shale play. The paper opens with an introduction to the Marcellus Shale region that is the focus of our analysis. The paper explains the horizontal drilling and hydraulic fracturing process that is an essential part of shale oil and gas development. To help readers understand the property challenges related to shale development, we include an introduction to the concept of severed estates, which can create separate ownership of the surface estate and the mineral estate. The article then focuses on two keys issues. First, the article discusses whether horizontal drilling and hydraulic fracturing constitute a “reasonably necessary” use of surface land to develop mineral rights, and concludes they are, at least in most instances. Second, the article discusses difficulties in analyzing deed language related to minerals rights and royalty interests, which has created challenges for mineral owners, leasing companies, and oil and gas developers. Please note that although the publication date is 2015, the article was not in print until January 2017 and discusses cases from 2016.
Ultimately, the article concludes, legislators and regulators may choose to add surface owner protections and impose other measures to lessen the burden on impacted regions to ease the conflict between surface owners and mineral developers. Such efforts may, at times, be necessary to ensure continued economic development in shale regions. Communities, landowners, interest groups, companies, and governments would be well served to work together to seek balance and compromise in development-heavy regions. Although courts are well-equipped to handle individual cases, large-scale policy is better developed at the community level (state and local) than through the adversarial system.
Wednesday, January 4, 2017
Ethics has been a recurrent news headline from questions of President-elect Trump's business holdings to the Republican House's "secret" vote on ethics oversight on Monday.
I want to share research from a seminar student's paper on financial regulation and the role of ethics. She made a compelling argument about the role of ethics to be a gap filler in the regulatory framework. Financial regulation, as many like Stephen Bainbridge have argued, is reactionary and reminds one of a game of whack-a-mole. Once the the regulation has been acted to target the specific bad act, that bad act has been jettisoned and new ones undertaken. Her research brought to my attention something that I find hopeful and uplifting in a mental space where I am hungry for such morsels.
In 2015, in response to a perceived moral failing that contributed to the financial crisis, the Netherlands required all bankers to take an ethics oath. The oath states: “I swear that I will endeavor to maintain and promote confidence in the financial sector, so help me God.” The full oath is available here. Moreover, “by taking and signing this oath, bank employees declare that they agree with the content of the statement, and promise that they will act honorable and will weigh interests properly . . . [by] ‘focusing on clients’ interests.’” The oath is supported by a code of conduct and disciplinary rules including fines, suspensions or blacklisting.
Georgia State University College of Law student Tosha Dunn described the role of the oath as follows:
An oath is thought of as a psychological contract: “the oath has always been the highest form of commitment, and as a social function it creates or strengthens trust between people.” However, psychological contracts are completely subjective; the meaning attached to the contract is wholly open to the interpretation of the individual involved. Social cues like rituals and public displays may impart meaning or responsibility... the very idea behind the oath is to restore confidence in the Dutch banking system: “we are renewing the way we do business, from the top of the bank to the bottom” and “a violation of the oath becomes more than simply a legally culpable act; it is, in addition, an ethical issue.”
And isn't that a lovely way to think of an oath and the ability of a social contract to elevate our behavior and promote our higher selves?
Citations from the student paper and further scholarly discussion are available with the following sources: Tom Loonen & Mark R. Rutgers, Swearing To Be A Good Banker: Perceptions of The Obligatory Banker’s Oath in the Netherlands, 15 J. Banking & Reg. 1, 3 (2016) & Denise M. Rousseau & Judi McLean Parks, The Contracts of Individuals and Organizations, 15 Research in Org. Behavior 1, 18-19 (1993).
Happy New Year BLPB readers-- here's to an ethical and enlightened 2017.
Tuesday, January 3, 2017
Today is my annual check-up on the use of "limited liability corporation" in place of the correct “limited liability company.” I did a similar review last year about this time, and revisiting the same search led to remarkable consistency. This is disappointing in that I am hoping for improvement, but at least it is not getting notably worse.
Since January 1, 2016, Westlaw reports the following using the phrase "limited liability corporation":
- Cases: 363 (last year was 381)
- Trial Court Orders: 99 (last year was 93)
- Administrative Decisions & Guidance: 172 (last year was 169)
- Secondary Sources: 1116 (last year was 1071)
- Proposed & Enacted Legislation: 148 (last year was 169)
As was the case last year, I am most distressed by the legislative uses of the phrase, because codifying the use of "limited liability corporation" makes this situation far murkier than a court making the mistake in a particular application.
New York, for example, passed the following legislation:
Section 1. Subject to the provisions of this act, the commissioner of parks and recreation of the city of New York is hereby authorized to enter into an agreement with the Kids' Powerhouse Discovery Center Limited Liability Corporation for the maintenance and operation of a children's program known as the Bronx Children's Museum on the second floor of building J, as such building is presently constructed and situated, in Mill Pond Park in the borough of the Bronx. The terms of the agreement may allow the placement of signs identifying the museum.
NY LEGIS 168 (2016), 2016 Sess. Law News of N.Y. Ch. 168 (S. 5859-B) (McKINNEY'S).
This creates a bit of a problem, as Kids' Powerhouse Discovery Center Limited Liability Corporation does not exist. The official name of the entity is as Kids' Powerhouse Discovery Center LLC and it is, according to state records, an LLC (not a corporation). Does this mean the LLC will have to re-form as a corporation so that the commissioner of parks and recreation has authority to act? It would seem so. On the one hand, it could be deemed an oversight, but New York law, like other states, makes clear that an LLC and a corporation are distinct entities.
Several other states enacted legislation using “limited liability corporation” in contexts that clearly intended to mean LLCs. Hawaii, West Virginia (sigh), Minnesota, Alabama, California, and Rhode Island were also culprits.
There was one bit of federal legislation, too. The “Communities Helping Invest through Property and Improvements Needed for Veterans Act of 2016” or the “CHIP IN for Vets Act of 2016." PL 114-294, December 16, 2016, 130 Stat. 1504. This act authorizes the Secretary of Veterans Affairs to carry out a pilot program in which donations of certain property (real and facility construction) donated by the following entities:
(A) A State or local authority.
(B) An organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and is exempt from taxation under section 501(a) of such Code.
(C) A limited liability corporation.
(D) A private entity.
(E) A donor or donor group.
(F) Any other non-Federal Government entity.
I have to admit, it is not at all clear to me why one needs any version of (C) if one has (D) as an option. Nonetheless, to the extent it was not intended to be redundant of (D), part (C) would appear to be incorrect.
I addition, I'd be remiss not to note the increase to 1116 uses in secondary sources last year, though only 43 were in law reviews and journals. That part is, at least a little, encouraging.
Last year, I wished “everyone a happy and healthy New Year that is entirely free of LLCs being called ‘limited liability corporations.’” This year, I have learned to temper my expectations. I still wish everyone a happy and healthy New Year, but as to the use of “limited liability corporations” I am hoping to reduce the uses by half in all settings for 2017, and I hope at least three legislatures will fix errors in their existing statutes. That seems more reasonable, if not any more likely.
Thursday, December 29, 2016
Ten days ago, I posted on conflicts of interest and the POTUS. Today, friend-of-the-BLPB Ben Edwards has an Op Ed in The Washington Post on conflicts of a different kind--those created by brokerage compensation based on commissions for individual orders. The nub:
In the current conflict-rich environment, Wall Street gorges itself on the public’s retirement assets. While transaction fees are costs to the public, they’re often juicy paydays for financial advisers. A study by the White House Council of Economic Advisers found that Americans pay approximately $17 billion annually in excess fees because of such conflicts of interest. The high fees mean that the typical saver will run out of retirement money five years earlier than he or she would have with better, more disinterested advice.
The solution posed (and fleshed out in a forthcoming article in the Ohio State Law Journal, currently available in draft form on SSRN here):
[S]imply banning commission compensation in connection with personalized investment advice would put market forces to work for consumers. This structure would kill the incentive for financial advisers to pitch lousy products with embedded fees to their clients. While the proposal might sound radical, Australia and Britain have already banned commission compensation linked to investment advice without any significant ill effect. While some might pay a small amount more under such a system, the amount of bias in advice would go down, likely more than offsetting the additional cost with investment gains.
I have been following the evolution of Ben's thinking on this and recently heard him present the work at a faculty forum. I encourage folks interested in the many areas touched on (broker duties, broker compensation, conflicts of interest generally, etc.) to give it a read. This is provocative work, even of one disagrees with the extent of the problem or the way to solve any problem that does exist.
Tuesday, December 13, 2016
U.S. Securities and Exchange Commission Chair Mary Jo White has vowed to press on in her efforts to adopt new rules related to derivatives and mutual funds, among other issues, says a Reuters report. The Senate Banking Committee’s top two Republicans, Chairman Richard Shelby and Mike Crapo of Idaho, sent a letter asking her to stop the rule making process while the Trump administration reviews the SEC's agenda. She declined.
Chair White replied that the SEC must “exhibit a spirit of firm independence” in continuing its work “without fear or favor.” She further wrote, “I am not insensitive to the issues raised by your letter and have carefully considered what impact, if any, the election should have on the current work of the Commission.” (Reuters saw the letter, but I have not found a copy.)
I am on record as saying (e.g., here and here) I'd like to see the SEC and Congress take a break from new regulations and focus on enforcement, though I know some of the proposed rules are (at least in some form) required by Dodd-Frank. Still, even where I disagree with some of the proposals, I think it's right for independent agencies to continue on with their work. Each such agency can be respectful of the incoming administration, while continuing on with their workload. Just because the incoming Congress and president may disagree with some of the policies or rationales, the SEC has statutory obligations to put forth rules, and the business of the country doesn't stop between terms. Ultimately, I'd be quite content to see the SEC decide to put the a lot of these rules on hold (or make them more narrow) because the Commission thinks that's the best course of action, but not because the top Senate Banking Committee members asked.
Tuesday, November 29, 2016
When it comes to regulations and economic policy, I am quite conservative. Not a Republican-type conservative (probably more Libertarian in a political sense), but in the sense that I often advocate for less regulation, and even more often, for less changes to laws and regulations. People need to be able to count on a system and work within it. As such, whether it is related to securities law, energy and environmental law, or other areas of the law, I find myself advocating for staying the course rather than adding new laws and regulations.
For example, a while back, co-blogger Joan Heminway quoted one of my comments about securities law, where I noted "my ever-growing sense that maybe we should just take a break from tweaking securities laws and focus on enforcing rules and sniffing out fraud. A constantly changing securities regime is increasingly costly, complex, and potentially counterproductive."
After the BP oil blowout of the Deepwater Horizon well in the Gulf of Mexico, I similarly argued that we should approach new laws with caution, and that we might be better served with existing law, rather than seeking new laws and regulation in a hasty manner. I explained,
[T]here are times when new laws and regulations are necessary to handle new ways of perpetrating a fraud or to address new information about what was previously viewed as acceptable conduct. But often, new laws and regulations are not a reaction to new information or technology; they are a reaction to a unique and unfortunate set of facts that is more likely related to timing or circumstances than an emerging trend. Other times, it is a lack of enforcement of existing protections meaning the problem is not the law itself; it is the enforcement of the law that is the problem.
Choosing a Better Path: The Misguided Appeal of Increased Criminal Liability After Deepwater Horizon, 36 Wm. & Mary Envt'l L & Pol. Rev. 1, 19 (2011) (footnotes omitted). More recently, I have taken the same view with regard to hydraulic fracturing regulations:
There may well be a need for new regulations to improve oversight of hydraulic fracturing and other industries that pose environmental risks, but new regulations do not necessary lead to better oversight. . . . There is a strong argument that the problems related to hydraulic fracturing (and, for that matter, coal extraction, chemical storage, and hazardous waste operations) are more linked to a lack of enforcement and not a lack of regulation.
Facts, Fiction, and Perception in Hydraulic Fracturing: Illuminating Act 13 and Robinson Township v. Commonwealth of Pennsylvania, 116 W. Va. L. Rev. 819, 847 (2014).
I swear I have a point, beyond just quoting myself. Here it is: I'd like to urge the President-Elect and the 115th Congress to sit back and stay the course for a little bit to see where things are headed. I have a strong suspicion things are headed in the right direction from an economic perspective. This is not to suggest that there are not holes in the economy or people in desperate need of jobs, training, and education (there are -- I live in West Virginia. I know.). But with a White House and a Congress controlled by the same party, the GOP play should be simply: we're in charge now, and the economy is ready to move ahead.
We have already seen it -- the stock market is up and economic indicators look better. And there has been no new legislation or regulation (or repeals of either). It's just consumers believing the economy will get better. And consumer confidence is key to expansion. Who cares that it started before the election? What matters is whether we're going in the right direction. And it seems we are. The Financial Times reported today:
A gauge of US consumer sentiment has hit a post-recession high, painting a positive outlook ahead of the key holiday shopping season as recent data point to a strengthening US economy.
The Conference Board’s consumer confidence index climbed to 107.1 in November from 100.8 in October, the highest since July 2007 and above analysts’ forecast of 101.5.
Most of the survey was conducted before the presidential election on November 8. But “it appears from the small sample of post-election responses that consumers’ optimism was not impacted by the outcome,” said Lynn Franco, director of economic indicators at the Conference Board. “With the holiday season upon us, a more confident consumer should be welcome news for retailers.”
And, just to reinforce that is not a post-election position, I have been making this argument on this blog since at least 2010, when I wrote, How to Fix the "Broken" Financial System: Stop Trying to Fix It.
So, let's stay the course for a bit and see how people respond to a little stability. Let's see what a surge in consumer confidence can do for the U.S. and world economies. Let's make sure it's broken (and if so, how), before anyone tries to fix it. And maybe, in the meantime, we can spend a little time treating each other better.
Tuesday, November 22, 2016
Back in May, I discussed Donald Trump’s campaign dubious promises to bring back coal jobs to places like West Virginia and Kentucky. He promised (and continues to promise) that reduced regulation and elimination of the Clean Power Plan will bring back job. Voters in West Virginia bought the claim, and they believed it from incoming governor, Democrat Jim Justice, a billionaire coal magnate.
Trump and Justice spoke the other day, with the Governor-Elect saying in a statement:
“It’s an exciting day for West Virginia because we now have a pathway to the White House and a president-elect who is totally committed to putting our coal miners back to work. President-elect Trump made it clear that he won’t forget about West Virginia when it comes to our nation’s energy policies. I will work closely with the President-elect and his administration on clean coal technology, rolling back the job-killing EPA regulations on coal, and growing West Virginia’s other job opportunities.”
How this will work to improve coal jobs remains an open question. Trump has yet to announce his energy-related appointments, which will include the EPA, Department of Energy, and Department of Interior. His energy secretary short list (and possibly Interior) still includes Harold Hamm, CEO of the oil and gas company, Continental Resources. Forrest Lucas (of Lucas Oil) remains on the list, as well. So, how are oil and gas executives going to help coal? Well, by “rolling back the job-killing EPA regulations on coal,” of course. (Note: that is really an EPA issue, not a Department of Energy issue.)
The problem with this for coal country, as I have noted before, is that rolling back these regulations also has the effect of rolling back regulations that impact the natural gas industry, meaning that even as coal gets cheaper, so does natural gas.
Further, there is talk in the administration about opening up more federal lands to coal mining and oil and gas exploration. (This would be a Department of Interior action, not Energy.) This move, too, is curious, as it is hard to see how increased access to more supply is going to move up prices to support the struggling industries. A greater supply of oil or gas or coal will lead to even lower prices. Lower taxes and reduced regulations equals means a lower cost of exploration and production, which leads to more resources and lower prices.
Absent a commitment to increasing the cost of natural gas, coal is simply not going to compete. Natural gas burns cleaner than coal, is substantially more flexible, and despite criticisms of the process of hydraulic fracturing, it is environmentally preferable to coal mining. With oil and gas executives playing a large role in the new administration, there is no reason to expect coal will get a preference over natural gas. Perhaps renewable energy sources will be less attractive, though the prices of those sources continues to drop, and natural gas can actually work to facilitate those such energy sources. Recent reports suggest renewables and natural gas are the future. This does not bode well for coal.
Increased research on clean coal would have value. There are still millions of people around the world without access to electricity, and millions more getting power from old coal-fired plants that create health and environmental problems. But that research is not likely to change markets in the near term, and it is not likely to benefit U.S. coal miners as long as cheap natural as remains. And it is expected to remain.
Finally, reduced regulations may help move the energy sector forward more quickly, and it may help facilitate related businesses who use natural resources as a feedstock or energy-intensive processes. That remains to be seen. Any plan that does that, though, still likely leaves coal, and the people who work in the industry, behind. Just saying you will save coal jobs, doesn’t make it true. But apparently it does make some people feel better. I doubt that will last very long.
Thursday, November 10, 2016
I have been on hiatus for a few weeks, and had planned to post today about the compliance and corporate governance issues related to Wells Fargo. However, I have decided to delay posting on that topic in light of the unexpected election results and how it affects my research and work.
I am serving as a panelist and a moderator at the ABA's annual Labor and Employment meeting tomorrow. Our topic is Advising Clients in Whistleblower Investigations. In our discussions and emails prior to the conference, we never raised the election in part because, based on the polls, no one expected Donald Trump to win. Now, of course, we have to address this unexpected development in light of the President-elect's public statements that he plans to dismantle much of President Obama's legacy, including a number of his executive orders.
President-elect Trump's plan for his first 100 days includes, among other things: a hiring freeze on all federal employees to reduce federal workforce though attrition (exempting military, public safety, and public health); a requirement that for every new federal regulation, two existing regulations must be eliminated; renegotiation or withdrawal from NAFTA; withdrawal from the Trans-Pacific Partnership; canceling "every unconstitutional executive action, memorandum and order issued by President Obama; and a number of rules related to lobbyists and special interests.
Plaintiffs' lawyers I have spoken to at this conference so far are pessimistic that standards will become even more pro-business and thus more difficult to bring cases. That's probably true. However, I have the following broader business-law related questions:
- What will happen to Dodd-Frank? There are already a number of house bills pending to repeal parts of Dodd-Frank, but will President Trump actually try to repeal all of it, particularly the Dodd-Frank whistleblower rule? How would that look optically? Former SEC Commissioner Paul Atkins, a prominent critic of Dodd-Frank and the whistleblower program in particular, is part of Trump's transition team on economic issues, so perhaps a revision, at a minumum, may not be out of the question.
2. What will happen with the two SEC commissioner vacancies? How will this president and Congress fund the agency?
3. Will SEC Chair Mary Jo White stay or go and how might that affect the work of the agency to look at disclosure reform?
4. How will the vow to freeze the federal workforce affect OSHA, which enforces Sarbanes-Oxley?
5. In addition to the issues that Trump has with TPP and NAFTA, how will his administration and the Congress deal with the Export-Import (Ex-IM) bank, which cannot function properly as it is due to resistance from some in Congress. Ex-Im provides financing, export credit insurance, loans, and other products to companies (including many small businesses) that wish to do business in politically-risky countries.
6. How will a more conservative Supreme Court deal with the business cases that will appear before it?
7. Who will be the Attorney General and how might that affect criminal prosecution of companies and individuals? Should we expect a new memo or revision of policies for Assistant US Attorneys that might undo some of the work of the Yates Memo, which focuses on corporate cooperation and culpable individuals?
8. What will happen with the Consumer Financial Protection Bureau, which the DC Circuit recently ruled was unconstitutional in terms of its structure and power?
9. What will happen with the Obama administration's executive orders on Cuba, which have chipped away at much of the embargo? The business community has lobbied hard on ending the embargo and eliminating restrictions, but Trump has pledged to require more from the Cuban government. Would he also cancel the executive orders as well?
10. What happens to the Public Company Accounting Board, which has had an interim director for several months?
11. Jeb Henserling, who has adamantly opposed Ex-Im, the CFPB, and Dodd-Frank is under consideration for Treasury Secretary. What does this say about President-elect Trump's economic vision?
Of course, there are many more questions and I have no answers but I will be interested to see how future announcements affect the world financial markets, which as of the time of this writing appear to have calmed down.
November 10, 2016 in Compliance, Corporate Governance, Corporations, Current Affairs, Financial Markets, International Law, Legislation, Marcia Narine Weldon, Securities Regulation, White Collar Crime | Permalink | Comments (2)
Tuesday, October 11, 2016
The Trump-Pence campaign has adopted a common West Virginia criticism of U.S. energy policy under the Obama administration that is known as the "war on coal." This phrase is used to describe the current administration's support for U.S. Environmental Protection Agency (EPA) policies to reduce greenhouse gas emissions (via the proposed Clean Power Plan) and other environmental protections that relate to consumption of fossil fuels, especially coal. In the vice presidential debate Republican Mike Pence repeated the phrase several times, asserting that the EPA was killing coal jobs, especially in places like West Virginia and Kentucky. The problem is that regardless of the EPA's goals, it is not environmental regulation that is coal's main challenge. It is price.
As Charlie Patton, president of West Virginia-based Appalachian Power explained, "Forget the clean power plan. You cannot build a coal plant that meets existing regulation today that can compete with $5 gas. It just cannot happen." Cheap natural gas, made available by horizontal drilling and hydraulic fracturing in shale formations, has led to a significant increase in natural gas-fired electric power generation, most of which replaced coal as the fuel of choice. The shale gas boom, which started approximately in 2008, can account for most of this change. Here's the U.S. electricity generation data by fuel (my chart using Energy Information Administration data) for 2006 to 2015):
U.S. Electricity Generation, by fuel
|Annual Total||Coal||Natural Gas||Renewables|
Note the drop in coal begins modestly in 2008 and drops from 48.21% to 33.18% in 2015. In that time frame, coal lost 15.03% of the market, while natural gas increased 11.23%. Renewable sources (not including solar and hydropower) increased 3.61% to 6.65% overall. That means that natural gas and renewables picked up 14.84% of the market -- or 98.7% of the market lost by coal.
Coal production in my home state of West Virginia has declined from the peak of 158 million short tons in 2008 down to 95 million in 2015, with further decline expected for 2016. And the state is feeling the devastating effect of lost jobs -- West Virginia was the only state in 2015-16 to lose a statistically significant number of jobs. Tax revenues are down dramatically, and that decline, too, is expected to continue. The harm to the state of these lost jobs is real, but there is no reasonable governmental policy that could change this decline, even if we wanted it to. The reality is that natural gas is a cheaper option, it has long-term potential to work alongside renewables, and no energy proposal from any major candidate has suggested a proposal that would help coal take back marketshare from natural gas (despite promises to simply bring back coal jobs).
Living in West Virginia, a place I love to live, it is easy to want hope. We need hope, and we need a plan, but that plan has to include educating our workforce and expanding economic opportunities in other industries, not harkening back to another time that will never return. The reality is that the war on coal is not one that can be won. In the end, as a pricing problem, trying to win the war on coal is really trying to win a war on math. It just can't happen. The numbers don't add up.