Thursday, January 22, 2015

Disruption in Dublin

I have just returned from Dublin, which may be one of my new favorite cities. For the fifth year in a row, I have had the pleasure of participating as a mentor in the LawWithoutWalls (“LWOW”) program run by University of Miami with sponsorship from the Eversheds law firm. LWOW describes itself as follows:

LawWithoutWalls, devised and led by Michele DeStefano, is a part-virtual, global, multi-disciplinary collaboratory that focuses on tackling the cutting edge issues at the intersection of law, business, technology, and innovation.  LawWithoutWalls mission is to accelerate innovation in legal education and practice at the same time.  We collaborate with 30 law and business schools and over 450 academics, students, technologists, venture capitalists, entrepreneurs, business professionals, and lawyers from around the world. We seek to change how today’s lawyers approach their practice and how tomorrow’s lawyers are educated and, in so doing, sharpen the skills needed to meet the challenges posed by the economic pressures, technologization, and globalization of the international legal market. We seek to create the future of law, today. Utilizing a blend of virtual and in-person techniques, LawWithoutWalls offers six initiatives: LWOW Student Offerings,LWOW LiveLWOW INC., and LWOW Xed.  

 I first joined the program as a practitioner mentor and have now served as an academic mentor for two years. Each team has students from law or business school who develop a project of worth addressing a problem in legal education or the legal profession. Mentors include an academic, a practitioner, an entrepreneur, and an LWOW alum.

In the LWOW Live version, the students and mentors meet for the first time in a foreign city (hence the trip to Dublin) and then never see each other in person again until the Conposium, a Shark-Tank like competition in April at the University of Miami, where they present their solution to a venture capitalist, academic, and practitioner in front of a live and virtual audience.

Over the period of a few months the students and mentors, who are all in different cities, work together and meet virtually. Students also attend mandatory weekly thought leader sessions. Past topics have included developments in legal practice around the world and the necessity of a business plan. For many law students, this brings what they learned in Professional Responsibility and Business Associations classes to life. At the Dublin kickoff, audience members watched actual live pitches to venture capitalists from three startups, learned about emotional intelligence and networking from internationally-renowned experts, and started brainstorming on mini projects of worth.

This year, I am coaching a virtual LWOW Compliance team working on a problem submitted by the Ethics Resource Center. My students attend school in London and Hamburg but hail from India and Singapore. My co-mentors include attorneys from Dentons and Holland and Knight. The winner of the LWOW Compliance competition will present their solution to the Ethics Resource Center in front of hundreds of compliance officers. In past years, I have had students in LWOW Live from Brazil, Israel, China, the US, South Africa, and Spain and mentees who served as in-house counsel or who were themselves start-up entrepreneurs or investors. Representatives from the firms that are disrupting the legal profession such as Legal Zoom serve as mentors to teams as well. In the past students have read books by Richard Susskind, who provides a somewhat pessimistic view of the future of the legal profession, but a view that students and mentors should hear.

As I sat through the conference, I remembered some of the takeaways from the AALS sessions in Washington in early January. The theme of that conference was “Legal Education at the Crossroads.” Speakers explained that firms and clients are telling the schools that they need graduates with skills and experience in project management, technology, international exposure, business acumen, emotional intelligence, leadership, and working in teams. Law schools on average don’t stress those skills but LWOW does. Just today, LWOW’s team members were described as "lawyers with solutions." I agree and I’m proud to be involved in shaping those solutions.

 

January 22, 2015 in Books, Business School, Conferences, Entrepreneurship, Ethics, International Business, Law School, Marcia Narine, Teaching | Permalink | Comments (0)

Thursday, January 15, 2015

Top 25 tweets for business lawyers from AALS

Greetings from Dublin. Between the Guinness tour, the champagne afternoon tea, and the jet lag, I don’t have the mental energy to do the blog I planned to write with a deep analysis of the AALS conference in DC. I live tweeted for several days and here my top 25 tweets from the conference. I have also added some that I re-tweeted from sessions I did not attend. I apologize for any misspellings and for the potentially misleading title of this post:

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Next week I will write about the reason I'm in Dublin.

January 15, 2015 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporate Personality, Corporations, CSR, Delaware, Financial Markets, Marcia Narine, Securities Regulation, Travel | Permalink | Comments (0)

Thursday, January 1, 2015

Live Tweeting from AALS

Happy New Year.

Starting Saturday morning (or maybe tomorrow night), I'll be live tweeting from the Association of American Law Schools (AALS) conference. Because I teach both civil procedure and business associations, my tweets will largely relate to those sessions as well as sessions for new law professors.

Next Thursday I will summarize the high points of the conference, at least from my perspective. 

My twitter handle is @mlnarine and the AALS hashtag is #AALS2015. If you're at the conference and a blog reader, please say hello.

January 1, 2015 in Business Associations, Conferences, Corporations, Law School, Marcia Narine, Teaching | Permalink | Comments (0)

Thursday, December 25, 2014

My shortest post

Merry Chistmas!

December 25, 2014 in Marcia Narine | Permalink | Comments (0)

Friday, December 19, 2014

How well does the media portray business?

In each of the classes I have taught I have offered extra credit for a reflection paper on how the media portrays the particular subject because most Americans, including law students, form their opinions about legal issues from television and the movies. Sometimes the media does a great job. I’m told by my friends who teach and practice criminal law that The Wire gets it right. Although I have never practiced criminal law, I assume that ABC’s How to Get Away With Murder, in which first-year students skip their other classes to both solve and commit murders, is probably less accurate. I do have some students who now watch CNBC because I show relevant clips in class. After a particularly heated on-air debate, one student called the network “the ESPN for business people.”

I’m looking for new fiction movies or TV shows to suggest to my students next semester. In addition to the standard business movies and documentaries, what makes your list of high-quality business-related shows? Friends, colleagues, and students have suggested the following traditional and nontraditional must-sees: 

1)   Game of Thrones (one student wrote about it in the partnership context)

2)   House of Cards (not purely business, but shows how business and politics intersect)

3)   House of Lies (a look at the world of management consulting)

4)   Silicon Valley (one episode I saw talked about entity selection)

5)   The Newsroom (during the last season writers tackled insider trading, hostile takeovers, and white knights)

6)   Sons of Anarchy (I don’t watch this one so I can’t judge)

7)   Shark Tank (not always a complete or accurate depiction but entertaining)

I look forward to your suggestions and to some binge-watching over the holidays.

December 19, 2014 in Business Associations, Current Affairs, Film, Law School, Marcia Narine, Teaching, Television | Permalink | Comments (0)

Thursday, December 11, 2014

Reflections of a former supply chain professional turned academic on business and human rights

In many companies, executives and employees alike will give a blank stare if you discuss “human rights.”  They understand the terms “supply chain” and “labor” but don’t always make the leap to the potentially loaded term “human rights.” But business and human rights is all encompassing and leads to a number of uncomfortable questions for firms. When an extractive company wants to get to the coal, the minerals, or the oil, what rights do the indigenous peoples have to their land? If there is a human right to “water” or “food,” do Kellogg’s, Coca Cola, and General Mills have a special duty to protect the environment and safeguard the rights of women, children and human rights defenders? Oxfam’s Behind the Brands Campaign says yes, and provides a scorecard. How should companies operating in dangerous lands provide security for their property and personnel? Are they responsible if the host country’s security forces commit massacres while protecting their corporate property? What actions make companies complicit with state abuses and not merely bystanders? What about the digital domain and state surveillance? What rights should companies protect and how do they balance those with government requests for information?

The disconnect between “business” and “human rights” has been slowly eroding over the past few years, and especially since the 2011 release of the UN Guiding Principles on Business and Human Rights. Businesses, law firms, and financial institutions have started to pay attention in part because of the Principles but also because of NGO pressures to act.  The Principles operationalize a "protect, respect, and remedy" framework, which indicates that: (i) states have a duty to protect against human rights abuses by third parties, including businesses; (ii) businesses have a responsibility to comply with applicable laws and respect human rights; and (iii) victims of human rights abuses should have access to judicial and non-judicial grievance mechanisms from both the state and businesses.

Many think that the states aren’t acting quickly enough in their obligations to create National Action Plans to address their duty to protect human rights, and that in fact businesses are doing most of the legwork (albeit very slowly themselves). The UK, Netherlands, Spain, Italy and Denmark have already started and the US announced its intentions to create its Plan in September 2014.  A number of other states announced that they too will work on National Action Plans at the recent UN Forum on Business and Human Rights that I attended in Geneva in early December. For a great blog post on the event see ICAR director Amol Mehra's Huffington Post piece.

What would a US National Action plan contain? Some believe that it would involve more disclosure regulation similar to the Dodd-Frank Conflict Minerals Rule, the Ending Trafficking in Government Contracting Act, Trafficking Victims Protection Act, the Burma Reporting Requirements on Responsible Investment, and others. Some hope that it will provide additional redress mechanisms after the Supreme Court’s decision in Kiobel significantly limited access to US courts on jurisdictional grounds for foreign human rights litigants suing foreign companies for actions that took place outside of the United States.

But what about the role of business? Here are five observations from my trip to Geneva: 

1)   It's not all about large Western multinationals: As the Chair of the Forum Mo Ibrahim pointed out, it was fantastic to hear from the CEOs of Nestle and Unilever, but the vast majority of people in China, Sudan and Latin American countries with human rights abuses don’t work for large multinationals. John Ruggie, the architect of the Principles reminded the audience that most of the largest companies in the world right now aren’t even from Western nations. These include Saudi Aromco (world’s largest oil company), Foxconn (largest electronics company), and India’s Tata Group (the UK’s largest manufacturing company).

2)   It’s not all about maximization of shareholder value: Unilever CEO Paul Pollman gave an impassioned speech about the need for businesses to do their part to protect human rights. He was followed by the CEO of Nestle.  (The opening session with both speeches as well as others from labor and civil society was approximately two hours long and is here). In separate sessions, representatives from Michelin, Chevron, Heinekin, Statoil, Rio Tinto, Barrick, and dozens of other businesses discussed how they are implementing human rights due diligence and practices into their operations and metrics, often working with the NGOs that in the past have been their largest critics such as Amnesty International, Human Rights Watch and Oxfam. The US Council for International Business, USCIB, also played a prominent role speaking on behalf of US and international business interests.

3)   Investors and lenders are watching: Calvert; the Office of Investment Policy at OPIC, the US government’s development finance institution; the Peruvian Financial Authority; the Supervision Office of the Banco Central do Brasil; the Vice Chair of the Banking Association of Colombia; the European Investment Bank; and Swedfund, among others discussed how and why financial institutions are scrutinizing human rights practices and monitoring them as contractual terms. This has real world impact as development institutions weigh choices about whether to lend to a company in a country that does not allow women to own land, but that will provide other economic opportunities to those women (the lender made the investment). OPIC, which has an 18 billion dollar portfolio in 100 countries, indicated that they see a large trend in impact investing.

4)   Integrated reporting is here to stay: Among other things, Calvert, which manages 14 billion in 40 mutual funds, focused on their commitment to companies with solid track records on environmental, social, and governance factors and discussed the benefits of stand alone or integrated reporting. Lawyers from some of the largest law firms in the world indicated that they are working with their clients to prepare for additional non-financial reporting, in part because of countries like the UK that will mandate more in 2016, and an EU disclosure directive that will affect 6,000 firms.

5)   Is an International Arbitration Tribunal on the way?: A number of prominent lawyers, retired judges and academics from around the world are working on a proposal for an international arbitration tribunal for human rights abuses. Spearheaded by lawyers for better business, this would either supplement or possibly replace in some people’s view a binding treaty on business and human rights. Having served as a compliance officer who dealt extensively with global supply chains, I have doubts as to how many suppliers will willingly contract to appear before an international tribunal when their workers or members of indigenous communities are harmed. I also wonder about the incentives for corporations, the governing law, the consent of third parties, and a host of other sticking points. Some raised valid concerns about whether privatizing remedies takes the pressure off of states to do their part. But it’s a start down an inevitable road as companies operate around the world and want some level of certainty as to their rights and obligations.

On another note, I attended several panels in which business executives, law firm partners, and members of NGOs decried the lack of training on business and human rights in law schools. Even though professors struggle to cover the required content, I see this area as akin to the compliance conversations that are happening now in law schools. There is legal work in this field and there will be more. I look forward to integrating some of this information into an upcoming seminar.

In the meantime, I tried to include some observations that might be of interest to this audience. If you want to learn more about the conference generally you can look to the twitter feed on #bizhumanrights or #unforumwatch, which has great links.  I also recommend the newly released Top 10 Business and Human Rights Issues Whitepaper.

 

 

December 11, 2014 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, International Business, Jobs, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, December 4, 2014

Teaching Transactional Skills

I had planned to blog about the UN Forum on Business and Human Rights this week, but my head is overflowing with information about export credits, development financing, a possible international arbitration tribunal, remarks by the CEOs of Nestle and Unilever, and the polite rebuff to the remarks by the Ambassador of Qatar by a human rights activist in the plenary session. Next week, in between exam grading, I promise to blog about some of the new developments that will affect business lawyers and professors. FYI, I apparently was one of the top live tweeters of the Forum (#bizhumanrights #unforumwatch) and gained many valuable contacts and dozens of new followers. 

In the meantime, I recommend reading this great piece from the Legal Skills Prof Blog.  As I prepare to teach BA for the third time (which I hear is the charm), I plan to refine the techniques I already use and adopt others where appropriate. The link is below.

http://lawprofessors.typepad.com/legal_skills/2014/12/teaching-transactional-skills-in-business-aassociations.html

December 4, 2014 in Business Associations, Conferences, Corporate Finance, Corporate Governance, Corporations, Law School, Marcia Narine, Teaching | Permalink | Comments (1)

Thursday, November 27, 2014

Can a socially responsible person shop on Thanksgiving or Black Friday?

As regular readers know, I research and write on business and human rights. For this reason, I really enjoyed the post about corporate citizenship on Thanksgiving by Ann Lipton, and Haskell Murray’s post about the social enterprise and strategic considerations behind a “values” message for Whole Foods, in contrast to the low price mantra for Wal-Mart. Both posts garnered a number of insightful comments.

As I write this on Thanksgiving Day, I’m working on a law review article, refining final exam questions, and meeting with students who have finals starting next week (being on campus is a great way to avoid holiday cooking, by the way). Fortunately, I gladly do all of this without complaint, but many workers are in stores setting up for “door-buster” sales that now start at Wal-Mart, JC Penney, Best Buy, and Toys R Us shortly after families clear the table on Thanksgiving, if not before. As Ann pointed out, a number of protestors have targeted these purportedly “anti-family” businesses and touted the “values” of those businesses that plan to stick to the now “normal” crack of dawn opening time on Friday (which of course requires workers to arrive in the middle of the night). The United Auto Workers plans to hold a series of protests at Wal-Mart in solidarity with the workers, and more are planned around the country.

I’m not sure what effect these protests will have on the bottom line, and I hope that someone does some good empirical research on this issue. On the one hand, boycotts can be a powerful motivator for firms to change behavior. Consumer boycotts have become an American tradition, dating back to the Boston Tea Party. But while boycotts can garner attention, my initial research reveals that most boycotts fail to have any noticeable impact for companies, although admittedly the negative media coverage that boycotts generate often makes it harder for a companies to control the messages they send out to the public. In order for boycotts to succeed there needs to be widespread support and consumers must be passionate about the issue.

In this age of “hashtag activism” or “slacktivism,” I’m not sure that a large number of people will sustain these boycotts. Furthermore, even when consumers vocalize their passion, it has not always translated to impact to lower revenue. For example, the CEO of Chick-Fil-A’s comments on gay marriage triggered a consumer boycott that opened up a platform to further political and social goals, although it did little to hurt the company’s bottom line and in fact led proponents of the CEO’s views to develop a campaign to counteract the boycott.

Similarly, I’m also not sure of the effect that socially responsible investors can have as it relates to these labor issues. In 2006, the Norwegian Pension Fund divested its $400 million position (over 14 million shares in the US and Mexico operations) in Wal-Mart. In fact, Wal-Mart constitutes two of the three companies excluded for “serious of systematic” human rights violations. Pension funds in Sweden and the Netherlands followed the Fund’s lead after determining that Wal-Mart had not done enough to change after meetings on its labor practices. In a similar decision, Portland has become the first major city to divest its Wal-Mart holdings. City Commissioner Steve Novick cited the company’s labor, wage and hour practices, and recent bribery scandal as significant factors in the decision. Yet, the allegations about Wal-Mart’s labor practices persist, notwithstanding a strong corporate social responsibility campaign to blunt the effects of the bad publicity. Perhaps more important to the Walton family, the company is doing just fine financially, trading near its 52-week high as of the time of this writing.

I will be thinking of these issues as I head to Geneva on Saturday for the third annual UN Forum on Business and Human Rights, which had over 1700 companies, NGOs, academics, state representatives, and civil society organizations in attendance last year. I am particularly interested in the sessions on the financial sector and human rights, where banking executives and others will discuss incorporation of the UN Guiding Principles on Business and Human Rights into the human rights policies of major banks, as well as the role of the socially responsible investing community. Another panel that I will attend with interest relates to the human rights impacts in supply chains. A group of large law firm partners and professors will also present on a proposal for an international tribunal to adjudicate business and human rights issues. I will blog about these panels and others that may be of interest to the business community next Thursday. Until then enjoy your holiday and if you participate in or see any protests, send me a picture.

November 27, 2014 in Ann Lipton, Conferences, Corporate Finance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Haskell Murray, International Business, Marcia Narine, Securities Regulation, Social Enterprise | Permalink | Comments (0)

Thursday, November 20, 2014

Will you be reading conflict minerals disclosure statements this holiday season?

The DC Circuit will once again rule on the conflicts minerals legislation. I have criticized the rule in an amicus brief, here, here, here, and here, and in other posts. I believe the rule is: (1) well-intentioned but inappropriate and impractical for the SEC to administer; (2) sets a bad example for other environmental, social, and governance disclosure legislation; and (3) has had little effect on the violence in the Democratic Republic of Congo. Indeed just two days ago, the UN warned of a human rights catastrophe in one of the most mineral-rich parts of the country, where more than 71,000 people have fled their homes in just the past three months.

The SEC and business groups will now argue before the court about the First Amendment ramifications of the “name and shame” rule that required (until the DC Circuit ruling earlier this year), that businesses state whether their products were “DRC-Conflict Free” based upon a lengthy and expensive due diligence process.

The court originally ruled that such a statement could force a company to proclaim that it has “blood on its hands.” Now, upon the request of the SEC and Amnesty International, the court will reconsider its ruling and seeks briefing on the following questions after its recent ruling in the American Meat case:

 (1) What effect, if any, does this court’s ruling in American Meat Institute v. U.S. Department of Agriculture …  have on the First Amendment issue in this case regarding the conflict mineral disclosure requirement?

(2) What is the meaning of “purely factual and uncontroversial information” as used in Zauderer v. Office of Disciplinary Counsel, …  and American Meat Institute v. U.S. Department of Agriculture?

(3) Is the determination of what is “uncontroversial information” a question of fact? 

Across the pond, the EU Parliament is facing increasing pressure from NGOs and some clergy in Congo to move away from voluntary self-certifications on conflict minerals, and began holding hearings earlier this month. Although the constitutional issues would not be relevant in the EU, legislators there have followed the developments of the US law with interest. I will report back on both the US case and the EU hearings.

In the meantime, I wonder how many parents shopping for video games for their kids over the holiday will take the time to read Nintendo's conflict minerals policy.

 

 

November 20, 2014 in Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (1)

Thursday, November 13, 2014

What do lawyers and judges need to know about LLCs?

Understandably, business law professors get upset when people who should know better- judges for example- mischaracterize LLCs. I say we should be even more angry at the law clerks drafting the opinions. Many judges had no exposure to LLCs in law school but clerks graduating today certainly have. 
 
Given the ubiquity of LLCs now, I was surprised to learn that among the many outstanding CALI (Computer-Aided Legal Instruction) lessons, there are none on LLCs. (Hat tip to co-blogger Steve Bradford- my students love him now). I have volunteered to work on at least one and maybe more in the coming months. I canvassed some colleagues for their must-haves for these LLC lessons. In no particular order, here's the current list:
 

1) Difference between LLCs, corporations and partnerships 

2) Del. and ULLCA coverage of fiduciary duties, and especially the issue of contractual waiver and default 

3) Ease of formation
 
4) Expense of formation
 
5) Ease of maintenance    
 
6) Expense of maintenance
 
7) Restrictions re. business purpose or activity
 
8) Continuity of life/limitations on existence
 
9) Label for/characteristics (incl. transferability) of ownership interests
 
10) Restrictions re. owners (number, type, or other)
 
11) Authority to bind/create liability for the firm
 
12) Personal liability of owners to outsiders
 
13) Form of management/rights to manage
 
14) Existence/characteristics of monitoring managers/board of directors
 
15) Other (additional governance rules, rights, obligations, etc.)
 
16) Entitlement to income and assets
 
17) Liability for taxes and other governmental obligations
 
18) How investors can get money OUT of an LLC
 

19) No right to distributions, and no right to vote for distributions if manager-managed

20) No right to salary or employment

21)  Taxable liability for LLC membership

22) Exit rights—voluntary withdrawals vs. restricted withdrawals, and whether or not that comes with the ability to force the return of an investment or a new status as a creditor of the LLC

23) Liability for improper distributions

24) Veil piercing, particularly given the lack of corporate formalities

I would love some feedback from practitioners as well. What do law students and practicing lawyers need to know about LLCs? What's missing from this list? What should I get rid of? Please feel free to comment below or to email your thoughts to mnarine@stu.edu

 

 

 

November 13, 2014 in Business Associations, C. Steven Bradford, Corporate Personality, Corporations, Delaware, Law School, LLCs, Marcia Narine, Partnership, Teaching, Unincorporated Entities | Permalink | Comments (1)

Thursday, November 6, 2014

Why is Steve Bainbridge So Angry?

I have previously blogged about Institutional Shareholder Services’ policy survey and noted that a number of business groups, including the Chamber of Commerce, had significant concerns. In case you haven’t read Steve Bainbridge’s posts on the matter, he’s not a fan either. 

Calling the ISS consultation period “a decision in search of a process,” the Chamber released its comment letter to ISS last week, and it cited Bainbridge's comment letter liberally. Some quotable quotes from the Chamber include:

Under ISS’ revised policy, according to the Consultation, “any single factor that may have previously resulted in a ‘For’ or ‘Against’ recommendation may be mitigated by other positive or negative aspects, respectively.” Of course, there is no delineation of what these “other positive or negative aspects” may be, how they would be weighted, or how they would be applied. This leaves public companies as well as ISS’ clients at sea as to what prompted a determination that previously would have seen ISS oppose more of these proposals. This is a change that would, if enacted, fly in the face of explicit SEC Staff Guidance on the obligations to verify the accuracy and current nature of information utilized in formulating voting recommendations.

The proposed new policy—as yet undefined and undisclosed—is also lacking in any foundation of empirical support… Indeed, a number of studies confirm that there is no empirical support for or against the proposition ISS seems eager to adopt.

[Regarding equity plan scorecards] there is no clear indication on the part of ISS as to what weight it will assign to each category of assessment—cost of plan, plan features, and company grant practices…  this approach benefits ISS (and in particular its’ consulting operations), but does nothing to advance either corporate or shareholder interests or benefits. The Consultation also makes clear that, for all ISS’ purported interest in creating a more “nuanced” approach, in fact the proposed policy fosters a one-size-fits-all system that fails to take into account the different unique needs of companies and their investors.

Proxy votes cast in reliance on proxy voting policies based upon this Consultation cannot—by definition—be reasonably designed to further shareholder values.

ISS had a number of other recommendations but they didn’t raise the ire of Bainbridge and the Chamber. For the record, Steve is angry about the independent chair shareholder proposals, but please read his well-documented posts and judge for yourself whether ISS missed the mark. The ISS’ 2015 US Proxy Voting Guidelines were released today. Personally, I plan to raise some of the Guidelines discussing fee-shifting bylaws and exclusive venue provisions in both my Civil Procedure and Business Associations classes.

Let’s see how the Guidelines affect the next proxy season—the recommendations from the two-week comment period go into effect in February. 

November 6, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, October 30, 2014

Do Small and Large Shareholders Have a Say on Pay?

 

 

 

Miriam Schwartz-Ziv from Michigan State University and Russ Wermers from the University of Maryland have written an interesting article in time for the next proxy season. The abstract is below:

This paper investigates the voting patterns of shareholders on the recently enacted “Say-On-Pay” (SOP) for publicly traded corporations, and the efficacy of vote outcomes on rationalizing executive compensation. We find that small shareholders are more likely than large shareholders to use the non-binding SOP vote to govern their companies: small shareholders are more likely to vote for a more frequent annual SOP vote, and more likely to vote “against” SOP (i.e., to disapprove executive compensation). Further, we find that low support for management in the SOP vote is more likely to be followed by a decrease in excess compensation, and by a more reasonable selection of peer companies for determining compensation, when ownership is more concentrated. Hence, the non-binding SOP vote offers a convenient mechanism for small shareholders to voice their opinions, yet, larger shareholders must be present to compel the Board to take action. Thus, diffuse shareholders are able to coordinate on the SOP vote to employ the threat that large shareholders represent to management.

 

October 30, 2014 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Friday, October 24, 2014

What do Jeremy Bentham and Norway’s Pension Fund Have in Common?

I used to joke that my alma mater Columbia University’s core curriculum, which required students to study the history of art, music, literature, and philosophy (among other things) was designed solely to make sure that graduates could distinguish a Manet from a Monet and not embarrass the university at cocktail parties for wealthy donors. I have since tortured my son by dragging him through museums and ruins all over the world pointing spouting what I remember about chiaroscuro and Doric columns. He’s now a freshman at San Francisco Art Institute, and I’m sure that my now-fond memories of class helped to spark a love of art in him. I must confess though that as a college freshman I was less fond of  Contemporary Civilization class, (“CC”) which took us through Plato, Aristotle, Herodotus, Hume, Hegel, and all of the usual suspects. At the time I thought it was boring and too high level for a student who planned to work in the gritty city counseling abused children and rape survivors.

Fast forward twenty years or so, and my job as a Compliance and Ethics Officer for a Fortune 500 company immersed me in many of the principles we discussed in CC, although we never spoke in the lofty terms that our teaching assistant used when we looked at bribery, money- laundering, conflicts of interest, terrorism threats, data protection, SEC regulations, discrimination, and other issues that keep ethics officers awake at night. We did speak of values versus rules based ethics and how to motivate people to "do the right thing."

Now that I am in academia I have chosen to research on the issues I dealt with in private life. Although I am brand new to the field of normative business ethics, I was pleased to have my paper accepted for a November workshop at Wharton's Zicklin Center for Business Ethics Research. Each session has two presenters who listen to and respond to feedback from attendees, who have read their papers in advance. Dr. Wayne Buck, who teaches business ethics at Eastern Connecticut State University, presented two weeks ago. He entitled his paper “Naming Names,” and using a case study on the BP Oil spill argued that the role of business ethics is not merely to promulgate norms around conduct, but also to judge individual businesspeople on moral grounds. Professor John Hasnas of Georgetown’s McDonough School of Business also presented his working paper “Why Don't Corporations Have the Right to Vote?” He argued that if we accept a theory of corporate moral agency, then that commits us to extending them the right to vote. (For the record, my understanding of his paper is that he doesn’t believe corporations should have the right.) Attendees from Johns Hopkins, the University of Connecticut, Pace and of course Wharton brought me right back to my days at Columbia with references to Rawls and Kant. My comments were probably less theoretical and more related to practical application, but that’s still my bent as a junior scholar.

In a few weeks, I present on my theory of the social contract as it relates to business and human rights. In brief, I argue that multinational corporations enter into social contracts with the states in which they operate (in large part to avoid regulation) and with stakeholders around them (the "social license to operate", as Professor John Ruggie describes it). Typically these contracts consist of the corporate social responsibility reports, voluntary codes of conduct, industry initiatives, and other public statements that dictate how they choose to act in society, such as the UN Global Compact. Many nations have voluntary and mandatory disclosure regimes, which have the side benefit of providing consumers and investors with the kinds of information that will help them determine whether the firm has “breached” the social contract by not living up to its promise. The majority of these proposals and disclosure regimes (such as Dodd-Frank conflict minerals) rest on the premise that armed with certain information, consumers and investors (other than socially responsible investors) will pressure corporations to change their behavior by either rewarding “ethical” behavior or by punishing firms who act unethically via a boycott or divestment.

I contend in my article that: (1) corporations generally respond to incentives and penalties, which can cause them to act “morally;” (2) states refuse to enter into a binding UN treaty on business and human rights and often do not uniformly enforce the laws, much less the social contracts; (3) consumers over-report their desire to buy goods and services from “ethical” companies; and (4) disclosure for the sake of transparency, without more, will not lead to meaningful change in the human rights arena. Instead, I prefer to focus on the kinds of questions that the board members, consumers, and investors who purport to care about these things should ask. I try to move past the fuzzy concept of corporate social responsibility to a stronger corporate accountability framework, at least where firms have the ability to directly or indirectly impact human rights.

As a compliance officer, I did not use terms like “deontological” and “teleological” principles, but some heavy hitters such as Norway's Government Pension Fund, with over five billion Kronos under management, do. The 2003 report that helped establish the Fund’s recommendations on ethical guidelines state in part:

One group of ethical theories asserts that we should primarily be concerned with the consequences of the choices we make. These theories are in other words forward-looking, focusing on the consequences of an action. The choice that is ethically correct influences the world in the best possible way, i.e. has the most favourable consequences. Every choice generates an infinite number of consequences and the decisive question is of course which of the consequences we should focus on. Again, a number of answers are possible. Some would assert that we should focus on individual welfare, and that the action that has the most favourable consequences for individual welfare is the best one. Others would claim that access to resources or the opportunities or rights of the individual are most important. However, common to all these answers is the view that the desire to influence the world in a favourable direction should govern our choices.

Another group of ethical theories focuses on avoiding breaching obligations by avoiding doing evil and fulfilling obligations by doing good. Whether the results are good or evil, and whether the cost of doing good is high, are in principle of no significance. This is often known as deontological ethics.

In relation to the Petroleum Fund, these two approaches will primarily influence choice in that deontological ethics will dictate that certain investments must be avoided under any circumstances, while teleological ethics will lead to the avoidance of investments that have less favourable consequences and the promotion of investments that have more favourable consequences.

Recently, NGOs have pressured firms to speak on out human rights abuses at mega-events and have published their responses. The US government has made a number of efforts, some unsuccessful, to push companies toward more proactive human rights initiatives. These issues are here to stay. As I formulate my recommendations, I am looking at the pension fund, some work by ethicists researching marketing principles, writings by political and business philosophers, and of course, my old friends Locke, Rousseau, Rawls and Kant for inspiration. If you have ideas of articles or authors I should consult, feel free to comment below or to email me at mnarine@stu.edu. And if you will be in Philadelphia on November 14th, register for the session at Wharton and give me your feedback in person.

 

 

 

 

October 24, 2014 in Books, Business School, Call for Papers, Conferences, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Thursday, October 16, 2014

Comment from the Student Archives- the Real Housewives Make an Appearance in Business Associations

I plan to write a more traditional blog post later if I have time, but I am in the midst of midterm grading hell. I was amused today in class when a student compared the drama of the Francis v. United Jersey Bank case with the bankruptcy, bank, and mortgage fraud convictions of husband and wife Joe and Teresa Guidice from the reality TV hit the Real Housewives of New Jersey.

I had provided some color commentary courtesy of Reinier Kraakman and Jay Kesten’s The Story of Francis v. United Jersey Bank: When a Good Story Makes Bad Law, and apparently Mrs. Pritchard’s defenses reminded the student of Teresa Guidice’s pleas of ignorance. Other than being stories about New Jersey fraudsters, there aren’t a lot of similarities between the cases. Based on my quick skim of the indictment I don’t think that Teresa served on the board of any of the companies at issue--Joe apparently had an LLC and was the sole member, and the vast majority of the counts against the couple relate to their individual criminal conduct. In addition, Teresa is also going to jail, and no one suffered that fate in United Jersey. But luckily, she may see a big payday from a purported book deal and reality TV show spinoff after she’s out, possibly disproving the adage that crime doesn’t pay.

 

October 16, 2014 in Business Associations, Corporations, Current Affairs, Ethics, Law School, LLCs, Marcia Narine, Teaching, Television | Permalink | Comments (0)

Thursday, October 9, 2014

Do the results justify the costs of compliance for Dodd-Frank conflict minerals?

The numbers are in on SEC Dodd-Frank conflict minerals filings. According to a Tulane study, the average company spent over half a million dollars to comply. A review by law firm Schulte Roth & Zabel shows how meaningless (in my view), some of those filings were. Meanwhile, Canada failed to pass another conflict minerals bill and NGOs are pressuring the EU to step up to the plate for more rigorous regulation. I continue to believe that there has to be a better way to resolve a deadly human rights crisis, and that disclosure and due diligence in the supply chain are important but are not the solutions.

October 9, 2014 in Corporate Governance, CSR, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Thursday, October 2, 2014

What Would Business Associations Students Do If They Were Shareholders?

For the second time, I have assigned my BA students to write their own shareholder proposals so that they can better understand the mechanics and the substance behind Rule 14-a8. As samples, I provided a link to over 500 proposals for the 2014 proxy season. We also went through the Apple Proxy Statement as a way to review corporate governance, the roles of the committees, and some other concepts we had discussed. As I reviewed the proposals this morning, I noticed that the student proposals varied widely with most relating to human rights, genetically modified food, environmental protection, online privacy, and other social factors. A few related to cumulative voting, split of the chair and CEO, poison pills, political spending, pay ratio, equity plans, and other executive compensation factors.

After they take their midterm next week, I will show them how well these proposals tend to do in the real world. Environmental, social, and governance factors (political spending and lobbying are included) constituted almost 42% of proposals, up from 36% in 2013, according to Equilar. Of note, 45% of proposals calling for a declassified board passed, with an average of 89% support, while only two proposals for the separation of chair and CEO passed. Astonishingly, Proxy Monitor, which looked at the 250 largest publicly-traded American companies, reports that just three people and their family members filed one third of all proposals. Only 4% of shareholder proposals were supported by a majority of voting shareholders.  Only one of the 136 proposals related to social policy concerns in the Proxy Monitor data set passed, and that was an animal welfare proposal that the company actually supported.

I plan to use two of the student proposals verbatim on the final exam to test their ability to assess whether a company would be successful in an SEC No-Action letter process. Many of the students thought the exercise was helpful, although one of the students who was most meticulous with the assignment is now even more adamant that she does not want to do transactional law. Too bad, because she would make a great corporate lawyer. I have 7 weeks to convince her to change her mind. 

October 2, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, September 25, 2014

New Article-Worldwide Hedge Fund Activism: Dimensions and Legal Determinants.

Professor Dionysia Katelouzou of Kings College, London has written an interesting empirical article on hedge fund activisim. The abstract is below:

In recent years, activist hedge funds have spread from the United States to other countries in Europe and Asia, but not as a duplicate of the American practice. Rather, there is a considerable diversity in the incidence and the nature of activist hedge fund campaigns around the world. What remains unclear, however, is what dictates how commonplace and multifaceted hedge fund activism will be in a particular country.

The Article addresses this issue by pioneering a new approach to understanding the underpinnings and the role of hedge fund activism, in which an activist hedge fund first selects a target company that presents high-value opportunities for engagement (entry stage), accumulates a nontrivial stake (trading stage), then determines and employs its activist strategy (disciplining stage), and finally exits (exit stage). The Article then identifies legal parameters for each activist stage and empirically examines why the incidence, objectives and strategies of activist hedge fund campaigns differ across countries. The analysis is based on 432 activist hedge fund campaigns during the period of 2000-2010 across 25 countries.

The findings suggest that the extent to which legal parameters matter depends on the stage that hedge fund activism has reached. Mandatory disclosure and rights bestowed on shareholders by corporate law are found to dictate how commonplace hedge fund activism will be in a particular country (entry stage). Moreover, the examination of the activist ownership stakes reveals that ownership disclosure rules have important ramifications for the trading stage of an activist campaign. At the disciplining stage, however, there is little support that the activist objectives and the employed strategies are a reflection of the shareholder protection regime of the country in which the target company is located.

 

 

September 25, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, M&A, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Thursday, September 18, 2014

Alibaba and the forty (not really) risk factors

Teaching the definition of a "security" to business associations students who: 1) want to be litigators; 2) are afraid of math, finance, and accounting; 3) don't know anything about business; 4) only take the class because it's required; and 5) aren't allowed to distract themselves with electronics in class is no small feat.

Thankfully, as we were discussing the definition and exemptions, we also touched on IPOs. Many of the students knew nothing about IPOs but were already Alibaba customers and going through some of the registration statement made them understand the many reasons companies want to avoid going public. Of course, now that we went through some of the risk factors, my students who seemed gung ho about the IPO after watching some videos about the hype were a little less excited about it (good thing because they probably couldn't buy anyway).  

Now if I can only figure out how to jazz up the corporate finance chapter next week.

 

September 18, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Law School, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (2)

Thursday, September 11, 2014

Is it time to repeal the Dodd-Frank conflict minerals rule? Maybe, but not so fast

As I predicted in 2011 here and here, in 2012 here, in 2013 in amicus brief, and countless times on this blog, the SEC Dodd-Frank conflicts minerals law has had significant unintended consequences on the Congolese people and has been difficult to comply with. Apparently the Commerce Department, which has a role to play in determining which mines are controlled by rebels so that US issuers can stay away from them, can't actually figure it out either. In the past few days, the Washington Post, the Guardian, and other experts including seventy individuals and NGOS (some Congolese) who signed a memo, have called this misguided law into question.  In my view, without the "name and shame" aspect of the law, it is basically an extremely expensive, onerous due diligence requirement that only a few large companies can or have the incentive to do well or thoroughly. More important, and I as I expected, it has had little impact on the violence on the ground and has hurt the people it purported to help.

I had hoped to be wrong. The foundation that I work with helps medical practitioners, midwives, and traditional birth attendants in eastern Congo and many of their patients and neighbors are members of the artisanal mining community. I won’t go as far as Steve Bainbridge has in calling for the law’s repeal because I think that companies should do better due diligence of their supply chains, especially in conflict zones. This law, however, is not the right one for Congo and the SEC is not the right agency to address this human rights crisis. Frankly, I don’t know that the EU's voluntary certification is the right answer either. I hope that Canada, which is looking at a similar rule, pays close heed and doesn’t perpetuate the same mistake that the US Congress made and that the SEC exacerbated. In the meantime, I will stay tuned to see how and if the courts, Congress, and the SEC revisit the rule.

 

September 11, 2014 in Corporate Finance, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Thursday, September 4, 2014

What do shareholders value? ISS asks but the US Chamber questions the questions.

Behemoth proxy advisory firm Institutional Shareholder Services has released its 2015 Policy Survey.  I have listed some of the questions below:

Which of the following statements best reflects your organization's view about the relationship between goal­setting and award values?

 Is there a threshold at which you consider that the magnitude of a CEO’scompensation should warrant concern even if the company’s absolute and relative performance have been positive, for example, outperforming the peer group?

With respect to evaluating the say­ on ­pay advisory vote, how does your organization view disclosed positive changes to the pay program that will be implemented in the succeeding year(s) when a company demonstrates pay­ for ­performance misalignment or other concerns based on the year in review?

If you chose either the first or second answer in the question above, should shareholders expect disclosure of specific details of such future positive changes (e.g., metrics, performance goals, award values, effective dates) in order for the changes to be considered as a potential mitigator for pay ­for ­performance or other concerns for the year in review?

Where a board adopts without shareholder approval a material bylaw amendment that diminishes shareholders' rights, what approach should be used when evaluating board accountability?

Should directors be held accountable if shareholder ­unfriendly provisions were adopted prior to the company’s IPO?

In general, how does your organization consider gender diversity when evaluating boards?

As a general matter, what weight (relative out of 100%) would you view as appropriate for each of the categories indicated below (notwithstanding that some factors, such as repricing without shareholder approval, may be 100% unacceptable)?

How significant are the following factors when evaluating the board's role in risk oversight in your voting decision on directors (very significant, somewhat significant, not significant)?

In making informed voting decisions on the ratification of the outside auditor and the reelection of members of audit committees, how important (very important/somewhat important/not important) would the following disclosures be to you?

In your view, when is it appropriate for a company to utilize quantitative E&S (environmental and social) performance goals?

As someone who studies and consults on corporate governance issues, I look forward to seeing the results of this survey. However, the US Chamber of Commerce’s Center for Capital Market Competitiveness, which has argued that ISS and other proxy advisory firms have conflicts of interest and lack transparency, has issued a response to ISS because:

The CCMC is concerned that the development of the Survey lacks a foundation based on empirical facts and creates a one-size-fits-all system that failure to take into account the different unique needs of companies and their investors. We believe that these flaws with the Survey can adversely affect advisory recommendations negatively impacting the decision making process for the clients of proxy advisory firms. The CCMC is also troubled that certain issues presented in the Survey, such as Pay for Performance, will be the subject of Securities and Exchange Commission (“SEC”) rulemakings in the near future. While we have provided commentary to those portions of the Survey, we believe that their inclusion in the survey is premature pending the completion of those rulemakings….It is both surprising and very troublesome that the Survey does not contain a single reference to the paramount concern of investors and portfolio managers—public company efforts to maintain and enhance shareholder value—and seeks to elicit only abstract philosophies and opinions, completely eschewing any pretense of an interest in obtaining hard facts and empirically-significant data. This confirmation—that ISS’ policies and recommendations are based solely on a miniscule sampling of philosophical preferences, rather than empirical data—is itself a matter that requires, but does not yet receive, appropriate disclosure and disclaimers on ISS research reports.

The CCMC’s letter details concerns with each of ISS’ questions.  Both the complete survey and the CCMC response are worth a read. 

September 4, 2014 in Business Associations, Corporate Finance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine, Securities Regulation | Permalink | Comments (0)