Wednesday, July 12, 2017
Prior to joining academia, I served as a compliance officer, deputy GC, and chief privacy officer for a Fortune 500 company. I had to learn everything on the job by attending webinars and conferences and reading client alerts. Back then, I would have paid a law school graduate a competitive salary to work in my compliance group, but I couldn’t find anyone who had any idea about what the field entailed.
The world has changed. Now many schools (including mine) offer relevant coursework for this JD-advantage position. I just finished teaching a summer skills course in compliance and corporate social responsibility, and I’m hoping that I have encouraged at least a few of the students to consider it as a viable career path. Compliance is one of the fastest growing corporate positions in the country, and the number of compliance personnel has doubled in the past 6 years. Still, many business-minded law students don’t consider it in the same vein as they consider jobs with Big Law.
This summer, my twelve students met twice a week for two hours at 7:30 pm. In the compressed six-week course, they did the following:
- Heard from compliance officers and outside counsel for public companies and government entities
- Read the same kinds of primary source material that compliance officers and counsel read in practice (such as the Federal Sentencing Guidelines, the Yates Memo, deferred prosecution agreements, and materials from the EU on the upcoming changes to data protection regulation)
- Compared and contrasted CSR reports from WalMart and Target, and reviewed the standards for the Global Reporting Initiative and the UN Global Compact
- Advocated before a board as a worker safety NGO for a company doing business in Bangladesh
- Served as a board member during a meeting (using actual board profiles)
- Wrote a reflection paper on the ideal role and reporting structure of compliance officers
- Considered top employment law and data protection risks for fictional companies to which they were assigned
- Looked at the 10-Ks and CDP report for climate change disclosures after examining the role of socially responsible investors and shareholder resolutions
- Drafted industry-specific risk assessment questionnaires
- Drafted three code of conduct policies
- Wrote a short memo to the GC on health care compliance and the DOJ Yates memo
- Did a role play during a crisis management simulation acting as either a board member, SEC or DOJ lawyer, the CEO, compliance officer or GC and
- Conducted a 20-minute board presentation or employee compliance training (worth the biggest part of the grade).
Perhaps the most gratifying part of the semester came during tonight’s final presentations. The students could pick any topic relevant to the fictional company that they were assigned. They chose to discuss child labor in the supply chain for a clothing company, off-label marketing in the pharmaceutical industry, anti-money laundering compliance in a large bank, and environmental and employment law issues for a consumer product conglomerate. Even though I was not their BA professor, I was thrilled to hear them talk about the Caremark duty, the duty of care, and the business judgment rule in their presentations. Most important, the students have left with a portfolio of marketable skills and real-world knowledge in a fast growing field.
If you have your own ideas on how to teach compliance and CSR, please leave them below or email me at email@example.com.
Friday, July 7, 2017
Bernard Sharfman has written another interesting article on shareholder empowerment. I wish I had read A Private Ordering Defense of a Company's Right to Use Dual Class Share Structures in IPOs before I discussed the Snap IPO last semester in business associations.
The abstract is below:
The shareholder empowerment movement (movement) has renewed its effort to eliminate, restrict or at the very least discourage the use of dual class share structures in initial public offerings (IPOs). This renewed effort was triggered by the recent Snap Inc. IPO that utilized non-voting stock. Such advocacy, if successful, would not be trivial, as many of our most valuable and dynamic companies, including Alphabet (Google) and Facebook, have gone public by offering shares with unequal voting rights.
This Article utilizes Zohar Goshen and Richard Squire’s “principal-cost theory” to argue that the use of the dual class share structure in IPOs is a value enhancing result of the bargaining that takes place in the private ordering of corporate governance arrangements, making the movement’s renewed advocacy unwarranted.
As he has concluded:
It is important to understand that while excellent arguments can be made that the private ordering of dual class share structures must incorporate certain provisions, such as sunset provisions, it is an overreach for academics and shareholder activists to dictate to sophisticated capital market participants, the ones who actually take the financial risk of investing in IPOs, including those with dual class share structures, how to structure corporate governance arrangements. Obviously, all the sophisticated players in the capital markets who participate in an IPO with dual class shares can read the latest academic articles on dual class share structures, including the excellent new article by Lucian Bebchuk and Kobi Kastiel, and incorporate that information in the bargaining process without being dictated to by parties who are not involved in the process. If, as a result of this bargaining, the dual class share structure has no sunset provision and perhaps even no voting rights in the shares offered, then we must conclude that these terms were what the parties required in order to get the deal done, with the risks of the structure being well understood.… capital markets paternalism is not required when it comes to IPOs with dual class share structures.
Please be sure to share your comments with Bernard below.
Wednesday, June 21, 2017
Yesterday, during a conversation with a law student about whether corporate social responsibility is a mere marketing ploy to fool consumers, the student described her conflict with using Uber. She didn’t like what she had read in the news about Uber’s workplace culture issues, sex harassment allegations, legal battles with its drivers, and leadership vacuum. The student, who is studying for the bar, probably didn’t even know that the company had even more PR nightmares just over the past ten days--- the termination of twenty employees after a harassment investigation; the departure of a number of executives including the CEO’s right hand man; the CEO’s “indefinite” leave of absence to “mourn his mother” following a scathing investigative report by former Attorney General Eric Holder; and the resignation of a board member who made a sexist remark during a board meeting (ironically) about sexism at Uber. She clearly hadn’t read Ann Lipton’s excellent post on Uber on June 17th.
Around 1:00 am EST, the company announced that the CEO had resigned after five of the largest investors in the $70 billion company issued a memo entitled “Moving Uber Forward.” The memo was not available as of the time of this writing. According to the New York Times:
The investors included one of Uber’s biggest shareholders, the venture capital firm Benchmark, which has one of its partners, Bill Gurley, on Uber’s board. The investors made their demand for Mr. Kalanick to step down in a letter delivered to the chief executive while he was in Chicago, said the people with knowledge of the situation.
… the investors wrote to Mr. Kalanick that he must immediately leave and that the company needed a change in leadership. Mr. Kalanick, 40, consulted with at least one Uber board member, and after long discussions with some of the investors, he agreed to step down. He will remain on Uber’s board of directors.
This has shades of the American Apparel controversy with ousted CEO Dov Charney that I have blogged about in the past. Charney also perpetuated a "bro culture" that seemed unseemly for a CEO, but isn't all that uncommon among young founders. The main difference here is that the investors, not the Board, made the decision to fire the CEO. As Ann noted in her post this weekend, there is a lot to unpack here. I’m not teaching Business Associations in the Fall, but I hope that many of you will find a way to use this as a case study on corporate governance, particularly Kalanick’s continuation as a board member. That could be awkward, to put it mildly. I plan to discuss it in my Corporate Compliance and Social Responsibility course later today. As I have told the students and written in the past, I am skeptical of consumers and their ability to change corporate culture. Sometimes, as in the case of Uber, it comes down to the investors holding the power of the purse.
Wednesday, June 7, 2017
In 2016, a number of news outlets focused on Wal-Mart’s reputation crisis and outdated management style. Many, including union leaders, doubted the sincerity behind the company’s motivation in raising wages last year. I’ve blogged about Wal-Mart before, but today, there appears to be a different story to tell. Wal-Mart, the bogeyman of many NGOs and workers’ rights groups, actually believes that “serving the customers and society is the same thing… [and] putting the customer first means delivering for them in ways that protect and preserve the communities they live in and the world they will pass on to future generations.” This comes from the company’s 148-page 2016 Global Responsibility Report. Target’s report is a paltry 43 pages in comparison.
What accounts for the difference? Both use the Global Reporting Initiative framework, which aims to standardize sustainability reporting using materiality factors and items in the 10-K. Key GRI disclosures include: a CEO statement; key impacts, risks, and opportunities; markets; collective bargaining agreements; supply chain description; organizational changes; internal and external CSR standards (such as conflict mineral policy, LEED etc); membership associations; governance structure; high-level accountability for sustainability; consultation between stakeholders and the board; board composition; board knowledge of sustainability; board pay; helplines or hotlines for reporting unethical or unlawful behavior; climate change risks; energy consumption; GhG emissions; employee benefits; health and safety; performance appraisal process; human rights assessments; wage and hour audits; supplier diversity; community engagement; PAC contributions by party; and more.
Whew! Companies can of course glean a lot of this information from their proxy, 10-K and other disclosures, but it still takes the average company months to complete. It may not even be worth it. Although 82% of consumers say they want to buy from a socially-responsible company, only 17% have actually read a CSR report, according to one study. To be honest, I’m surprised the number of CSR report readers is that high. My informal survey during Monday's class revealed that one student out of the 12 had read a CSR report, and this is in a group that chose to take a two-hour course in compliance and CSR that meets at 7:30 pm in the summer.
Here’s what I learned about Wal-Mart by reading the first four pages its report (it cleverly has big colorful picture blocks of statistics). I knew from press reports that Wal-Mart is currently facing numerous employment law class actions and may soon pay $300 million to the DOJ settle its bribery scandal. But the CSR report made Wal-Mart look like the model corporate citizen. The company earned 482 billion in revenue, employs 2.3 million employees, operates in 28 countries, and had 260 million weekly customer visits in 2016. It has invested 2.7 billion over 2 years in wages and benefits for its employees. It will train 1 million female farmers and factory workers around the world. It has eliminated 35.6 million metric tons of greenhouse gas emissions from its supply chain. Target, which has settled for 18.5 million with several states over data breaches, took a different approach for its report. Its first few pages has pictures and charts too but focuses on what it has achieved/exceeded and what it hasn’t based on its own 20 goals. The Target 2015 report is a decidedly more humble looking document than the Wal-Mart product (the next Target report is due this year).
I tend to believe that these CSR reports are designed for the consumption of regulators and lawmakers- hence the longer and more robust Wal-Mart report. Although Target claims in its report that CSR can enhance its reputation, the average Wal-Mart and Target consumer will not stop to read the report and many who boycott these stores will not likely change their minds be reading these reports. Instead, they may view them as an expensive marketing tool. Although Target doesn't face the same level of legal problems or reputational issues as Wal-Mart, it has still lost market share to Wal-Mart and Amazon, proving my theory that no matter what consumers say about shopping ethically, they really focus on convenience, quality, and price.
I look forward to hearing what my students think at tonight’s class. I fear I may already traumatize them with the videos they will see about Nike, fair trade, and whether boycotting sweatshops make sense.
Wednesday, May 31, 2017
I listened to a podcast today entitled “What Law Schools Should be Teaching, and Aren’t (with Mark Cohen).” Cohen is the founder and CEO of Legal Mosaic. In a previous life he served as a partner in a large law firm, a partner in his own boutique firm, a receiver, and the founder of a now defunct legal tech startup, Clearspire.
Given all of his experience, I value what he has to say about what law schools need to do to prepare students for the current legal marketplace. I recommend that you listen to the podcast yourself, but here is his list of gaps in student knowledge:
- How to interview clients
- The importance of project management, collaboration and teamwork
- How to provide legal solutions and not just merely legal opinions.
- How to use technology and deal with the rise of legal process outsourcing
- Marketing and getting clients
- The importance of emotional intelligence
Many may quibble with his list in an age in which bar passage rates are at historical lows. But I think he has a point, especially since most of students will work for small law firms and will not have the infrastructure/safety net of Big Law. As Cohen mentioned, lawyers increasingly work within a legal supply chain and must provide value beyond what they are being taught in law school. These include the soft skills that business schools typically teach, and which will enable our students to get and keep clients.
I particularly liked his discussion of project management and collaboration. As we know, many law students can’t manage their time properly, don’t like working in groups, and focus more on regurgitating what they are taught in class rather than thinking of creative, constructive solutions. Students also haven’t developed the skills to deal with the increasing automation of document review/drafting and the potential rise of robots, which thankfully, won’t replace lawyers (yet).
I have tried to teach my students to understand the importance of learning their client’s business so that they can provide solutions rather than standard law school exam answers. I grade based on deliverables and time management to the extent that I don’t accept late work (barring extraordinary circumstances). In every class, I have had students do some work in groups, even though they don’t like it at first. I have also stressed the importance of learning to explain complex concepts clearly and concisely through blogging (which also provides marketing opportunities).
Now I plan to see how I can incorporate more of Cohen’s suggestions. Practitioners- is there anything else professors can do to produce more effective and efficient graduates?
Wednesday, May 24, 2017
On June 8, I will answer this and other questions during an interactive session for a group of social entrepreneurs at Venture Cafe in Miami. Fortunately, I will have an accountant with me to talk through some of the tax issues. I was invited by the director of Radical Partners, a social impact accelerator. We estimate that 75% of the audience members will work for a nonprofit and the rest will work in traditional for profit entities with a social mission.
Many entrepreneurs in South Florida have an interest in benefit corporations, but don't really know much about them. Our job is to provide some guidance on entity selection and demystify these relatively new entities. Some of the issues I plan to address in my 20 minutes are:
1) the differences between nonprofits, for profits, and benefit corporations
2) the differences between benefit and social purpose corporations (focusing on Florida law)
3) the biggest myths about benefit corporations (such as perceived tax benefits)
4) tax issues (for the accountant)
5) director duties
6) funding- changing funding model from donors to investors; going public
7) reporting, auditing, and certification requirements
8) benefit enforcement proceedings
9) the role of B Lab and the difference between a B Corp and a benefit corporation (currently 15 Florida companies are certified through B Lab)
10) transparency and accountability issues
We plan to leave about 45 minutes for questions. Not many lawyers in Florida have experience with benefit or social purpose corporations, so I am seeking guidance from our readers. If you are a practitioner and have dealt with these entities in your states, I'm interested in your thoughts. Are a lot of your clients asking about these entities? Have they converted? How do you help them decide whether this change is good for them? I'm also fortunate to have colleagues on this blog who are real thought leaders in the area, and am looking forward to their comments. Personally, I believe that for many business owners, benefit corporations may provide a perceived marketing edge, but not much more, Author Tina Ho has raised concerns about greenwashing. If I'm wrong, let me know below or send me an email at firstname.lastname@example.org.
Wednesday, May 17, 2017
I try to watch at least one Ted Talk a day. I learn new substantive topics and I also learn from listening to the speakers break down complex topics in an engaging way--a key skill for the classroom. I don’t know that any of the videos in a recent article written for business people really transformed my thinking about business, but I did find some parts interesting and inspiring.
Here they are for your viewing pleasure:
- Myths of Entrepreneurship
- Why Work Doesn't Happen at Work
- 10 Things to Know Before You Pitch to a Venture Capitalist
- What Consumers Want
- What Makes us Feel Good about Our Work
- The Power of Time Off
- Build a Tower, Build a Team
Thursday, May 11, 2017
The Legal Skills Prof Blog has posted an article entitled Our Broken Bar Exam by Deborah Jones Merritt. The post discusses Merritt’s proposal for a task force on the bar exam. Merritt’s article states, among other things:
The bar exam is broken: it tests too much and too little. On the one hand, the exam forces applicants to memorize hundreds of black-letter rules that they will never use in practice. On the other hand, the exam licenses lawyers who don’t know how to interview a client, compose an engagement letter, or negotiate with an adversary.
This flawed exam puts clients at risk. It also subjects applicants to an expensive, stressful process that does little to improve their professional competence... The bar examination should test the ability of an applicant to identify legal issues in a statement of facts, such as may be encountered in the practice of law, to engage in a reasoned analysis of the issues, and to arrive at a logical solution by the application of fundamental legal principles, in a manner which demonstrates a thorough understanding of these principles... Why doesn’t our definition of minimum competence include cognitive skills that are essential for effective client representation? The answer does not lie in the fact that these skills are difficult to test on a written exam. Research, fact gathering, interviewing, and other lawyering skills are cognitive abilities.
We could test for these skills by directing test-takers to outline a research plan, interview approach, or negotiation strategy based on a mock client file. Test-takers could also identify potential pitfalls, fall back positions, and ethical issues associated with their plan. These questions are no more difficult to draft and grade than classic issue-spotter essay questions. The primary reason we don’t test bar candidates on these skills is that law schools don’t stress them. Schools teach some professional competencies (like appellate advocacy) quite effectively, but relegate others to a corner of the curriculum. Employers and state supreme courts have urged law schools to teach a fuller range of lawyer competencies, but most schools have resisted…
Here are some of the many ideas that the task force could consider:
- Develop MBE and essay questions that test fundamental principles and legal reasoning, rather than memorization. As proposed above, practicing lawyers could serve as test subjects to validate these questions.
- Allow test-takers to refer to notes, codes, and other sources while taking the bar exam. This practice would more accurately measure professional knowledge.
- Develop tests for more of the competencies that new lawyers perform.
- Replace some (or all) multiple-choice and essay questions with performance-oriented case files like those presented on the Multistate Performance Test (MPT).
- Allow examinees to take portions of the exam at different times, including after the first year of law school.
- Work with law schools to create lawyering classes that would substitute for portions of the bar exam, as the University of New Hampshire has done. Bar examiners could audit these classes for content and rigor.
- Encourage bar associations, law schools, and other organizations to develop postgraduate lawyering institutes to replace some (or all) of the bar exam. Law graduates currently spend more than $100 million annually on bar review courses—in addition to the fees they pay to take the bar. That money could support six to eight week intensive summer programs to teach and assess new graduates’ lawyering competence.
I thought about these criticisms and recommendations as I graded my Business Associations exam this week. Every year, I dutifully spend time on GPs, LPs, and LLPs in class and test on them during exam time because the Florida bar tests on these business subjects every year. The bar pays scant attention to LLCs even though that’s the fastest growing business entity in my state. Indeed, I have had almost a dozen guest speakers in my startup law skills class, and all of the attorneys indicated that they deal almost exclusively with LLCs and corporations. I worry when I spend time on interviewing and negotiation skills in the doctrinal class because the bar won’t test on these topics, but these are precisely the skills my students will need in practice.
Perhaps I worry for nothing. After the administration of every bar exam, I receive notes from students indicating that they felt prepared for both the exam and for life after law school. But I fear that schools do too little to prepare students for either. I highly recommend that you read Merritt’s article and if you agree with her, work with your state bar and the NCBE on reform.
Wednesday, May 3, 2017
Every year my students have the opportunity to earn extra credit writing about business issues that they see in movies or television. This year the movies Wall Street, and The Social Network tied for the most popular subjects. One student wrote an interesting paper about the business and CSR issues in Monsters, Inc., a movie I plan to watch for the first time this weekend. Disney’s describes the movie this way:
Lovable Sulley and his wisecracking sidekick Mike Wazowski are the top scare team at Monsters, Inc., the scream-processing factory in Monstropolis. When a little girl named Boo wanders into their world, it's the monsters who are scared silly, and it's up to Sulley and Mike to keep her out of sight and get her back home.
The student who wrote the paper spent her time instead focusing on Mr. Waternoose, the villainous CEO, seen here.
Personally, I was hoping someone would write about Season 3 of HBO’s Silicon Valley, which has provided some great scenes about fiduciary duties, corporate governance, succession planning, funding, and other issues related to startups. No one did, but I was pleased to see so many students apply what they learned in class to what they have watched on screen. Some even indicated that they finally understood The Wolf of Wall Street now that they have taken the class. Let’s see if that understanding is reflected in their exams. Happy grading, everyone!
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)
Wednesday, April 19, 2017
Ratings behemoth Bill O'Reilly is out of a job at Fox News “after thorough and careful review of the [sexual harassment] allegations” against him by several women. Fox had settled with almost half a dozen women before these allegations came to light, causing advertisers to leave in droves once the media reported on it. According to one article, social media activists played a major role in the loss of dozens of sponsors. Despite the revelations, or perhaps in a show of support, O’Reilly’s ratings actually went up even as advertisers pulled out. Fox terminated O’Reilly-- who had just signed a new contract worth $20 million per year-- the day before its parent company’s board was scheduled to meet to discuss the matter. The employment lawyer in me also wonders if the company was trying to preempt any negligent retention liability, but I digress.
An angry public also took to social media to expose United Airlines' after its ill-fated decision to have a passenger forcibly removed from his seat to make room for crew members. However, despite the estimated 3.5 million impressions on Twitter of #BoycottUnited, the airline will not likely suffer financially in the long term because of its near monopoly on some key routes. United’s stock price nosedived by $800 million right after the disturbing video surfaced, but has rebounded somewhat with EPS beating estimates. Check out Haskell Murray's recent post here for more perspective on United.
Pepsi and supermodel Kendall Jenner also suffered more embarrassment than financial loss after people around the world erupted on social media over an ad that many believed trivialized the Black Lives Matter movement. Pepsi pulled the controversial ad within 24 hours. Some believe that Pepsi may suffer in sales, but I’m not so sure. Ironically, Pepsi’s stock price went up during the scandal and went down after the company apologized.
Pepsi and United both suffered public relations nightmares, but the skeptic in me believes that consumers will ultimately focus on what’s most important to them- convenience, quality, price, and in Pepsi’s case, taste. I recently attended my 25th law school reunion, and all of my colleagues who used a ride sharing app used Uber nowithstanding its well-publicized leadership scandals and the #deleteuber campaign. Indeed, many social media campaigns actually backfire. The #grabyourwallet boycott of Ivanka Trump’s brand raised public awareness but may have actually led to its recent record sales.
Reasonable people can disagree about whether social media campaigns and threats of consumer boycotts actually cause long-standing and permanent changes in corporate culture or policy. There is no doubt, however, that CEOs and PR departments will be working more closely than ever in the age of viral videos and 24-hour worldwide Twitter feeds.
Wednesday, March 22, 2017
What does the EU know that the U.S. Doesn’t About the Effectiveness of Conflict Minerals Legislation?
Earlier this month, the EU announced plans to implement its version of conflict minerals legislation, which covers all “conflict-affected and high-risk areas” around the world. Once approved by the Council of the EU, the law will apply to all importers into the EU of minerals or metals containing or consisting of tin, tantalum, tungsten, or gold (with some exceptions). Compliance and reporting will begin in January 2021. Importers must use OECD due diligence standards, report on their progress to suppliers and the public, and use independent third-party auditors. President Trump has not yet issued an executive order on Dodd-Frank §1502, aka conflict minerals, but based on a leaked memo, observers believe that it's just a matter of time before that law is repealed here in the U.S. So why is there a difference in approach?
In response to a request for comments from the SEC, the U.S Chamber of Commerce, which led the legal battle against §1502, claimed, “substantial evidence shows that the conflict minerals rule has exacerbated the humanitarian crisis on the ground in the Democratic Republic of the Congo…The reports public companies are mandated to file also contribute to ―information overload and create further disincentives for businesses to go public or remain public companies. Accordingly, the Chamber strongly supports Congressional repeal of Section 1502 due to its all-advised and fundamentally flawed approach to solving a geopolitical crisis, and the substantial burden it imposes upon public companies and their shareholders.”
The Enough Project, which spearheaded the passage of §1502, submitted an eight-page statement to the SEC last month stating, among other things, that they “strongly oppose any suspension, weakening, or repeal of the current Conflict Minerals Rule, and urge the SEC to increase enforcement of the Rule….The Rule has led to improvements in the rule of law in the mining sectors of Congo, Rwanda, and other Great Lakes countries, contributed to improvements in humanitarian conditions in Congo and a weakening of key insurgent groups, and resulted in tangible benefits for U.S. corporations and their supply chains.”
I agree that the Rule has led to increased transparency and efficiency in supply chains (although some would differ), and less armed control of mines. But I’m not sure that the overall human rights conditions have improved as significantly as §1502’s advocates (and I) would have liked.
As Amnesty International’s 2016/2017 report on DRC explains in graphic detail, “armed groups committed a wide range of abuses including: summary executions; abductions; cruel, inhuman and degrading treatment; rape and other sexual violence; and the looting of civilian property... various ... armed groups (local and community-based militias) were among those responsible for abuses against civilians. The Lord’s Resistance Army (LRA) continued to be active and commit abuses in areas bordering South Sudan and the Central African Republic. In… North Kivu, civilians were massacred, usually by machetes, hoes and axes. On the night of 13 August, 46 people were killed … by suspected members of the Allied Democratic Forces (ADF), an armed group from Uganda that maintains bases in eastern DRC…Hundreds of women and girls were subjected to sexual violence in conflict-affected areas. Perpetrators included soldiers and other state agents, as well as combatants of armed groups…Hundreds of children were recruited by armed groups...”
Human Rights Watch’s 2017 report isn’t any better. According to HRW, “dozens of armed groups remained active in eastern Congo. Many of their commanders have been implicated in war crimes, including ethnic massacres, killing of civilians, rape, forced recruitment of children, and pillage. In … North Kivu, unidentified fighters continued to commit large-scale attacks on civilians, killing more than 150 people in 2016 … At least 680 people have been killed since the beginning of the series of massacres in October 2014. There are credible reports that elements of the Congolese army were involved in the planning and execution of some of these killings. Intercommunal violence increased as fighters … carried out ethnically based attacks on civilians, killing at least 170 people and burning at least 2,200 homes.
Finally, according to a February 17, 2017 statement from the Trump Administration, “the United States is deeply concerned by video footage that appears to show elements of the armed forces of the Democratic Republic of Congo summarily executing civilians, including women and children. Such extrajudicial killing, if confirmed, would constitute gross violations of human rights and threatens to incite widespread violence and instability in an already fragile country. We call upon the Government of the Democratic Republic of Congo to launch an immediate and thorough investigation, in collaboration with international organizations responsible for monitoring human rights, to identify those who perpetrated such heinous abuses, and to hold accountable any individual proven to have been involved.”
Most Americans have no idea of the atrocities occurring in DRC or other conflict zones around the world. I have spent the past few years researching business and human rights, particularly in conflict zones in Latin America and Africa. I filed an amicus brief in 2013 and have written and blogged about the failure of disclosure regimes a dozen times because I don’t believe that name and shame laws stop the murder, rape, conscription of child soldiers, and the degradation of innocent people. I applaud the EU and all of the NGOs that have attempted to solve this intractable problem. But it doesn't seem that enough has changed since my visit to DRC in 2011 where I personally saw 5 massacre victims in the road on the way to visit a mine, and met with rape survivors, village chiefs, doctors, members of the clergy and others who pleaded for help from the U.S. Unfortunately, I don’t think this legislation has worked. Ironically, the U.S. and EU legislation go too far and not far enough. I hope that if the U.S. and EU focus on a more holistic, well-reasoned geopolitical solution with NGOS, stakeholders, and business.
Wednesday, March 8, 2017
Every year, I offer my students the option of writing an extra credit paper on what Hollywood gets wrong about business. They can also apply what they've learned to a popular movie, television show, or book (the Godfather, Game of Thrones, and Sex and the City have provided some of the more interesting analogies). Often I provide a list of TV shows or movies that they can consider. Today, I’m asking my co-bloggers and our readers for their binge-worthy movie or TV choices. Some movie lists for business students are here, here, here, and here but I welcome your suggestions. For those of you who aren’t in my class and just want a break from the news, these lists may come in handy.
Wednesday, March 1, 2017
Businesses from small farmers to cruise lines are anxiously awaiting President Trump's policy on Cuba and how/if he will rescind President Obama's Executive Orders relaxing restrictions on doing business with the island.
If you're in the South Florida area next Friday March 10th, please consider attending the timely conference on Doing Business in Cuba: Legal, Ethical, and Compliance Challenges from 8:00 am-4:30 pm at the Andreas School of Business, Barry University. The Florida Bar has granted 6.5 CLE credits, including for ethics and for certifications in Business Litigation and International Law. The Miami-Dade Commission on Ethics and Public Trust is organizing the event.
As a member of the Commission and an academic who has just completed my third article on Cuba, I'm excited to provide the opening address for the event. I'm even more excited about our speakers John Kavulich, President, U.S. Cuba Trade and Economic Council Inc; the general counsel of Carnival Cruise Lines; mayors of Miami Beach, Coral Gables, and Doral; director of the Miami International Airport; a number of academic experts from local universities; Commissioners Nelson Bellido and Judge Lawrence Schwartz; and outside counsel from MDO Partners, Akerman LLP, Holland & Knight, Greenberg Traurig, Squire Patton Boggs, and Gray Robinson.
It promises to be a lively and substantive discussion.
Registration closes on Monday, March 6th. The $50 admission fee includes breakfast, lunch, and all materials. Go to ethics.miamidade.gov or call 305-579-2594 to register or for more information. You can also leave comments below or email me at email@example.com.
Friday, February 24, 2017
A few weeks ago I blogged about the spate of boycotts and buycotts responding to President Trump’s travel ban. Since that time, the #grabyourwallet campaign has taken credit for a number of stores dropping Ivanka Trump’s merchandise. In response, celebrities and others flocked to Nordstrom after criticism by the President’s surrogates about the retailer’s decision to drop the products, even though Nordstrom cited falling sales. Within days, news outlets reported that her perfume was a top seller on Amazon, and that many reviewers indicated that they had bought the product to show support for the President.
Yesterday, NPR reported that the United Auto Workers will revive its 1980s Buy American campaign, which will not only promote American-made products but will also encourage the boycott of cars made by American companies overseas. I’ve argued in the past that boycotts don’t work, and the NPR story provided some support from a professor who noted, “these campaigns, even with catchy song lyrics, almost never work. For instance, garment work essentially left the U.S. almost completely a few years after [the look for the union label ad] ran, and after the last UAW campaign, the American car companies continued to lose market share.” The New York Times has also examined whether these boycotts have long term effect.
The back and forth between boycotts and buycotts related to the President’s family may prove conventional wisdom wrong. It may be time for an empirical study (not by me) of when and how the boycott/boycott movement can sustain itself.
Thursday, February 16, 2017
This post does not concern President Trump’s own business empire. Rather, this post will be the first of a few to look at how the President retains, repeals, or replaces some of the work that President Obama put in place in December 2016 as part of the National Action Plan on Responsible Business Conduct. Many EU nations established their NAPS year ago, but the U.S. government engaged in two years of stakeholder consultations and coordinated with several federal agencies before releasing its NAP.
Secretary of State Tillerson will play a large role in enforcing or revising many of the provisions of the NAP because the State Department promotes the Plan on its page addressing corporate social responsibility. Unlike many federal government pages, this page has not changed (yet) with the new administration. As the State Department explained in December, “the NAP reflects the government's commitment to promoting human rights and fighting corruption through partnerships with domestic and international stakeholders. An important part of this commitment includes encouraging companies to embrace high standards for responsible business conduct.” Over a dozen federal agencies worked to develop the NAP.
We now have a new Treasury Secretary and will soon have a new Secretary of Labor, presumably FIU Law Dean and former US Attorney Alex Acosta, a new SEC Chair, presumably Jay Clayton, and a new Secretary of Commerce, presumably Wilbur Ross. These men, along with Attorney General Jeff Sessions and Secretary of State Tillerson will lead the key agencies enforcing or perhaps revising the country’s commitment to responsible business conduct.
The following list of priorities and initiatives comes directly from the Fact Sheet:
Strengthening laws preventing the import of goods produced by forced labor to ensure products made under exploitative conditions do not gain U.S. market access.
Updating social and environmental standards criteria for financing through the Overseas Private Investment Corporation, to promote high standards through U.S.-supported private investment.
Creating guidance on social safeguards for USAID’s development programs.
Funding efforts to promote awareness and implementation of the United Nations Guiding Principles on Business and Human Rights.
Publishing, for the first time, an annual report by the U.S. National Contact Point for the OECD Guidelines.
Identifying means through trade agreements to encourage companies to engage in RBC.
Enhancing information sharing with sub-national governments on public procurement best practices, to ensure that governments at all levels promote RBC through purchasing.
Collaboration with Stakeholders
In order to achieve shared RBC goals, it is essential for governments to work with the private sector, as well as with civil society, labor, and other stakeholders, to leverage each other’s resources and strengths. The USG’s measures to collaborate with such stakeholders include:
Establishing a formal mechanism for increased government participation in “multi-stakeholder initiatives” that promote RBC in various sectors and regions.
Convening stakeholders to develop and promote effective metrics for measuring and managing labor rights impacts in supply chains.
Facilitating a dialogue with stakeholders on implementation of the Sustainable Development Goals.
Promoting worker voice and empowerment in global supply chains via new tools that allow workers in national supply chains to directly report potential labor abuses and workplace safety violations, as well as leveraging public-private partnerships to more fully incorporate the perspectives of workers.
Facilitating RBC by Companies
The USG encourages companies to follow the best domestic and international practices and is supportive of company efforts to voluntarily report on certain aspects of their operations. The USG produces a number of reports that can be useful for companies as they seek to uphold high standards, sometimes in challenging environments. The NAP sets forth an illustrative list of USG initiatives to further that work, including the following commitments:
Creating an online database containing government reports on issues such as human rights, human trafficking including forced labor, child labor, and investment climates so that companies can more effectively make investment decisions and mitigate risk.
Providing new and increased training for USG officers and officials, including those who serve abroad, on RBC issues so that government officials are well-equipped to advise companies on considerations such as the status of labor rights, human rights and transparency, in a particular operating environment.
Training for USG officials on the Foreign Corrupt Practices Act and related issues.
Updating country-level public land governance profiles that explain land laws, land use patterns, gender concerns, land administration, and land markets within a given country. These profiles are an important tool for businesses making responsible land-based investments in a given country.
Recognizing Positive Performance
U.S. companies make tremendous contributions to communities around the world by generating economic growth, creating jobs, spurring innovation, and providing solutions to pressing challenges such as access to clean energy, healthcare, and technology. The USG recognizes and highlights when companies achieve high standards with meaningful results for workers and communities. Such items include...
Developing an online mechanism to identify, document, and publicize lessons learned and best practices related to corporate actions that promote and respect human rights.
Providing Access to Remedy
Even when governments and companies seek to act responsibly, challenges can arise. Both governments and companies should have mechanisms in place by which affected parties can raise concerns, report problems, and seek remedies, as appropriate. Through the NAP, the USG is furthering its commitment to this objective by:
Improving the performance of the U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises, including by announcing a fall 2017 peer review, organizing workshops to promote RBC, and publishing an outreach plan.
Hosting a forum for dialogue with stakeholders on opportunities and challenges regarding issues of remedy, as well as how the USG can best support effective remedy processes.
I will continue to follow up on this issue as well as how corporate compliance and governance may change under the Trump Administration.
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)
Thursday, February 2, 2017
Donald Trump has had a busy two weeks. Even before his first official day on the job, then President-elect Trump assembled an economic advisory board. On Monday, January 23rd, President Trump held the first of his quarterly meetings with a number of CEOs to discuss economic policy. On January 27th, the President issued what some colloquially call a “Muslim ban” via Executive Order, and within days, people took to the streets in protest both here and abroad.
These protests employed the use of hashtag activism, which draws awareness to social causes via Twitter and other social media avenues. The first “campaign,” labeled #deleteuber, shamed the company because people believed (1) that the ride-sharing app took advantage of a work stoppage by protesting drivers at JFK airport, and (2) because they believed the CEO had not adequately condemned the Executive Order. Uber competitor Lyft responded via Twitter and through an email to users that it would donate $1 million to the ACLU over four years to “defend our Constitution.” Uber, which is battling its drivers in courts around the country, then established a $3 million fund for drivers affected by the Executive Order. An estimated 200,000 users also deleted their Uber accounts because of the social media campaign, and the CEO resigned today from the economic advisory board.
Other CEOs, feeling the pressure, have also issued statements against the Order. In response, some companies such as Starbucks, which pledged to hire 10,000 refugees, have faced a boycott from many Trump supporters, which in turn may lead to a “buycott” from Trump opponents and actually generate more sales. This leads to the logical question of whether these political statements are good or bad for business, and whether it's better to just stay silent unless the company has faced a social media campaign. Professor Bainbridge recently blogged about the issue, observing:
The bulk of Lyft's business is conducted in large coastal cities. In other words, Obama/Clinton country. By engaging in blatant virtue signaling, which it had to know would generate untold millions of dollars worth of free coverage when social media and the news picked the story up, Lyft is very cheaply buying "advertising" that will effectively appeal to its big city/blue state user base.
Bainbridge also asks whether “Uber's user base is more evenly distributed across red and blue states than Lyft? And, if so, will Uber take that into account?” This question resonates with me because some have argued on social media (with no evidentiary support) that Trump supporters don’t go to Starbucks anyway, and thus their boycott would fail.
All of this boycott/boycott/CEO activism over the past week has surprised me. I have posted in the past about consumer boycotts and hashtag activism/slacktivism because I am skeptical about consumers’ ability to change corporate behavior quickly or meaningfully. The rapid response from the CEOs over the past week, however, has not changed my mind about the ultimate effect of most boycotts. Financial donations to activist groups and statements condemning the President’s actions provide great publicity, but how do these companies treat their own employees and community stakeholders? Will we see shareholder proposals that ask these firms to do more in the labor and human rights field and if so, will the companies oppose them? Most important, would the failure to act or speak have actually led to any financial losses, even if they are not material? Although 200,000 Uber users deleted their accounts, would they have remained Lyft customers forever if Uber had not changed its stance? Or would they, as I suspect, eventually patronize whichever service provided more convenience and better pricing?
We may never know about the consumers, but I will be on the lookout for any statements from shareholder groups either via social media or in shareholder proposals about the use or misuse of corporate funds for these political causes.
Thursday, January 19, 2017
Bernard Sharfman, a prolific author on corporate governance, has written his fourth article on the business judgment rule. The piece provides a thought-provoking look at a subject that all business law professors teach. He also received feedback from Myron Steele, former Chief Justice of the Delaware Supreme Court, and William Chandler III, former Chancellor of the Delaware Court of Chancery during the drafting process. I don’t think I will assign the article to my students, but I may take some of the insight when I get to this critical topic this semester. Sharfman has stated that he aims to change the way professors teach the BJR.
The abstract is below:
Anyone who has had the opportunity to teach corporate law understands how difficult it is to provide a compelling explanation of why the business judgment rule (Rule) is so important. To provide a better explanation of why this is so, this Article takes the approach that the Aronson formulation of the Rule is not the proper starting place. Instead, this Article begins by starting with a close read of two cases that initiated the application of the Rule under Delaware law, the Chancery and Supreme Court opinions in Bodell v. General Gas & Elec. By taking this approach, the following insights into the Rule were discovered that may not have been so readily apparent if the starting point was Aronson.
First, without the Rule, the raw power of equity could conceivably require all challenged Board decisions to undergo an entire fairness review. The Rule is the tool used by a court to restrain itself from implementing such a review. This is the most important function of the Rule. Second, as a result of equity needing to be restrained, there is no room in the Rule formulation for fairness; fairness and fiduciary duties must be mutually exclusive. Third, there are three policy drivers that underlie the use of the Rule. Protecting the Board’s statutory authority to run the company without the fear of its members being held liable for honest mistakes of judgment; respect for the private ordering of corporate governance arrangements which almost always grants extensive authority to the Board to make decisions on behalf of the corporation; and the recognition by the courts that they are not business experts, making deference to Board authority a necessity. Fourth, the Rule is an abstention doctrine not just in terms of precluding duty of care claims, but also by requiring the courts to abstain from an entire fairness review if there is no evidence of a breach in fiduciary duties or taint surrounding a Board decision. Fifth, stockholder wealth maximization (SWM) is the legal obligation of the Board and the Rule serves to support that purpose. The requirement of SWM enters into corporate law through a Board’s fiduciary duties as applied under the Rule, not statutory law. In essence, SWM is an equitable concept.
Friday, January 13, 2017
On Friday, I will present as part of the American Society of International Law’s two-day conference entitled Controlling Corruption: Possibilities, Practical Suggestions & Best Practices. The ASIL Conference is co-sponsored by the University of Miami School of Business Administration, the Business Ethics Program of the University of Miami School of Business Administration, UM Ethics Programs & the Arsht Initiatives, the Zicklin Center for Business Ethics Research, Wharton, University of Pennsylvania, Bentley University, and University of Richmond School of Law.
I am particularly excited for this conference because it brings law, business, and ethics professors together with practitioners from around the world. My panel includes:
Marcia Narine Weldon, St. Thomas University School of Law, “The Conflicted Gatekeeper: The Changing Role of In-House Counsel and Compliance Officers in the Age of Whistle Blowing and Anticorruption Compliance”
Todd Haugh, Kelley School of Business, Indiana University, “The Ethics of Intercorporate Behavioral Ethics”
Shirleen Chin, Institute for Environmental Security, Netherlands, “Reducing the Size of the Loopholes Caused by the Veil of Incorporation May lead to Better Transparency”
Edwin Broecker, Quarles &Brady LLP, Indiana,& Fernanda Beraldi Cummins, Inc, Indiana, “No Good Deed Goes Unpunished: Possible Unintended Consequences of Enforcing Supply Chain Transparency”
Stuart Deming, Deming PLLC, Michigan, “Internal Controls and Compliance Programs”
John W. Fanning, Kroll Compliance, “Lessons from ‘Sully’: Parallels of Flight 1549 and the Path to Compliance and Organizational Excellence”
I will discuss some of the same themes that I blogged about here last July related to how the Department of Justice Yates Memo (requiring companies to turn over culpable individuals in order to get cooperation credit) and to a lesser extent the SEC Dodd-Frank Whistleblower program may alter the delicate balance of trust in the attorney-client relationship. Additionally, I will address how President-elect Trump’s nomination of Jay Clayton may change the SEC’s FCPA enforcement priorities from pursuing companies to pursuing individuals, and how that will change corporate investigations. If you’re in Miami on Friday the 13th and Saturday the 14th, please consider attending the conference.
January 13, 2017 in Behavioral Economics, Compliance, Conferences, Corporate Governance, Corporations, Current Affairs, Ethics, International Business, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)