Friday, October 21, 2016
Sadly, I am still in the midst of grading business associations and civil procedure midterms so I cannot finish my substantive post on Wells Fargo yet. WF is the gift that keeps on giving from a teaching perspective, though. Yesterday I showed students some of the litigation that has come out of the debacle to illustrate the difference between a direct and derivative suit (and to reinforce some civil procedure principles too).
Last night I took a break from grading to go to a Meetup called Ask a Start Up Lawyer. I hope to teach a 2-credit skills course on legal issues for startups, small businesses, and entrepreneurs next semester and I have found that going to these sessions and listening to actual entrepreneurs ask their questions helpful. Last night's meetup was partcularly enlightening because a number of international entrepreneurs here in Miami for a State Department initiative attended. While in the past some of these sessions have focused on funding options and entity selection, last night's "students" mainly wanted to learn about intellectual property and international protection. Many of them come from countries with no copyright law, for example. Others come from countries where owning shares is a rarity. Although my course will focus on domestic entities, given the South Florida market in which I teach, I may need to add some of these comparative components to my already ambitious draft syllabus covering tax, employment, entity selection, governance, IP, business torts, basic securities regulation, social entrepreneurship, and exit strategies.
If you have taught a course like this or have any ideas on materials to use, please comment below or send me a message at firstname.lastname@example.org.
Thursday, October 13, 2016
Today I used Wells Fargo as a teaching tool in Business Associations. Using this video from the end of September, I discussed the role of the independent directors, the New York Stock Exchange Listing Standards, the importance of the controversy over separate chair and CEO, 8Ks, and other governance principles. This video discussing ex-CEO Stumpf’s “retirement” allowed me to discuss the importance of succession planning, reputational issues, clawbacks and accountability, and potential SEC and DOJ investigations. This video lends itself nicely to a discussion of executive compensation. Finally, this video provides a preview for our discussion next week on whistleblowers, compliance, and the board’s Caremark duties.
Regular readers of this blog know that in my prior life I served as a deputy general counsel and compliance officer for a Fortune 500 Company. Next week when I am out from under all of the midterms I am grading, I will post a more substantive post on the Wells Fargo debacle. I have a lot to say and I imagine that there will be more fodder to come in the next few weeks. In the meantime, check out this related post by co-blogger Anne Tucker.
Thursday, September 22, 2016
Lately, I’ve been researching the twelve nation Trans-Pacific Partnership Treaty (“TPP”) because I am looking at investor-state dispute settlements (ISDS) in my work in progress proposing a model bilateral investment treaty between the U.S. and Cuba.
The TPP, which both Trump and Clinton oppose, has the support of U.S. business. Although President Obama has pushed the treaty as part of his legacy, just this morning, Vice-President Biden added his pessimistic views about its passage. More interestingly, over 220 law and economics academics, led by Harvard’s Laurence Tribe, have come out publicly to oppose TPP, stating:
ISDS grants foreign corporations and investors a special legal privilege: the right to initiate dispute settlement proceedings against a government for actions that allegedly violate loosely defined investor rights to seek damages from taxpayers for the corporation’s lost profits. Essentially, corporations and investors use ISDS to challenge government policies, actions, or decisions that they allege reduce the value of their investments... Through ISDS, the federal government gives foreign investors – and foreign investors alone – the ability to bypass th[e] robust, nuanced, and democratically responsive legal framework. Foreign investors are able to frame questions of domestic constitutional and administrative law as treaty claims, and take those claims to a panel of private international arbitrators, circumventing local, state or federal domestic administrative bodies and courts. Freed from fundamental rules of domestic procedural and substantive law that would have otherwise governed their lawsuits against the government, foreign corporations can succeed in lawsuits before ISDS tribunals even when domestic law would have clearly led to the rejection of those companies’ claims. Corporations are even able to re-litigate cases they have already lost in domestic courts. It is ISDS arbitrators, not domestic courts, who are ultimately able to determine the bounds of proper administrative, legislative, and judicial conduct… This system undermines the important roles of our domestic and democratic institutions, threatens domestic sovereignty, and weakens the rule of law.
Senator Warren, who also opposes TPP has argued, "“ISDS allows a small group of ultra-rich investors to extract billions of dollars from taxpayers while they undermine financial, environmental and public health rules across the world.” I look forward to the upcoming debates to see whether either Trump, who has labeled the proposal the “rape of our country,” or Clinton, who previously supported the deal, will cite the academics' letter as additional reason to oppose TPP.
Friday, September 16, 2016
Earlier this week the House Financial Services Committee voted to repeal the Dodd-Frank Conflict Minerals Rule, which I last wrote about here and in a law review article criticizing this kind of disclosure regime in general.
Under the proposed Financial Choice Act (with the catchy tagline of "Growth for All, Bailouts for None"), a number of Dodd-Frank provisions would go by the wayside, including conflict minerals because:
Title XV of the Dodd-Frank Act imposes a number of overly burdensome disclosure requirements related to conflict minerals, extractive industries, and mine safety that bear no rational relationship to the SEC’s statutory mission to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation. The Financial CHOICE Act repeals those requirements. There is overwhelming evidence that Dodd-Frank’s conflict minerals disclosure requirement has done far more harm than good to its intended beneficiaries – the citizens of the Democratic Republic of Congo and neighboring Central African countries. SEC Chair Mary Jo White, an Obama appointee, has conceded the Commission is not the appropriate agency to carry out humanitarian policy. The provisions of Title XV of the Dodd-Frank Act are a prime example of the increasing use of the federal securities laws as a cudgel to force public companies to disclose extraneous political, social, and environmental matters in their periodic filings.
The House report cites a number of scholars and others who raise some of the same issues that I addressed in an amicus brief when the case was litigated at the trial and appellate level years ago.
This weekend I am attending the Business and Human Rights Scholars Conference co-sponsored by the University of Washington School of Law, the NYU Stern Center for Business and Human Rights, the Rutgers Business School, the Rutgers Center for Corporate Law and Governance, and the Business and Human Rights Journal. I present on Cuba, human rights, and investor-state dispute resolution, but a number of papers concern conflict minerals and disclosure in general.
As I have argued in the past, I’m not sure that repeal is the answer. I do believe that the law should be re-examined and possibly reformed to ensure that the diligence and disclosure actually leads to tangible and sustained benefits for the Congolese people. In short, I want to see some evidence of linkages between this corporate governance disclosure and reductions in rape, violence, child slavery, pillaging of villages, and forced labor. I want to see proof that the individual ethical consumers who claim in surveys to care about human rights have actually changed their buying habits because of this name and shame campaign.
Although I do not agree with many of the proposals in the House report and I am not against all disclosure, I do not believe that the SEC is the appropriate agency to address these issues. The State Department and others can and should take the lead on the very serious security and justice reform issues that I witnessed firsthand in Goma and Bukavu when I went to the DRC to research this law five years ago. These issues and the violence perpetrated by rebel groups, police, and the military persist. I look forward to hearing how and if proponents of the conflict minerals rule address this report during the conference.
Friday, September 2, 2016
I previously wrote on the Commonsense Principles of Corporate Governance released by high profile investors and corporate titans such as Jamie Dimon and Warren Buffet. Others, such as Steve Bainbridge have also weighed in. Now proxy advisory firm Glass Lewis has spoken, stating in part:
While the Principles may disappoint investors expecting a more comprehensive and robust approach similar to that found in the UK and other countries, there are a few areas where the principles promote forward-thinking stances. For example, the Principles criticize dual class voting structures and state that companies should consider specific sunset provisions based upon time or a triggering event to eventually eliminate dual class structures. This is notwithstanding the dual class structure at signatory Warren Buffet’s company Berkshire Hathaway…
There are several areas the Principles do not address, including key anti-takeover defenses such as poison pills, supermajority vote requirements and classified boards. The Principles generally address some issues such as special meeting rights and term/age limits for directors but do not recommend specific thresholds or tenure limits…
Despite the Principles’ relatively narrow scope and high level, we believe they contain enough substance to spark a dialogue inside boardrooms, which could lead to increased shareholder engagement from boards that traditionally have relied on executives and investor relations departments to lead those efforts. In our view, direct engagement between investors and boards leads to greater transparency and fosters mutual understanding of the company and its strategy, promoting long-term value creation. As a result, the Principles could have a salutary effect on companies, shareholders and the market.
Given the concern expressed by some in the business community and Congress about the "undue influence" of proxy advisory firms, the Glass Lewis statement is worth a read.
Thursday, August 4, 2016
Greetings from SEALS in lovely Amelia Island. On Wednesday I presented on a proposed bilateral investment treaty between the US and Cuba, and tomorrow I am part of a discussion group on Sustainable Business. I will focus on the roles and responsibilities of corporate sponsors of the Rio Olympics. According to the official Olympics website, “[m]ore than just providing products and services for the event, [the sponsors] ensure that sport always comes first and that the whole world is inspired alongside us.”
Sponsors can spend up to $200 million for the privilege to inspire us. For many sponsors, the chance to have over a billion people watch their commercials and logos appear repeatedly over a period of a few weeks on television is worth the tens of millions of dollars. They often invest in slick YouTube campaigns that show their real or imagined connections to young athletes finally achieving their lifelong dream of bringing home the gold for their country. Apparently, 54% of consumers surveyed felt more positive about Nike after the company sponsored the Olympics based on how it chose to advertise. Many companies use these kinds of sponsorships as part of their corporate social responsibility initiatives. Dow is the official “carbon” partner of the games.
As anyone who watches the news knows, the $12 billion Rio Olympics has been fraught with controversy. According to reports, the crime rate is soaring and the bay is so filthy that the athletes have been warned to keep their mouths closed during water events. Brazil was one of the ten largest economies in the world when it was awarded the games years ago and now is in free fall. As part of the deal to get the games, Brazil promised the IOC and its citizens gleaming new transportation systems, hospitals, and infrastructure but one in seven of Rio’s citizens still live in one of the 1,000 favelas and those have not improved at all. A number of people have actually lost their homes to make way for Olympic venues. Rio’s street children have asked the head of the IOC for assurances that their human rights will be respected.
Human Rights Watch prepared a report last year that outlines some key concerns about the human rights abuses that typically occur at mega sporting events. Although the Olympic Charter states at p. 14 that “the practice of sport is a human right,” the HRW report identified violations that typically occur at these kinds of events. Many have already been documented in Rio including: forced evictions without due process or compensation due to massive new infrastructure construction; environmental activism; threats, intimidation, and arrests of journalists; silencing of civil society and rights activists, and discrimination.What does any of this have to do with business? I have some questions about the role of business that I will explore tomorrow and in my research.
West Virginia Professor Jena Martin has written about the concept of the “corporate bystander.” She notes that, “TNCs often get involved in relationships with state actors who violate international human rights. TNCs then argue that they cannot be held accountable for the violations because they merely observed the underlying atrocities and did not participate in the acts that caused them.” The large corporate sponsors who tout their corporate social responsibility initiatives and who vehemently oppose human rights shareholder proposals because they already have a program in place will likely distance themselves from what is going on in Brazil. They are just sponsors after all. But is that an appropriate response? Should the IOC do more to require human rights safeguards? Should corporate sponsors conduct impact assessments or is their involvement too attenuated? Do the consumers who felt better about Nike after watching the Olympics commercials care about the street children in Brazil or the women who are displaced from their homes? Would they think twice about buying sneakers if they read some of the links in this blog? Does any of this move the share price in either direction? What is the actual business case for balancing the corporate sponsorship with the human rights impact?
The head of the IOC has signed on to work with the UN on the Sustainable Development Goals--seventeen economic, environmental, social, and governance initiatives that the private sector, government, and civil society aim to achieve by 2030. How does that square with conducting the Olympics in locales with human rights and environmental violations? Should the IOC only hold the Olympics in host countries with "perfect" human rights records and what would that even look like?
I will be discussing these issues tomorrow and will explore it more firsthand when I head to Rio on Saturday. In the meantime, corporate sponsors may hope that the press coverage on Friday evening focuses on panoramic shots of Sugarloaf and Copacabana Beach and not the planned protests before the opening ceremonies.
Thursday, July 21, 2016
Jamie Dimon (JP Morgan Chase), Warren Buffet (Berkshire Hathaway), Mary Barra (General Motors), Jeff Immet (GE), Larry Fink (Blackrock) and other executives think so and have published a set of "Commonsense Principles of Corporate Governance" for public companies. There are more specifics in the Principles, but the key points cribbed from the front page of the new website are as follows:
Truly independent corporate boards are vital to effective governance, so no board should be beholden to the CEO or management. Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level;
■ Diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds and experiences. It’s also important to balance wisdom and judgment that accompany experience and tenure with the need for fresh thinking and perspectives of new board members;
■ Every board needs a strong leader who is independent of management. The board’s independent directors usually are in the best position to evaluate whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role, it is essential that the board have a strong lead independent director with clearly defined authorities and responsibilities;
■ Our financial markets have become too obsessed with quarterly earnings forecasts. Companies should not feel obligated to provide earnings guidance — and should do so only if they believe that providing such guidance is beneficial to shareholders;
■ A common accounting standard is critical for corporate transparency, so while companies may use non-Generally Accepted Accounting Principles (“GAAP”) to explain and clarify their results, they never should do so in such a way as to obscure GAAP-reported results; and in particular, since stock- or options-based compensation is plainly a cost of doing business, it always should be reflected in non-GAAP measurements of earnings; and
■ Effective governance requires constructive engagement between a company and its shareholders. So the company’s institutional investors making decisions on proxy issues important to long-term value creation should have access to the company, its management and, in some circumstances, the board; similarly, a company, its management and board should have access to institutional investors’ ultimate decision makers on those issues.
I expect that shareholder activists, proxy advisory firms, and corporate governance nerds like myself will scrutinize the specifics against what the signatories’ companies are actually doing. Nonetheless, I commend these business leaders for at least starting a dialogue (even if a lot of the recommendations are basic common sense) and will be following this closely.
Thursday, July 14, 2016
Two weeks ago, I blogged about the potential unintended consequences of (1) Dodd-Frank whistleblower awards to compliance officers and in-house counsel and (2) the Department of Justice’s Yates Memo, which requires companies to turn over individuals (even before they have determined they are legally culpable) in order to get any cooperation credit from the government.
Today at the International Legal Ethics Conference, I spoke about the intersection of state ethics laws, common law fiduciary duties, SOX §307 and §806, and the potential erosion of the attorney-client relationship. I posed the following questions regarding lawyer/whistleblowers and the Yates Memo at the end of my talk:
- How will this affect Upjohn warnings? (These are the corporate Miranda warnings and were hard enough for me to administer without me having to tell the employee that I might have to turn them over to the government after our conversation)
- Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ?
- Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ?
- Will companies turn people over to the government before proper investigations are completed just to save the company?
- Will executives cooperate in an investigation? Why should they?
- What’s the intersection with the Responsible Corporate Officer Doctrine (which Stephen Bainbridge has already criticized as "running amok")?
- Will there be more claims/denials for D & O coverage?
- Will individuals who cooperate get cooperation credit in their own cases?
- Will employees turn on their superiors without proper investigation?
- How will individuals/companies deal with parallel civil/criminal enforcement proceedings?
- What about indemnification clauses in employment contracts?
- Will there be more trials because there is little incentive for a corporation to plead guilty?
- What about data privacy restrictions for multinationals who operate in EU?
- How will this affect voluntary disclosure under the US Federal Sentencing Guidelines for Organizational Defendants, especially in Foreign Corrupt Practices Act cases?
- What ‘s the impact on joint defense agreements?
- As a lawyer for lawyers who want to be whistleblowers, can you ever advise them to take the chance of losing their license?
I didn’t have time to talk about the added complication of potential director liability under Caremark and its progeny. During my compliance officer days, I used Caremark’s name in vain to get more staff, budget, and board access so that I could train them on the basics on the US Federal Sentencing Guidelines for Organizations. I explained to the Board that this line of cases required them to have some level of oversight over an effective compliance program. Among other things, Caremark required a program with “timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning the [company’s] compliance with law and its business performance.”
I, like other compliance officers, often reviewed/re-tooled our compliance program after another company had negotiated a deferred or nonprosecution agreement with the government. These DPAs had an appendix with everything that the offending company had to do to avoid prosecution. Rarely, if ever, did the DPA mention an individual wrongdoer, and that’s been the main criticism and likely the genesis of the Yates Memo.
Boards will now likely have to take more of a proactive leadership role in demanding investigations at an early stage rather than relying on the GC or compliance officer to inform them of what has already occurred. Boards may need to hire their own counsel to advise on them on this and/or require the general counsel to have outside counsel conduct internal investigations at the outset. This leads to other interesting questions. For example, what happens if executives retain their own counsel and refuse to participate in an investigation that the Board requests? Should the Board designate a special committee (similar to an SLC in the shareholder derivative context) to make sure that there is no taint in the investigation or recommendations? At what point will the investigation become a reportable event for a public company? Will individual board members themselves lawyer up?
I will definitely have a lot to write about this Fall. If you have any thoughts leave them below or email me at email@example.com.
July 14, 2016 in Compliance, Conferences, Corporate Governance, Corporations, Ethics, Lawyering, Marcia Narine Weldon, Securities Regulation, Shareholders, White Collar Crime | Permalink | Comments (1)
Thursday, July 7, 2016
SEC disclosures are meant to provide material information to investors. As I hope all of my business associations students know, “information is material if there is a substantial likelihood that a reasonable investor would consider the information important in deciding how to vote or make an investment decision.”
Regulation S-K, the central repository for non-financial disclosure statements, has been in force without substantial revision for over thirty years. The SEC is taking comments until July 21st on on the rule however, it is not revising “other disclosure requirements in Regulation S-K, such as executive compensation and governance, or the required disclosures for foreign private issuers, business development companies, or other categories of registrants.” Specifically, as stated in its 341-page Comment Release, the SEC seeks input on:
- whether, and if so, how specific disclosures are important or useful to making investment and voting decisions and whether more, less or different information might be needed;
- whether, and if so how, we could revise our current requirements to enhance the information provided to investors while considering whether the action will promote efficiency, competition, and capital formation;
- whether, and if so how, we could revise our requirements to enhance the protection of investors;
- whether our current requirements appropriately balance the costs of disclosure with the benefits;
- whether, and if so how, we could lower the cost to registrants of providing information to investors, including considerations such as advancements in technology and communications;
- whether and if so, how we could increase the benefits to investors and facilitate investor access to disclosure by modernizing the methods used to present, aggregate and disseminate disclosure; and
- any challenges of our current disclosure requirements and those that may result from possible regulatory responses explored in this release or suggested by commenters.
As of this evening, thirty comments had been submitted including from Wachtell Lipton, which cautions against “overdisclosure” and urges more flexible means of communicating with investors; the Sustainability Accounting Standards Board, which observes that 40% of 10-K disclosures on sustainability use boilerplate language and recommends a market standard for industry-specific disclosures (which SASB is developing); and the Pension Consulting Alliance, which agrees with SASB’s methodology and states that:
[our] clients increasingly request more ESG information related to their investments. Key PCA advisory services that are affected by ESG issues include:
- Investment beliefs and investment policy development
- Manager selection and monitoring
- Portfolio-wide exposure to material ESG risks
- Education and analysis on macro and micro issues
- Proxy voting and engagement
This is an interesting time for people like me who study disclosures. Last week the SEC released its revised rule on Dodd-Frank §1504 that had to be re-written after court challenges. That rule requires an issuer “to disclose payments made to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the Commission under the Securities Exchange Act.” Representative Bill Huizenga, the Chairman of the House Financial Services Subcommittee on Monetary Policy and Trade, introduced an amendment to the FY2017 Financial Services and General Government (FSGG) Appropriations bill, H.R. 5485, to prohibit funding for enforcement for another governance disclosure--Dodd-Frank conflict minerals.
SEC Chair White has herself questioned the wisdom of the SEC requiring and monitoring certain disclosures, noting the potential for investor information overload. Nonetheless, she and the agency are committed to enforcement. Her fresh look at disclosures reflects a balanced approach. If you have some spare time this summer and think the SEC’s disclosure system needs improvement, now is the time to let the agency know.
Friday, July 1, 2016
This post concerns the rights and responsibilities of whistleblowers. I sit on the Department of Labor Whistleblower Protection Advisory Committee. These views are solely my own.
Within a week of my last day as a Deputy General Counsel and Chief Compliance Officer for a Fortune 500 company and shortly before starting my VAP in academia, I testified before the House Financial Services Committee on the potential unintended consequences of the proposed Dodd-Frank whistleblower law on compliance programs. I blogged here about my testimony and the rule, which allows whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act to receive 10 to 30 percent of the amount of the recovery in any action in which the Commission levies sanctions in excess of $1 million dollars. During my testimony in 2011, I explained to some skeptical members of Congress that:
…the legislation as written has a loophole that could allow legal, compliance, audit, and other fiduciaries to collect the bounty although they are already professionally obligated to address these issues. While the whistleblower community believes that these fiduciaries are in the best position to report to the SEC on wrongdoing, as a former in house counsel and compliance officer, I believe that those with a fiduciary duty should be excluded and have an “up before out” requirement to inform the general counsel, compliance officer or board of the substantive allegation or any inadequacy in the compliance program before reporting externally.
Thankfully, the final rule does have some limitations, in part, I believe because of my testimony and the urgings of the Association of Corporate Counsel, the American Bar Association and others. In a section of the SEC press release on the program discussing unintended consequences released a few weeks after the testimony, the agency stated:
However, in certain circumstances, compliance and internal audit personnel as well as public accountants could become whistleblowers when:
- The whistleblower believes disclosure may prevent substantial injury to the financial interest or property of the entity or investors.
- The whistleblower believes that the entity is engaging in conduct that will impede an investigation.
- At least 120 days have elapsed since the whistleblower reported the information to his or her supervisor or the entity’s audit committee, chief legal officer, chief compliance officer – or at least 120 days have elapsed since the whistleblower received the information, if the whistleblower received it under circumstances indicating that these people are already aware of the information.
At least two compliance officers or internal audit personnel have in fact received awards—one for $300,000 and another for $1,500,000. When I served on a panel a couple of years ago with Sean McKessy, Chief of the Office of the Whistleblower, he made it clear that he expected lawyers, auditors, and compliance officers to step forward and would not hesitate to award them.
Compliance officers have even more incentive to be diligent (or become whistleblowers) because of the DOJ Yates Memo, which requires companies to serve up a high ranking employee in order for the company to get cooperation credit in a criminal investigation. I blogged about my concerns about the Memo’s effect on the attorney-client relationship here, stating:
The Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?
The US Chamber of Commerce shares my concerns and issued a report last month that echoes the thoughts of a number of defense attorneys I know. I will be discussing these themes and the Dodd-Frank Whistleblower aspect at the International Legal Ethics Conference on July 14th at Fordham described below:
Current Trends in Prosecutorial Ethics and Regulation
Ellen Yaroshefsky, Cardozo School of Law (US) (Moderator); Tamara Lave, University of Miami Law School (US); Marcia Narine, St. Thomas University School of Law (US);Lawrence Hellman, Oklahoma City University School of Law (US); Lissa Griffin, Pace University Law School (US); Kellie Toole, Adelaide Law School (Australia); and Eric Fish,Yale Law School (US)
Nationally and internationally, prosecutors' offices face new, as well as ongoing, challenges and their exercise of discretion significantly affects individuals and entities. This panel will explore a wide range of issues confronting the modern prosecutor. This will include certain ethical obligations in handling cases, organizational responsibility for wrongful convictions, the impact of the exercise of prosecutorial discretion in whistleblower cases, and the cultural shifts in prosecutors' offices.
To be clear, I believe that more corporate employees must go to jail to punish if not deter abuses. But I think that these mechanisms are the wrong way to accomplish that goal and may have a chilling effect on the internal investigations that are vital to rooting out wrongdoing. If you have any thoughts about these topics, please leave them below or email me at firstname.lastname@example.org. My talk and eventual paper will also address the relationship between Sarbanes-Oxley, the state ethical rules, and the Catch-22 that in house counsel face because of the conflicting rules and the realities of modern day corporate life.
July 1, 2016 in Compliance, Conferences, Corporate Governance, Corporations, Current Affairs, Ethics, Financial Markets, Lawyering, Marcia Narine Weldon, Securities Regulation, White Collar Crime | Permalink | Comments (1)
Thursday, June 23, 2016
The Cuba Conundrum: Corporate Governance and Compliance Challenges for U.S. Publicly-Traded Companies
My latest article on Cuba and the US is out. Here I explore corporate governance and compliance issues for US companies. In May, I made my third trip to Cuba in a year to do further research on rule of law and investor concerns for my current work in progress.
In the meantime, please feel free to email me your comments or thoughts at email@example.com on my latest piece
The abstract is below:
The list of companies exploring business opportunities in Cuba reads like a who’s who of household names- Starwood Hotels, Netflix, Jet Blue, Carnival, Google, and AirBnB are either conducting business or have publicly announced plans to do so now that the Obama administration has normalized relations with Cuba. The 1962 embargo and the 1996 Helm-Burton Act remain in place, but companies are preparing for or have already been taking advantage of the new legal exemptions that ban business with Cuba. Many firms, however, may not be focusing on the corporate governance and compliance challenges of doing business in Cuba. This Essay will briefly discuss the pitfalls related to doing business with state-owned enterprises like those in Cuba; the particular complexity of doing business in Cuba; and the challenges of complying with US anti-bribery and whistleblower laws in the totalitarian country. I will also raise the possibility that Cuba will return to a state of corporatism and the potential impact that could have on compliance and governance programs. I conclude that board members have a fiduciary duty to ensure that their companies comply with existing US law despite these challenges and recommend a code of conduct that can be used for Cuba or any emerging markets which may pose similar difficulties.
June 23, 2016 in Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, International Business, Law Reviews, Marcia Narine Weldon, Research/Scholarhip | Permalink | Comments (0)
Friday, June 17, 2016
On Wednesday, the EU finally outlined its position on conflict minerals. The proposed rule will affect approximately 900,000 businesses. As I have discussed here, these “name and shame” disclosure rules are premised on the theories that: 1) companies have duty to respect human rights by conducting due diligence in their supply chains; 2) companies that source minerals from conflict zones contribute financially to rebels or others that perpetuate human rights abuses; and 3) if consumers and other stakeholders know that companies source certain minerals from conflict zones they will change their buying habits or pressure companies to source elsewhere.
As stated in earlier blog posts, the US Dodd- Frank rule has been entangled in court battles for years and the legal wranglings are not over yet. Dodd-Frank Form SD filings were due on May 31st and it is too soon to tell whether there has been improvement over last year’s disclosures in which many companies indicated that the due diligence process posed significant difficulties.
I am skeptical about most human rights disclosure rules in general because they are a misguided effort to solve the root problem of business’ complicity with human rights abuses and assume that consumers care more about ethical sourcing than they report in surveys. Further, there are conflicting views on the efficacy of Dodd-Frank in particular. Some, like me, argue that it has little effect on the Congolese people it was designed to help. Others such as the law’s main proponent Enough, assert that the law has had a measurable impact.
The EU's position on conflict minerals is a compromise and many NGOs such as Amnesty International, an organization I greatly respect, are not satisfied. Like its US counterpart, the EU rule requires reporting on tin, tantalum, tungsten, and gold, which are used in everything from laptops, cameras, jewelry, light bulbs and component parts. Unlike Dodd-Frank, the rule only applies to large importers, smelters, and refiners but it does apply to a wider zone than the Democratic Republic of Congo and the adjoining countries. The EU rule applies to all “conflict zones” around the world.
Regular readers of my blog posts know that I teach and research on business and human rights, and I have focused on corporate accountability measures. I have spent time in both Democratic Republic of Congo and Guatemala looking at the effect of extractive industries on local communities through the lens of an academic and as a former supply chain executive for a Fortune 500 company. I continue to oppose these disclosure rules because they take governments off the hook for drafting tough, substantive legislation. Nonetheless, I look forward to seeing what lessons if any that the EU has learned from the US when the member states finally implement and enforce the new rule. In coming weeks I will blog on recent Form SD disclosures and the progress of the drafting of the final EU rule.
June 17, 2016 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, International Law, Legislation, Marcia Narine Weldon, Securities Regulation | Permalink | Comments (0)
Thursday, May 5, 2016
Today I hit “submit” on an article I was asked to review for an international law journal. Because the process required blind peer review, I won’t be any more specific other than to say that the article related to a topic that I have written and spoken about extensively over the past few years. Unfortunately, the author did not cite any of the main (or even ancillary) articles on the topic and instead focused on a number of disparate theories that barely related to the title or topic of the piece. In short, the article had a few good pages and might make a few decent articles, but only after major revisions. I knew what the article was missing because I have read almost every other piece written on the topic.
As a junior academic, I admit that the most frustrating part of the law review process is the lack of peer review, at least in the United States. My colleagues in the EU review articles of 10-12,000 words on average and generally have 1-2 other reviewers deciding on publication of a scholar’s piece. The review period tends to be 6-8 weeks (or so I have been told) and generally journals require exclusive submission. In worst case scenarios, authors can wait several months for an acceptance or rejection. Although I am not a fan of the exclusive submission process, I do prefer the peer review model. It may be subjective, but it’s no more subjective than having articles accepted by 2Ls and 3Ls, who may have no expertise or familiarity with the topic they are reviewing.
A 2014 essay by Josephine Potuto raises another issue with the U.S. law review system—how the articles are edited. The abstract states simply:
Law professors publish in law reviews, not peer-reviewed journals. They are edited by law students. The editing process can be both irritating and exasperating. From experiences lived and those shared by colleagues across the country, I provide concrete examples of where law student editors go wrong, and also explain why.
Finally, in an effort to improve the process, I recommend that faculty advisors and editors read some of my co-bloggers’ insights on the topic.
Happy grading to all and I wish you a productive summer. I will be writing less frequently in May due to a honeymoon and then a research trip to Cuba, which of course, I will blog about. I'm also writing a law review article on Cuba, so hopefully editors won't hold this column against me!
Thursday, April 14, 2016
Today in my Business and Human Rights class I thought about Ann's recent post where she noted that socially responsible investor Calpers was rethinking its decision to divest from tobacco stocks. My class has recently been discussing the human rights impacts of mega sporting events and whether companies such as Rio Tinto (the medal makers), Omega (the time keepers), Coca Cola (sponsor), McDonalds (sponsor), FIFA (a nonprofit that runs worldwide soccer) and the International Olympic Committee (another corporation) are in any way complicit with state actions including the displacement of indigenous peoples in Brazil, the use of slavery in Qatar, human trafficking, and environmental degradation. I asked my students the tough question of whether they would stop eating McDonalds food or wearing Nike shoes because they were sponsors of these events. I required them to consider a number of factors to decide whether corporate sponsors should continue their relationships with FIFA and the IOC. I also asked whether the US should refuse to send athletes to compete in countries with significant human rights violations.
Because we are in Miami, we also discussed the topic du jour, Carnival Cruise line's controversial decision to follow Cuban law, which prohibits certain Cuban-born citizens from traveling back to Cuba on sea vessels, while permitting them to return to the island by air. Here in Miami, this is big news with the Mayor calling it a human rights violation by Carnival, a County contractor. A class action lawsuit has been filed seeking injunctive relief. This afternoon, Secretary of State John Kerry weighed in saying Carnival should not discriminate and calling upon Cuba to change its rules.
So back to Ann's post. In an informal poll in which I told all students to assume they would cruise, only one of my Business and Human Rights students said they would definitely boycott Carnival because of its compliance with Cuban law. Many, who are foreign born, saw it as an issue of sovereignty of a foreign government. About 25% of my Civil Procedure students would boycott (note that more of them are of Cuban descent, but many of the non-Cuban students would also boycott). These numbers didn't surprise me because as I have written before, I think that consumers focus on convenience, price, and quality- or in this case, whether they really like the cruise itinerary rather than the ethics of the product or service.
Tomorrow morning (Friday), I will be speaking on a panel with Jennifer Diaz of Diaz Trade Law, two members of the US government, and Cortney Morgan of Husch Blackwell discussing Cuba at the ABA International Law Section Spring Meeting in New York. If you're at the meeting and you read this before 9 am, pass by our session because I will be polling our audience members too. And stay tuned to the Cuba issue. I'm not sure that the Carnival case will disprove my thesis about the ineffectiveness of consumer pressure because if the Secretary of State has weighed in and the Communist Party of Cuba is already meeting next week, it's possible that change could happen that gets Carnival off the hook and the consumer clamor may have just been background noise. In the meantime, Carnival declared a 17% dividend hike earlier today and its stock was only down 11 cents in the midst of this public relations imbroglio. Notably, after hours, the stock was trading up.
April 14, 2016 in Ann Lipton, Conferences, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Law, Law School, Marcia Narine Weldon, Teaching | Permalink | Comments (0)
Wednesday, April 6, 2016
Five years ago I blogged about Massey Energy, one of most tragic mining disasters in US history. Just a few minutes ago its CEO Donald Blankenship was sentenced to the maximum one year in prison. The prison term is unusual for a corporate executive, but should it be?
The Department of Justice under Eric Holder came under fire for prosecuting thousands of low level mortgage brokers and analysts but no C-Suite individuals after the financial crisis. Perhaps in response to that, the DOJ released the Yates Memo, which I blogged about in September. There are already some interesting takeaways on the Memo, which you can read about here or you can hear about when I present if you attend the International Legal Ethics Conference in New York in July.
I'm not sure whether the Yates memo will prevent corporate crime or get the "right" people to go to jail. Actually, I am pretty sure that it won't. According to news reports, the Massey CEO was unusually involved in daily operations, which made convicting him easier (that along with hours of taped conversations). I do believe that the Yates Memo (if it's even constitutional) will fundamentally change the relationship between attorneys, compliance officers, and their internal clients. I will blog more about that in coming months. In the meantime, I hope that today's sentencing provides some measure of comfort to the families of the fallen miners.
Thursday, March 31, 2016
Business and Human Rights Scholars Conference
University of Washington School of Law, Seattle, Washington
September 16-17, 2016
The University of Washington School of Law, the NYU Stern Center for Business and Human Rights, the Rutgers Business School, the Rutgers Center for Corporate Law and Governance, and the Business and Human Rights Journal announce the second Business and Human Rights Scholars Conference, to be held September 16-17, 2016 at the University of Washington School of Law in Seattle. Conference participants will present and discuss scholarship at the intersection of business and human rights issues.
Upon request, participants’ papers may be considered for publication in the Business and Human Rights Journal (BHRJ), published by Cambridge University Press. The Conference is interdisciplinary; scholars from all global regions and all disciplines are invited to apply, including law, business, business ethics, human rights, and global affairs.
To apply, please submit an abstract of no more than 250 words to BHRConference@kinoy.rutgers.edu with the subject line Business & Human Rights Conference Proposal. Papers must be unpublished at the time of presentation. Please include your name, affiliation, contact information, and curriculum vitae.
The deadline for submission is May 15, 2016. Scholars whose submissions are selected for the Conference will be notified no later than June 15, 2016. We encourage early submissions, as selections will be made on a rolling basis.
About the BHRJ
The BHRJ provides an authoritative platform for scholarly debate on all issues concerning the intersection of business and human rights in an open, critical and interdisciplinary manner. It seeks to advance the academic discussion on business and human rights as well as promote concern for human rights in business practice.
BHRJ strives for the broadest possible scope, authorship and readership. Its scope encompasses interface of any type of business enterprise with human rights, environmental rights, labor rights and the collective rights of vulnerable groups. The Editors welcome theoretical, empirical and policy/reform-oriented perspectives and encourage submissions from academics and practitioners in all global regions and all relevant disciplines.
A dialogue beyond academia is fostered as peer-reviewed articles are published alongside shorter ‘Developments in the Field’ items that include policy, legal and regulatory developments, as well as case studies and insight pieces.
Friday, March 25, 2016
I feel badly for Chipotle. When I have taught Business Associations, I have used the chain’s Form 10-K to explain some basic governance and securities law principles. The students can relate to Chipotle and Shake Shack (another example I use) and they therefore remain engaged as we go through the filings. Chipotle has recently been embroiled in a public relations nightmare after a spate of food poisonings occurred last fall and winter, a risk it pointed out in its February 2015 10-K filings. The stock price has fluctuated from $750 a share in October to as low as $400 in January and then back to the mid $500 range. After some disappointing earnings news the stock is now trading at around $471.
Clean Yield Group, concerned that the company will focus only on bringing its stock back to “pre-crisis levels,” filed a shareholder proposal March 17th asking the company to link executive compensation with sustainability efforts. The proposal claims that the CEO was overpaid by $40 million in 2014 and states in part:
A number of studies demonstrate a firm link between superior corporate sustainability performance and financial outperformance relative to peers. Firms with superior sustainability performance were more likely to tie top executive incentives to sustainability metrics.
Leading companies are increasingly taking up this practice. A 2013 study conducted by the Investor Responsibility Research Institute and the Sustainable Investments Institute found that 43.4% of the S&P 500 had linked executive pay to environmental, social and/or ethical issues. These companies traverse industry sectors and include Pepsi, Alcoa, Walmart, Unilever, National Grid, Intel and many others…
Investor groups focusing on sustainable governance such as Ceres, the UN Global Compact, and the UN Principles for Responsible Investment (which represents investors with a collective $59 trillion AUM) have endorsed the establishment of linkages between executive compensation and sustainability performance.
Even with the adjustments to executive pay incentives announced this week in reaction to Chipotle’s ongoing food-borne illness crisis, Chipotle shareholders have consistently approved excessively large pay packages to our company’s co-chief executives that dangerously elide accountability for sustainability-related risks. This proposal provides the opportunity to rectify this situation.
If shareholders approve the compensation package on our company’s 2016 proxy ballot, by year-end, Mr. Ells and Mr. Moran will have pocketed nearly $211 million for their services since 2011. Shareholders have not insisted upon direct oversight of sustainability matters as a condition of employment or compensation, and the present crisis illustrates the probable error in that thinking.
This week, the Compensation Committee of the Board announced that it would withhold 2015 bonuses for executive officers. It has also announced that executive officers’ 2016 performance bonuses will be solely tied to bringing CMG stock back, over a three-year period, to its pre-crisis level.
This is a shortsighted approach that skirts the underlying issues that may have contributed to the E. coli and norovirus outbreaks that have left hundreds of people sickened, injured sales, led to ongoing investigations by health authorities and the federal government, damaged our company’s reputation, and will likely lead to expensive litigation. For years, Chipotle has resisted calls by shareholders to implement robust and transparent management and reporting systems to handle a range of environmental, social and governance issues that present both risks to operations as well as opportunities. While no one can know for certain whether a more rigorous management approach to food safety might have averted the current crisis, moving forward, shareholders can insist upon a proactive approach to the management of sustainability issues by altering top executives’ compensation packages to incentivize it.
The last sentence of the paragraph above stuck out to me. The shareholder does not know whether more rigorous sustainability practices would have prevented the food poisonings but believes that compensation changes incentivizing more transparency is vital. I’m not sure that there is a connection between the two, although there is some evidence that requiring more disclosure on environmental, social, and governance factors can lead to companies uncovering operational issues that they may not have noticed before. Corporate people are fond of saying that “what gets measured gets treasured.” Let’s see what Chipotle’s shareholders treasure at the next annual meeting.
March 25, 2016 in Business Associations, Compensation, Compliance, Corporate Governance, Corporations, Current Affairs, Financial Markets, Marcia Narine Weldon, Securities Regulation, Shareholders | Permalink | Comments (0)
Friday, March 11, 2016
Some of our December graduates haven just taken the Florida bar exam. As always, I asked them about the business associations questions. Florida drastically changed its LLC rules in 2014, but still hasn’t asked any questions about LLCs, focusing instead on partnerships and corporations (at least according to the students). From a review of the released questions, the bar didn’t ask about LLCs before the amendments either.
I teach BA again next year and I’m struggling with what to emphasize. Business Associations is not required in many Florida law schools, but it is at St. Thomas, and many students enter the class with trepidation. Most will only take the one required course and won’t go on to advanced classes in securities regulation, corporate taxation, or other drafting courses. I try to focus the required BA class on skills that graduates will need in the workplace in addition to preparing them for the bar by using released test questions. Now I wonder how to balance the tension between the rise of LLCs and the many changes in laws related to securities regulation with the bar’s continued focus on partnerships and traditional corporations.
Yesterday the Obama administration added Miami to the list of tech hire jurisdictions. The Kauffman Index ranks Miami as second in the country for startups. Last month, a blogger highlighted my city’s proximity to Latin America and our emerging tech scene. With these realities in mind, should I add even more to what I already teach about legal issues that entrepreneurs and startups face even if that’s not what the Florida bar tests? I never want to “teach to the test” but I also want to make sure that I am responsible in my pedagogy, which for me includes marking up operating agreements, spending time demystifying IPO filings, and introducing them to hybrid entities that entrepreneurs ask about.
Unlike 20 other states, Florida has not adopted the Uniform Bar Exam, but I believe that any test that asks students to do the kind of critical analysis they would have to do in practice is a good thing. This week the Florida bar established a new committee to consider the issue, but I don’t have high hopes for a quick change to the bar exam. Lawyers here recently killed a proposal for reciprocity, and some see the UBE as a back door effort to flood Florida with out of staters.
So I have a conflict. How do other professors tackle the coverage issue? Comment below or feel free to email me at firstname.lastname@example.org.
Friday, March 4, 2016
Presidential candidate Donald Trump has repeatedly stated that he never plans to eat Oreo cookies again because the Nabisco plant is closing and moving to Mexico. Trump, who has starred in an Oreo commercial in the past, is actually wrong about the nature of Nabisco’s move, and it’s unlikely that he will affect Nabisco’s sales notwithstanding his tremendous popularity among some in the electorate right now. Mr. Trump has also urged a boycott of Apple over how that company has handled the FBI’s request over the San Bernardino terrorist’s cell phone.
Strangely, I haven’t heard a call for a boycott of Apple products following shareholders’ rejection of a proposal to diversify the board last week. I would think that Reverend and former candidate Al Sharpton, who called for the boycott of the Oscars due to lack of diversity would call for a boycott of all things Apple. But alas, for now Trump seems to be the lone voice calling for such a move (and not because of diversity). In fact, I’ve never walked past an Apple Store without thinking that there must be a 50% off sale on the merchandise. There are times when the lines are literally out the door. Similarly, despite the #Oscarssowhite controversy and claims from many that the boycott worked because the Oscars had historically low ratings, viewership among black film enthusiasts was only down 2% this year.
So why do people constantly call for boycotts? According to a Freakonomics podcast from January, they don’t actually work. Historians and economists made it clear in interviews that they only succeed as part of an established social movement. In some cases they can backfire leading to a "buycott," as it did for Chik Fil A. The podcast also put into context much of what we believe are the boycott “success stories,” including the Montgomery Bus Boycott with Rosa Parks and the sit in movement related to apartheid in the 1980s.
I have spent much of my time looking at disclosure legislation that is based in part on the theory that informed consumers and socially-responsible investors will boycott or divest holdings (see here, here, and here). In particular, I have focused on the Dodd-Frank conflict minerals corporate governance disclosure and why I don’t think that using name and shame laws work—namely because consumers talk a good game in surveys but actually don’t purchase based on social criteria nearly as much as NGOs and legislators believe.
The SEC was supposed to decide whether to file a cert petition to the Supreme Court on the part of the conflict minerals legislation that was struck down on First Amendment grounds by March 9th but they now have an extension until April. Since I wrote an amicus brief in the case at the lower level, I have a particular interest in this filing. I had planned my business and human rights class on disclosures and boycotts around that cert. filing to make it even more relevant to my students, who will do a role play simulation drafted by Professor Erika George representing civil society (NGOs, investors, and other stakeholders), the electronics industry, the US government (state department, Congress, and SEC), Congolese militia, the Congolese government, and the Congolese people. The only group they won’t represent is US consumers, even though that’s the target group of the Dodd-Frank disclosure. I did tweak Professor George’s materials but purposely chose not to add in the US consumer group. After my students step out of their roles, we will have the honest discussions about their own views and buying habits. I’ll try not to burst any boycott bubbles.
March 4, 2016 in Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Financial Markets, Human Rights, International Business, International Law, Law School, Legislation, Marcia Narine Weldon, Securities Regulation, Shareholders, Teaching | Permalink | Comments (1)
Thursday, February 25, 2016
Next week is our Spring Break and I plan to catch up on some television and movie watching. Many of my former business associations students have raved about the show Billions, described online as follows:
Wealth, influence and corruption collide in this drama set in New York. Shrewd U.S. Attorney Chuck Rhoades is embroiled in a high-stakes game of predator vs. prey with the ambitious hedge-fund king, Bobby Axelrod. To date, Rhoades has never lost an insider trading case -- he's 81-0 -- but when criminal evidence turns up against Axelrod, he proceeds cautiously in building the case against Axelrod, who employs Rhoades' wife, psychiatrist Wendy, as a performance coach for his company. Wendy, who has been in her position longer than Chuck has been in his, refuses to give up her career for her husband's legal crusade against Axelrod. Both men use their intelligence, power and influence to outmaneuver the other in this battle over billions.
Now that my students are watching it, I feel compelled to do so as well, and not just because Australian papers play up the copious amounts of money and sex depicted in the series. I’m glad that my students are watching any television show that deals with the financial industry but even more gratified that they are emailing me telling me that now they understand some of the concepts that they see in this show and others such as HBO’s Silicon Valley.
Are there any other television shows or movies I should catch up on during Spring Break in between grading, writing, and watching Suits (for my Civil Procedure students)? I like to keep up with what my students watch because I use some of the story lines for in class hypos and exam questions. I also ask students to write reflection papers applying what they have learned in class and analyzing what Hollywood got wrong. I look forward to your suggestions.