Sunday, November 20, 2016
Saturday, November 19, 2016
For this week's post, I offer a plug. I just posted to SSRN a draft chapter, Limiting Litigation Through Corporate Governance Documents, for the forthcoming Research Handbook on Representative Stockholder Litigation (Sean Griffith et al., eds. 2017), published by Edward Elgar Publishing. For those who are interested, here is the abstract:
There has recently been a surge of interest in “privately ordered” solutions to the problem of frivolous stockholder litigation, in the form of corporate bylaw and charter provisions that place new limitations on plaintiffs’ ability to bring claims. The most popular type of provision has been the forum selection clause; other provisions that have been imposed include arbitration requirements, fee-shifting to require that losing plaintiffs pay defendants’ attorneys’ fees, and minimum stake requirements. Proponents argue that these provisions favor shareholders by sparing the corporation the expense of defending against meritless litigation. Drawing on the metaphor of corporation as contract, they argue that litigation limits are often enforced in ordinary commercial contracts, and that bylaws and charter provisions should be interpreted similarly.
In this chapter, I recount the history of these provisions and the state of the law regarding their enforceability. I then discuss some of the doctrinal and policy questions that have been raised regarding different types of litigation limits, and the propriety of private ordering in this context. In particular, I explore how corporate managers’ structural and informational advantages may make litigation limits easy to abuse; moreover, litigation itself serves public purposes that may be more appropriately subject to public control.
Friday, November 18, 2016
Call for Proposals: “Teaching Cultural Competency and Other Professional Skills Suggested by ABA Standard 302”
The following comes to us from Prof. Kelly Terry, Co-Director, Institute for Law Teaching and Learning. Submit proposals to her at email@example.com by 2/1/17 .
Call for Proposals for the Institute for Law Teaching and Learning’s Summer 2017 Conference, “Teaching Cultural Competency and Other Professional Skills Suggested by ABA Standard 302.” The conference will take place July 7-8, 2017 at the University of Arkansas at Little Rock William H. Bowen School of Law.
The Institute invites proposals for workshop sessions addressing how law schools are responding to ABA Standard 302’s call to establish learning outcomes related to “other professional skills needed for competent and ethical participation as a member of the legal profession,” such as “interviewing, counseling, negotiation, fact development and analysis, trial practice, document drafting, conflict resolution, organization and management of legal work, collaboration, cultural competency and self-evaluation.” The conference will focus on how law schools are incorporating these skills, particularly the skills of cultural competency, conflict resolution, collaboration, self-evaluation, and other relational skills, into their institutional outcomes, designing courses to encompass these skills, and teaching and assessing these skills. The deadline to submit a proposal is February 1, 2017.
Interest from churches in the integration of faith and work seems to have grown exponentially over the past few decades. That said, as far back as Martin Luther, there has been a call to view even jobs outside of ministry as a vocation or religious calling.
I plan to update this post from time to time, and I may add more discussion, but for now, I will just list some of the church-founded or church-connected faith & work initiatives or resources below. I welcome suggestions for additions to this list.
- Center for Faith and Work (This recent video on Civility in the Public Square is one example their events)
- Denver Institute for Faith & Work
- Institute for Faith, Work & Economics
- Nashville Institute for Faith & Work
- U.S. Conference of Catholic Bishops: The Dignity of Work and the Rights of Workers
Presentations and Panels
- Why Faith@Work Matters - Katherine Leary Alsdorf
- Redefining Work - The Gospel Coalition Panel Discussion
- Why Work Matters - Tim Keller
Wednesday, November 16, 2016
Last week on the eve of the election, I shared a series of predictions regarding the market's response to a Trump or Clinton presidential election victory. Almost all of the predictions were for a swift and negative reaction to a Trump victory. Immediate market predictions, like polling predictions, were, in a word: WRONG.
From the Wall Street Journal:
Stocks were mixed on Friday, taking a pause to end an eventful week that pushed the Dow industrials to their best week since 2011.
The Dow climbed 0.2% on Friday to 0.2%, pushing the index up 5.4% for the week to 18847.66.
The S&P 500 dipped 0.1% on Friday to 2164.45, while the Nasdaq Composite jumped 0.5% to 5237.11.
I find myself so disorientated in this post-election reality.
Tuesday, November 15, 2016
Rep. John Shimkus (R-Ill.) has already started soliciting support as he seeks to chair the House Energy & Commerce Committee. He says in his letter:
[W]e will use our oversight and investigative authority to rebalance the federal government, recommending changes so future administrations won’t have the same ability to abuse their power. In particular, this will entail building the case against the Chevron Deference, which has enabled executive agencies to upend congressional intent through the courts.
Our success in this area will restore Congress as the sole lawmaking apparatus of the federal government.
This is rather funny to me. First of all, Chevron was a case during the Reagan Administration in which the Administration decided to take a view of the Clean Air Act with which the Natural Resources Defense Council, Inc. disagreed. The court sided with the Administration. The power of deference has value to who ever is in charge of the executive branch.
More important, though, Congress has always been the sole lawmaking apparatus of the federal government. Congress can eliminate Chevron deference by statute. Congress can repeal Massachusetts v. EPA by statute. Congress has the power. They are just unwilling or unable to wield it. This is true as to the EPA and SEC and FCC and any other agency. So, sure, one can blame the role of the courts and the executive if they don't like how agencies operate. But I'd suggest that, for members of Congress who don't like that, the first place they should look is in the mirror.
Sunday, November 13, 2016
Saturday, November 12, 2016
The results of Tuesday’s election stunned most people – including internal analysts within the Trump camp – because the polling seemed to give Clinton an insurmountable lead. She was ahead of Trump in many states, and though there was great room for uncertainty in each poll, everyone assumed that even if there were some polling errors, there were not enough to make a difference in outcome. I.e., she could lose Ohio and Florida and still win so long as she held Pennsylvania and so forth, so it seemed as though even accounting for polling error, there was little chance she could lose.
That assumption, however, ignored the possibility that all of the errors were correlated – so that an error in one state’s polls meant that the same error would be replicated across multiple states. That’s something that Nate Silver accounted for in his model, however, and others rejected, and it contributed to Silver's more bearish Clinton predictions.
And of course, that’s what happened with respect to mortgage backed securities as well. Everyone knew that some mortgages would fail – and that some RMBS tranches would fail – but the assumption was that there were enough of them that any errors would not damage an entire pool. What many (though, as with Clinton, not all) people failed to foresee was that the errors were correlated, so that they stood or fell in unison. What seems so obvious in retrospect was difficult to understand at the time.
Friday, November 11, 2016
Yesterday, while at the annual SEALSB conference, a group of professors and I ate at Bull City Burgers in Durham, NC. I was somewhat surprised to see a framed B Corp. Certification on the restaurant wall. This restaurant's main menu items, as the name suggests, were greasy (but tasty) burgers. While the menu did talk about how the cows were grass fed, I think there may be a hot debate over whether burgers are good for "society and environment."
This got me thinking about whether there are certain industries that should be excluded from the B corp certification process or the benefit corporation legal entity form. If so, which industries and why? My initial reaction is that most companies in most industries - including burger joints - can be run in a socially responsible manner and can do better than their competitors, even if the product can have some negative impacts on society if used incorrectly (as burgers can if not eaten in relative moderation). There may be some industries that are irredeemable, but I am guessing they are few and far between. Most companies, if managed well, can have a positive impact on society, and even though you might not want a diet exclusively of burgers, Bull City Burgers definitely brightened our night.
Thursday, November 10, 2016
I have been on hiatus for a few weeks, and had planned to post today about the compliance and corporate governance issues related to Wells Fargo. However, I have decided to delay posting on that topic in light of the unexpected election results and how it affects my research and work.
I am serving as a panelist and a moderator at the ABA's annual Labor and Employment meeting tomorrow. Our topic is Advising Clients in Whistleblower Investigations. In our discussions and emails prior to the conference, we never raised the election in part because, based on the polls, no one expected Donald Trump to win. Now, of course, we have to address this unexpected development in light of the President-elect's public statements that he plans to dismantle much of President Obama's legacy, including a number of his executive orders.
President-elect Trump's plan for his first 100 days includes, among other things: a hiring freeze on all federal employees to reduce federal workforce though attrition (exempting military, public safety, and public health); a requirement that for every new federal regulation, two existing regulations must be eliminated; renegotiation or withdrawal from NAFTA; withdrawal from the Trans-Pacific Partnership; canceling "every unconstitutional executive action, memorandum and order issued by President Obama; and a number of rules related to lobbyists and special interests.
Plaintiffs' lawyers I have spoken to at this conference so far are pessimistic that standards will become even more pro-business and thus more difficult to bring cases. That's probably true. However, I have the following broader business-law related questions:
- What will happen to Dodd-Frank? There are already a number of house bills pending to repeal parts of Dodd-Frank, but will President Trump actually try to repeal all of it, particularly the Dodd-Frank whistleblower rule? How would that look optically? Former SEC Commissioner Paul Atkins, a prominent critic of Dodd-Frank and the whistleblower program in particular, is part of Trump's transition team on economic issues, so perhaps a revision, at a minumum, may not be out of the question.
2. What will happen with the two SEC commissioner vacancies? How will this president and Congress fund the agency?
3. Will SEC Chair Mary Jo White stay or go and how might that affect the work of the agency to look at disclosure reform?
4. How will the vow to freeze the federal workforce affect OSHA, which enforces Sarbanes-Oxley?
5. In addition to the issues that Trump has with TPP and NAFTA, how will his administration and the Congress deal with the Export-Import (Ex-IM) bank, which cannot function properly as it is due to resistance from some in Congress. Ex-Im provides financing, export credit insurance, loans, and other products to companies (including many small businesses) that wish to do business in politically-risky countries.
6. How will a more conservative Supreme Court deal with the business cases that will appear before it?
7. Who will be the Attorney General and how might that affect criminal prosecution of companies and individuals? Should we expect a new memo or revision of policies for Assistant US Attorneys that might undo some of the work of the Yates Memo, which focuses on corporate cooperation and culpable individuals?
8. What will happen with the Consumer Financial Protection Bureau, which the DC Circuit recently ruled was unconstitutional in terms of its structure and power?
9. What will happen with the Obama administration's executive orders on Cuba, which have chipped away at much of the embargo? The business community has lobbied hard on ending the embargo and eliminating restrictions, but Trump has pledged to require more from the Cuban government. Would he also cancel the executive orders as well?
10. What happens to the Public Company Accounting Board, which has had an interim director for several months?
11. Jeb Henserling, who has adamantly opposed Ex-Im, the CFPB, and Dodd-Frank is under consideration for Treasury Secretary. What does this say about President-elect Trump's economic vision?
Of course, there are many more questions and I have no answers but I will be interested to see how future announcements affect the world financial markets, which as of the time of this writing appear to have calmed down.
November 10, 2016 in Compliance, Corporate Governance, Corporations, Current Affairs, Financial Markets, International Law, Legislation, Marcia Narine Weldon, Securities Regulation, White Collar Crime | Permalink | Comments (2)
Wednesday, November 9, 2016
Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. This is reflected in the acceptance in nearly all jurisdictions of some version of the business judgment rule, under which disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value. Where directors pursue the latter goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.
Bainbridge take a contrary position, citing Delaware Supreme Court Chief Justice Strine, who says, "a clear-eyed look at the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare." Strine further notes that "advocates for corporate social responsibility pretend that directors do not have to make stockholder welfare the sole end of corporate governance, within the limits of their legal discretion."
I read these positions as consistent, though I think the scope of what is permissible is certainly implicitly different. I agree that Strine is right to say that "directors must make stockholder welfare their sole end." But I also agree that "disinterested and informed directors have the discretion to act in what they believe to be in the best long term interests of the company as a separate entity." My read of the business judgment rule (BJR) is that, absent fraud, illegality, or self-dealing, courts should abstain from reviewing director decisions, meaning that the directors decide what"stockholder welfare" means and what ends to use in pursuit of that end. That is, I think it's wrong to say "directors generally are not under a legal obligation to maximise profits for their shareholders," but I do think directors usually get to decide what it means to "maximise profits."
I am a firm believer in director primacy, and I believe directors should have a lot of latitude in their choices, subject to the BJR requirements. Thus, if a plaintiff can show self dealing (like maybe via giving to a "pet charity" described in A.P. Smith v. Barlow), then the BJR might be rebutted (if the gift is inconsistent with state law and/or constituency statutes). But otherwise, it's the board's call. Furthermore, where a company builds its brand and acts consistently with its prior actions, that might expand the scope of permissible behavior for a company (i.e., not be evidence of self-dealing). Thus, companies like Tom's Shoes and Ben and Jerry's should be able to continue to operate as they always have when they bring in new directors, because what might look like self-dealing in another context, is consistent with the business model.
eBay v. Newmark (pdf here) is often used to rebut that notion, but I still maintain that case is really about self-dealing -- the actions taken by Jim and Craig were impermissible not because they were working toward "purely philanthropic ends," but because they took actions that benefited themselves to the detriment of their minority shareholder, such as use of poison pills).
Anyway, I am still a believer in the BJR as abstention doctrine. Show me some fraud, illegality, or self-dealing or I'm leaving the board's decision alone.
Tuesday, November 8, 2016
Each year, I rethink how I teach fiduciary duties in the corporate law context in my Business Associations course. My learning objectives for the students are both limited and involved. On the one hand, there's little room in my three-credit-hour course for a nuanced understanding of all of the contexts in which corporate fiduciary duty claims typically occur. In particular, I have determined to leave out the public company mergers and acquisitions context almost completely. On the other hand, I find myself juggling uncertain classifications of duty components, explanations of seemingly mismatched standards of conduct and liability, and judicial review standards in and outside the Delaware corporate law context. It's a handful. It's teaching complexity.
Of course, fiduciary duty is not the only complex matter that one must teach in Business Associations. But it is, for me, one of the topics I am least confident that I "get right" in my interactions with students in and outside the classroom. Accordingly, as I again head toward the end of the semester, I find myself wondering whether I could have done--or could do--more with the students in my Business Associations course this semester. This leads me to ask my fellow business law professors (that's you!) whether any of you have materials, teaching techniques, exercises (in-class or out-of-class), etc. that you find to be particularly effective in educating law students the basics and nuances of corporate fiduciary duties.
So, have at it! Share your corporate fiduciary duty teaching successes in the comments, if you would. I am all ears. I know that what you report will benefit me and others (including our students), and I hope that your comments will generate a continuing conversation . . . .
Monday, November 7, 2016
As we gear up for the final show down and hopefully the end of the 2016 election (please, please, please let it end) I write today about the relationship between the markets and politics. It is apparently THE business angle in the news cycle this week. This is an admitted punt on substantive work and am instead providing you with a host of hyperlinks to nervously check and re-check in between nervously checking and re-checking polling estimates and vote counts. Please note, I am passing along a compilation of articles, a list that I have not editted to reflect a certain viewpoint.
Historical Accounts of the Relationship between politics and the markets
Merrill Lynch, How Presidential Elections Affect the Markets
Predictions regarding market reactions to the outcome of the 2016 election
Sunday, November 6, 2016
"Citizens United should not bar..finding..that.. independent expenditures..lead to..appearance of corruption" 43Fla.St.U.L.Rev.679 #corpgov— Stefan Padfield (@ProfPadfield) November 6, 2016
Saturday, November 5, 2016
I’m traveling today so this will be quick (actually, I drafted this in advance to go up automatically and I’m very much hoping that whatever happens, the appeal won’t have been decided before this post appears).
Earlier this year, Chancellor Bouchard decided Sandys v. Pincus, regarding whether demand was excused in a derivative action against the board of Zynga. And I love this case because it is a shockingly good teaching tool for the concept of demand excusal. The plaintiffs filed three claims – I edit out the last one and just stick with counts I and II.
The opinion beautifully describes the nature of the inquiry, and it even has a nice chart showing the differences in composition between the board accused of wrongdoing, and the demand board.
In the first two counts, there is a sharp distinction drawn between board members who are potentially interested because of liability due to personal benefits/self-dealing, and board members who are potentially interested because they face personal liability for other reasons.
The court also clearly marches through the question of whether any disinterested board members are nonetheless dependent on interested directors, demonstrating how – despite rather extensive social and business ties – none of it is enough to meet the standard to show dependence. To make matters even better, one of the interested directors is a controlling shareholder, allowing for discussion of independence/dependence when a controlling shareholder is in the mix.
And as a bonus, the case involves a set of companies that are likely to be familiar to students – Zynga, with discussions of Facebook, LinkedIn, and Mozilla.
Honestly, this case is so ideal for a complex subject that I’m mostly just crossing my fingers that nothing in the appeal – whether the plaintiffs ultimately win or lose – undermines the usefulness of the Chancery decision.
(By the way, the appeal also may represent an opportunity for the Delaware Supreme Court to finally merge Aronson and Rales – which Chancellor Bouchard almost seems to be inviting the Court to do. If nothing else, that much would certainly simplify the teaching.)
Friday, November 4, 2016
Over the next few weeks, I plan to write a series of posts exploring developments in this area of faith and business. I plan three additional posts, looking at faith and business (sometimes called, "faith and work") initiatives in (1) universities, (2) churches, and (3) businesses. My comments in this series will have a Christian focus, as that is my faith and is the area with which I am most familiar, but I welcome comments from any faith tradition.
Based on what I have seen around the country, many universities, churches, and businesses seem to be increasing their focus on the integration of faith and business. For some, this is a terrifying development. For others it is long overdue. I submit that both sides should attempt to engage in perspective-taking and nuanced discussion in an attempt to reach common ground.
As someone who prioritizes his faith, I also want to share my personal thoughts on the area of “faith and business” in this introductory post. First, some Christians, myself included, often lose sight of the fact that Jesus said that all the law hangs on loving God and loving others. Jesus cared for the societal outcasts (here, here, and here), while strongly (but lovingly) criticizing the spiritual leaders. He had and has followers with a diverse variety of political views. Jesus did things like healing people on the Sabbath that appeared to break religious law, but actually fulfilled the true, loving spirit of the law. Second, as Inside Edition correspondent Megan Alexander reminded Belmont University students and faculty last week, Christians should focus on doing high quality work, because the Christian scripture instructs for us to our work “heartily, as for the Lord.” This is a tough one for me, as I am often dissatisfied with my work product, but I think the call is to do the absolute best work you can do, with your talents and given your various responsibilities. Third, and finally, I think participants in the “faith and business” conversation have to realize that people of faith are unlikely to be able to leave their faith at home. There can be good conversations about how that faith can and should be expressed in business, but I don’t think it is realistic to think that serious people at faith can just turn off their beliefs while at work. While the discussions about the interplay of faith and business may be difficult, they are important discussions to have in this pluralistic society.
Wednesday, November 2, 2016
General Electric (GE) and Baker Hughes (BHI) announced on Monday, October 31st, a proposed merger to combine their oil and gas operations. GE and Baker Hughes will form a partnership, which will own a publicly-traded company. GE shareholders will own 62.5% of the "new" partnership, while Baker Hughes shareholders will own 37.5% and receive a one-time cash dividend of $17.50 per share. The new company will have 9 board of director seats: 5 from GE and 4 from Baker Hughes. GE CEO Jeff Immelt will be the chairman of the new company and Lorenzo Simonelli, CEO of GE Oil & Gas, will be CEO. Baker Hughes CEO Martin Craighead will be vice chairman.
Reuters is describing the business synergies between the two companies as leveraging GE's oilfield equipment manufacturing ("supplying blowout preventers, pumps and compressors used in exploration and production") and data process services with Baker Hughes' expertise in " horizontal drilling, chemicals used to frack and other services key to oil production."
Baker Hughes had previously proposed a merger with Halliburton (HAL), which failed in May, 2016, after the Justice Department filed an antitrust suit to block the merger. Early analysis suggests that the proposed GE & Baker Hughes will pass regulatory scrutiny because of the limited business overlap of GE and Baker Hughes.
As I plan to tell my corporations students later today: this is real life! A high-profile, late-semester merger of two public companies is a wonderful gift. The proposed GE/Baker Hughes merger illustrates, in real life, concepts we have been discussing (or will be soon) like partnerships, the proxy process, special shareholder meetings, SEC filings, abstain or disclose rules, and, of course, mergers.
Tuesday, November 1, 2016
Far from alleging that FCRC used B2 Owner to perpetrate a fraud, plaintiff, a sophisticated party, admits that it knowingly entered into the CM Agreement with B2 Owner, an entity formed to construct the project. Nowhere in the complaint does plaintiff allege that it believed it was contracting with or had rights vis-à-vis FCRC or any entity other than B2 Owner. Indeed, plaintiff could have negotiated for such rights. Having failed to do so, plaintiff cannot now claim that it was tricked into contracting with B2 owner only and thus should be allowed to assert claims against FCRC . . . . Thus, the veil-piercing claim should be dismissed.
Monday, October 31, 2016
My October included some signifiant tricks and a bunch of parallel treats. I will highlight but a few of each here. They illustrate, in my view, the busy mid-semester lives that law professors may have.
It was a real trick for me to give three distinct presentations in three cities (two in person and one virtually) in a two-day period early in the month. On the morning of October 6, I participated in a panel discussion at The Crowdfunding Conference in New York City (New York). That afternoon, I jumped on a plane for Little Rock (Arkansas), where I gave a continuing legal education presentation on crowdfunding for the Arkansas Bar Association as part of a program on "Capital Raising Today and Securities Law Issues." Finally, later that day, I was Skyped into a the North Carolina Law Review 2016 annual symposium in Chapel Hill (North Carolina) on "The Role of Law in Entrepreneurship," at which I presented a draft paper, forthcoming in the North Carolina Law Review, on the important role of business finance lawyers in entrepreneurial enterprise.
It then was a trick to refocus my energy on faculty hiring a few days later. That next week, I jetted off to Washington (DC) with my fellow Appointments Committee members and our Dean and Associate Dean for Academic Affairs for a UT Law alumni reception and the Association of American Law Schools (AALS) 2016 Faculty Recruitment Conference. We were successful in interviewing a variety of folks for our two business law openings--one in the clinic and one in the doctrinal faculty.
After only a few nights home in my own bed, it was (again) a trick to haul my body into the car to drive to Lexington (Virginia) to participate in and attend the Washington and Lee Law Review's 2016 Lara D. Gass Annual Symposium, an event focusing on "Corporate Law, Governance, and Purpose: A Tribute to the Scholarship of Lyman Johnson and David Millon." At that symposium, my presentation addressed shareholder wealth maximization as a function of firm-level corporate governance. My essay on that topic will be published in a forthcoming issue of the Washington and Lee Law Review.
Before the next week was out, I accomplished yet another trick. I drove up to Louisville (Kentucky) to offer my thoughts on current securities litigation issues for the Kentucky Bar Association 2016 Securities Law Conference. I was asked to cover insider trading and liability under federal and state securities laws. In fulfillment of this charge, I delivered a presentation entitled "Where There’s a Securities Market, There’s Fraud (and Other Misconduct): Hot Topics in Federal Securities Litigation."
My final October trick? Fitting in my Business Associations oral midterm examinations and my Monday and Wednesday class meetings for Business Associations and Corporate Finance with all these trips.
All of that effort was an investment, however. The trips, presentations, and other interactions all yielded multiple benefits. Most of them may be obvious, but I will list a few in any case.
- I met lots of new and interesting folks from the crowdfunding industry, local bar associations, the AALS applicant pool, and the law academy (from the United States and abroad).
- I got great feedback on my current work and new ideas, research avenues, and citation sources for my ongoing work.
- I was able to honor two amazing colleagues, Lyman Johnson and David Millon.
- I participated meaningfully in the important task of recruiting new faculty to UT Law.
- I squeezed in some important family and personal time around the edges, including in attending the Knoxville Brewers Jam with my hubby (the tickets having been part of my anniversary gift to him back in August).
I am grateful for safe travels throughout the month. Having said that, I admit that I am relieved all that travel and activity is over and done. I look forward to a more calm November and a fun holiday season to follow. In the mean time, however, I will continue to enjoy the fall, with pumpkins being among my favorite hallmarks of the season.
Sunday, October 30, 2016