Tuesday, October 7, 2014

The Internal Affairs Doctrine, State Power, and Citizens United

Maryland State Senator and American University Washington College of Law professor Jamie B. Raskin recently wrote an opinion piece for the Washington Post, A shareholder solution to ‘Citizens United’. In the piece, he explains that 

Supreme Court Justice Anthony M. Kennedy’s majority opinion in Citizens United essentially invites a shareholder solution. The premise of the decision was that government cannot block corporate political spending because a corporation is simply an association of citizens with free-speech rights, “an association that has taken on the corporate form,” as Kennedy put it. But if that is true, it follows that corporate managers should not spend citizen-shareholders’ money on political campaigns without their consent.

Senator Raskin further notes that the Congress doesn't appear interested in moving forward with the Disclose Act, and the Securities and Exchange Commission has not pursued requiring campaign spending disclosures.  In response, the senator has a proposal:

Our best hope for change is with the state governments that regulate corporate entities throughout the year and receive regular filings from them. I am introducing legislation in January that will require managers of Maryland-registered corporations who wish to engage in political spending for their shareholders to post all political expenditures on company Web sites within 48 hours and confirm that any political spending fairly reflects the explicit preference of shareholders owning a majority interest in the company.

Further, if no “majority will” of the shareholders can form to spend money for political candidates — because most shares are owned by institutions forbidden to participate in partisan campaigns — then the corporation will be prohibited from using its resources on political campaigns.

Back in early 2010, as a guest blogger here, I wrote a post, Citizens United: States, where I noted my reaction to the case, which was that I wondered how states would react and that the case made the issue "an internal governance issue, which is a state-level issue." (Please click below to read more.)

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October 7, 2014 in Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Joshua P. Fershee | Permalink | Comments (0) | TrackBack (0)

Monday, October 6, 2014

Cover Letters for Legal Job Applications

As on-campus interviews slow down, a lot of students now are coming to me looking for cover letter advice.  Since co-blogger Haskell Murray more-or-less asked me to write on this topic in response to a comment on his super post on resumes and interviews, I thought I would take the bait.  My principal thoughts on the subject are set forth below the fold.  Some of my observations and elements of my advice are conservative and anally compulsive, I know.  But consider the source:  I worked in Big Law for fifteen years before I started teaching law and served on a number of office hiring committees over that time. 

Thee are many good websites out there on cover letter drafting.  Most of the advice they give is good, but it is somewhat varied.  There are some things common and traditional in law job cover letters that may help students sift through the Internet prattle and settle on specific approaches.  That's the overlay I hope to offer here.

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October 6, 2014 in Joan Heminway, Law School | Permalink | Comments (4)

Is Administrative Law Unlawful?

There has been much discussion recently about the SEC’s use of administrative proceedings, rather than court proceedings, for enforcement purposes. Both Peter Henning  and Gretchen Morgenson  have addressed the issue in the New York Times. And Jay Brown at Race to the Bottom has devoted several posts to the issue. See hereherehere, and here. (This final post claims to be part 5, but I believe this was a numbering error.)  .

I do not want to rehash that discussion, but I do want to bring your attention to an excellent new book I have been reading, Is Administrative Law Unlawful?, by Philip Hamburger.  Hamburger is a Columbia Law School professor who specializes in constitutional law and history. The book is an extensive examination of the history of administrative legislation and adjudication in England and America, going back to the Magna Carta. He constructs a convincing argument that current administrative practice is inconsistent with both English and American history and practice.

This is not beach reading. The book is well-written, but the arguments and the history are complex and require serious thought. It is, however, worth the effort. The book is fascinating. It has given me an entirely new perspective on issues of administrative law, and that includes a great deal of what a securities law professor like me teaches and writes about. If you have some time and are willing to make the effort, I strongly recommend this book.

Here are more detailed reviews from The Economist and The Wall Street Journal,  if you’re interested. In addition, a podcast interview of Professor Hamburger is available here.

October 6, 2014 | Permalink | Comments (3)

Phillips on "Can Entrepreneurial Education Restore Faith in Legal Education?"

My colleague Mark Phillips recently published a short article in the Nashville Bar Journal entitled Can Entrepreneurial Education Restore Faith in Legal Education? (pgs. 6-7). Mark primarily teaches entreprenuership classes in the undergraduate and graduate business schools at Belmont University, but has a JD from NYU Law, in addition to his MBA from NYU (Stern) and his PHD from George Washington University. 

For local readers, Mark will be speaking at a Nashville Bar Association breakfast on Nov 11th (at 8 am at Noshville restaurant at 1918 Broadway, Nashville, TN 37203). Mark has also started a website (www.eEsquire.net), which may be of interest to readers.

A portion of Mark's recent Nashville Bar Journal article is below:

A great deal was lost in legal industry during the recent recession, but perhaps the most lasting damage was inflicted upon the reputation of law schools. When news broke in 2011 that a significant number of law schools had distorted their placement figures to increase enrollment and rankings, both current and prospective law students were shocked. After a stretch of bad publicity, coupled with some inevitable lawsuits, law schools worked to erase their new-found stigma through greater disclosure and transparency. Yet despite these acts of contrition, the relationship between students and law schools remains fractured.

 

One method for repairing this relationship that has not been widely discussed may take the unlikely form of enhancing students’ awareness and preparedness for entrepreneurship within the legal industry—namely, by preparing them for solo practice. Shining a brighter light on solo practice as a viable post-graduate career option would not, as many may fear, be a concession that students cannot get high-paying jobs, but rather a reflection of a longstanding reality. Consider for a moment the fact that solo practice is the most consistent and largest sector of legal employment in the United States.  Luz Herrera, Assistant Professor of Law at Thomas Jefferson School of Law, drew upon historical employment data to conclude that approximately three-fourths of attorneys work in private practice, and of those, over half identify as solo practitioners while another 14% work in offices with five or less attorneys.   So rather than treating the pursuit of solo practice as a second-tier career choice, schools could elevate the discussion of solo practice to better align it with the reality of the legal employment market.

The entire article is here

October 6, 2014 | Permalink | Comments (0)

Sunday, October 5, 2014

ICYMI: Tweets from the Week (Oct. 5, 2014)

October 5, 2014 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, October 4, 2014

Lucky timing

As I previously posted, this semester I’m co-teaching a seminar with an old law school friend, Tanya Marsh (well, seminar-ish – we ended up with 17 students) on the financial crisis.

A couple of weeks ago, I dedicated a class to the concept of “regulation by deal” – inspired Steven Davidoff Solomon and David Zaring’s article with that title.  We talked about how Treasury and the Fed used dealmaking approaches to save individual firms, and thus the economy as a whole, and the corporate law issues that the government’s approach raised (lots of great inspiration also came from Marcel Kahan and Edward Rock’s When the Government is the Controlling Shareholder).  I assigned excerpts of the Regulation by Deal article, as well excerpts from the complaint filed by Fannie & Freddie shareholders, the AIG complaint, and the SIGTARP report on AIG’s payments to counterparties.  We also talked about the mergers between JP Morgan and Bear Stearns, and between Bank of America and Merrill Lynch.

Well, it was lucky timing, because that class – by sheer happenstance – was scheduled just before the AIG trial began, and then earlier this week, the Fannie & Freddie complaint was dismissed.  So now I have even more to talk about with the students.

One point I see in a lot of the commentary on the AIG trial is that the shareholders’ claims are pretty weak, but at least the trial itself will shed some light on one of the unanswered questions about the crisis, namely, why did Geithner and the NY Fed agree to pay AIG’s CDS counterparties 100 cents on the dollar, instead of demanding that they take a haircut?  I.e., one of AIG's major problems was that it had sold credit default swaps (CDS) on mortgage-backed assets held by a number of banks - it had sold insurance, essentially, against a drop in value of those assets.  AIG promised to pay out if those assets failed.  And when asset values began falling, the counterparties demanded that AIG post collateral - and those demands contributed to AIG's liquidity crisis.  To solve that problem, the NY Fed bought the assets underlying the CDS contracts - allowing the counterparties (banks like Goldman Sachs, Morgan Stanley, etc) to collect 100 cents on the dollar for assets that were, at the time, pretty toxic. 

This is, of course, the subject of the SIGTARP report, which concluded that the decision was not particularly well thought out, but was essentially foreordained by the NY Fed’s own self-imposed restrictions on its behavior, which limited its ability to apply any leverage in negotiations.

Among other things, the NY Fed was uncomfortable using its status as regulator to extract concessions on the CDS contracts when it was acting as a creditor of AIG, a more “private” sort of role. 

(Also, the phrase phrase “sanctity of contracts” appears so many times in the SIGTARP report that I wondered if I was going to start seeing graven idols.  But that’s me.)

The problem, of course, was that the NY Fed refused to use its regulatory power while wearing its "private creditor" hat, but at the same time, it also refused to truly behave as a private creditor - making it neither fish nor fowl.  For example, a private actor might have threatened bankruptcy – which the NY Fed was unwilling to do because, in its role as regulator, it could not allow AIG to declare bankruptcy.  A private actor would have been fine with striking different deals with different counterparties – which again, the NY Fed as regulator was unwilling to do, allowing any one counterparty to veto deals with the others.

And perhaps even more strikingly to me as a former litigator, the NY Fed also agreed not to sue any of the counterparties for fraud/misrepresentation.  That doesn’t strike me as anything like what a private actor would have done – which we know for a fact, given lawsuits filed by entitles like MBIA and Syncora.  A private actor could have at least demanded concessions in exchange for not filing a lawsuit – claiming, say, that the counterparties misrepresented the quality of the mortgages backing the assets – and dragging the matter out in court for years.  But the last thing the NY Fed as regulator wanted was that kind of publicity.

Anyway, however it shakes out, it'll make for a fun follow-up class.

October 4, 2014 in Ann Lipton | Permalink | Comments (3)

Friday, October 3, 2014

Loyola Law School, Los Angeles - Director of Business Law Practicum

LLS

Elizabeth Pollman (Loyola, Los Angeles) notified us that Loyola Law School, Los Angeles is hiring for an Associate Clinical Professor of Law/Director of the Business Law Practicum.

The details are below the break.

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October 3, 2014 in Haskell Murray, Jobs, Law School | Permalink | Comments (0)

Law Professor Positions - Business Law Areas

Earlier, I posted a list of legal studies positions in business schools.

Today, I decided to go through the helpful PrawfsBlawg spreadsheet on hiring committees to draw out the law schools that listed at least one business law area of interest. The PrawfsBlawg spreadsheet is a few months old, so it is possible that the schools' needs have changed somewhat in the interim. Also, many schools did not list any specific areas of interest, but hopefully this list is still helpful to our readers.

If readers know of any other law schools that have an interest in hiring in one or more business law areas, please leave the school name in the comments (with a link to the posting, if possible) or send me an email. Updated positions (that are not on the PrawfsBlawg list) will include a link to the posting, if possible. 

Updated 10/18/14

Alabama (business law)

Belmont (business law)

California Western (business associations)

Campbell (financial regulation)

Detroit Mercy (business law)

Florida A&M (business law)

Florida State (business law)

Fordham (international economic law)

Georgetown (transactional clinic, tenure track)

Loyola (Los Angeles) (associate clinical professor/director of business law practicum)

Maryland (business law)

North Carolina (corporate finance, international business transactions)

UMKC (business law, entrepreneurship) 

West Virginia (entrepreneurship clinic)

Wyoming (business law)

October 3, 2014 in Haskell Murray, Jobs, Law School | Permalink | Comments (1)

Fuller on Teaching Law

I am back teaching law students again this semester, in addition to teaching business school students. Last class, I did my "mid-course" teaching evaluations in the law school, which I do voluntarily each semester to gauge how the courses are going for the students. Almost always, I pick up on some important trends from the responses. One somewhat frustrating thing, however, is that students often want contradicting things. (e.g., "the previous class review is extremely helpful" and "the previous class review is a complete waste of time.")

The Lon Fuller quote below, from his article On Teaching Law, 3 Stan. L. Rev. 35, 42-43 (1950), helped me realize that some of the contradition, even within the same individual, is natural and expected.

Herein lies a dilemma for student and teacher. The good student really wants contradictory things from his legal education. He wants the thrill of exploring a wilderness and he wants to know where he stands every foot of the way. He wants a subject matter sufficiently malleable so that he can feel that he himself may help to shape it, so that he can have a sense of creative participation in defining and formulating it. At the same time he wants that subject so staked off and nailed down that he will feel no uneasiness in its presence and experience no fear that it may suddenly assume unfamiliar forms before his eyes.

 

No teacher is skillful enough to satisfy these incompatible demands. I don't think he should try. Rather he should help the student to understand himself, should help him to see that he wants (and very naturally and properly wants) inconsistent things of his legal education. Much frustration will be avoided if the student realizes that an unresolved antinomy runs through his education, and that this antinomy cannot be resolved so long as men want of life, as they do of the preparation for life called education, both security and adventure.

October 3, 2014 in Haskell Murray, Law School, Teaching | Permalink | Comments (0)

Thursday, October 2, 2014

What Would Business Associations Students Do If They Were Shareholders?

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

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

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

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

Wednesday, October 1, 2014

Gender in the Classroom

Yesterday, I shared with my faculty during our teaching conversations* my research and thinking on gender equality in the classroom.  How do we handle gender in the classroom?  My guess is that most of us teaching honestly strive to achieve and believe that we create a gender-neutral, or more accurately an equally-facilitative classroom environment.  You can image the horror I felt when I received voluntary, anonymous student feedback last spring that said “you may not mean to or know you are doing this, but you treat men and women differently in class.”  From whose perspective was this coming?  How differently? And who gets the better treatment?  I was baffled. As a female law professor, I was hoping that I got a pass on thinking critically about gender because I am female, right?  Wrong. 

This feedback launched my research into the area and a self-audit of the ways in which I may be explicitly treating students differently, implicitly reinforcing gender norms, and unintentionally creating a classroom environment that is different from my ideal.

Below are some observations and discoveries about my own behavior and a summary of some relevant research. 

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October 1, 2014 in Business Associations, Anne Tucker, Law School, Teaching | Permalink | Comments (5)

Tuesday, September 30, 2014

Why I Don't Ban Laptops (Yet)

There is a growing drumbeat for banning laptops in the classroom, as a recent New Yorker article explained. The current case for banning laptops appeared on a Washington Post blog (among other places), in a piece written by Clay Shirky, who is a professor of media studies at New York University, and holds a joint appointment as an arts professor at NYU’s graduate Interactive Telecommunications Program in the Tisch School of the Arts, and as a Distinguished Writer in Residence in the journalism institute.

The piece makes a compelling case for banning laptops, and I agree there are a number of good reasons to do so.  I’ll not recount the whole piece here (I recommend reading it), but here’s a key passage:

Anyone distracted in class doesn’t just lose out on the content of the discussion but creates a sense of permission that opting out is OK, and, worse, a haze of second-hand distraction for their peers. In an environment like this, students need support for the better angels of their nature (or at least the more intellectual angels), and they need defenses against the powerful short-term incentives to put off complex, frustrating tasks. That support and those defenses don’t just happen, and they are not limited to the individual’s choices. They are provided by social structure, and that structure is disproportionately provided by the professor, especially during the first weeks of class.

I am sympathetic to this line of thinking, and I am even more sympathetic to another point made in the article: that the laptop distractions can leak from one student engaging in social media or other non-classroom activities to those around them. That is a serious concern. 

Still, I don’t ban laptops in my classes, though I have thought about it.  I let students use them in my larger-enrollment classes: Business Organizations, which usually is near the cap of 70, and Energy Law, which is usually in the 34-55 range. There is no doubt the risk of distraction in those courses is higher than in others.  Interestingly, in my last two seminar-style classes, I did not have a ban, either, but students rarely used laptops.  They opted-in for the discussions (self-selection for certain topics can certainly help on that front). 

I continue to think about how I want to proceed, but for now, I see value in allowing my students the option to choose how they wish to engage. There have been some other defenses of the idea of keeping laptops in the classroom (see, e.g.,  here), but my views are an amalgam of different styles and rationales.

First, part of learning, especially in becoming a life-long learner (which is what lawyers need to be), one must choose to engage. Law students are grown ups, and they must learn how they learn. They must decide.  I won’t be there when they get to their job and they have to use the computer to actually do the work of a lawyer.  They will, at some point, have to decide when to focus and when to play. 

Second, I value diversity of styles in the classroom.  That is, if most other professors are using open-book exams or take home exams, mine will probably be closed book, and closed note.  I have taught using quizzes, blog posts, midterms, short papers, etc., to add some variety to the experience.  Now that more classes, at least at my school, are without laptops, it actually gives me a reason to consider keeping them. 

Finally, at least so far, allowing laptops is part of my deal with students. It’s part of how I connect and model for them my view and expectation that they are grown ups.  I give them power, and I expect them to act appropriately.  As my friend, former colleague, and teaching mentor Patti Alleva (recognized as one of the nation's best law teachers) explained in a recent National Law Journal piece, teaching is ultimately about respect and what she calls “intentionality.”  She explains:

The simple fact is that teaching does not always produce learning, even if thoughtfully done. Creating that causal link between the two can be a mystifying challenge, especially given the infinite number of unknowable factors and forces that may reduce a teacher's effectiveness or a student's willingness or ability to learn.

 . . . .

Teachers, as fiduciaries of their students' educational experience, owe them compassionate deference, based on a benefit of the doubt, coupled with high but reasonable expectations for a meaningful learning collaboration.

. . . .

Ultimately, the best professors are themselves students who learn as much as they teach. And they seek, not to impose ideas on students, but to help equip them with the metacognitive tools to test those ideas and use them in service of problem-solving. Hopefully, students will develop their own senses of respect — for the legal profession, for themselves as aspiring lawyers and for the learning partnership we share. So, if years ago, in that tense seminar room, each of us left with respect for our disagreements and for the pedagogic processes that allowed us to critically and creatively examine, and grow from, those differences, then invaluable learning did take place that day with respect providing a bridge between teaching and learning when other things may have temporarily obscured the connection.

I hope that as teachers we can all appreciate that we, like our students, have different views on the best way to teach and to learn.  Just because we choose different paths, it doesn't make any path wrong.  As long as the path is thoughtfully chosen, with a purpose and a goal, there’s a good chance it’s right for that teacher, in that moment, for that class.  And if it’s not, the key is not about dwelling on the mistake. It’s about learning, adjusting, and doing a better job next time, because the best teachers really are the ones who are trying to “learn as much as they teach.”  

September 30, 2014 in Joshua P. Fershee, Law School, Teaching | Permalink | Comments (4)

Monday, September 29, 2014

I guess it won't be a hat trick after all

Today, the Supreme Court DIG'd (dismissed as improvidently granted) the cert petition in the Section 11 case of IndyMac, which means we will not, at least for now, get resolution on the issue of whether American Pipe tolling applies to statutes of repose.

To be honest, I'm really not surprised.  The DIG was apparently in response to an announcement of a settlement of most of the IndyMac claims, but that's a bit odd, since the parties all agreed that the settlement left alive enough claims to render the case not moot (specifically, the plaintiffs' claims against Goldman Sachs would proceed if the plaintiffs prevailed before the Supreme Court). 

But as I previously posted, I think IndyMac was in an awkward procedural posture to begin with. Not because the split wasn't real, but because the entire issue regarding the statute of repose was necessarily intertwined with prior unsettled issues regarding class action standing and the scope of Rule 15c.  Frankly, I can't help but wonder if the Justices saw the settlement as an excuse to get rid of a bad grant, and they grabbed it.

That just leaves one, and possibly two, Section 11 cases for the Court to decide this Term.

 

September 29, 2014 in Ann Lipton | Permalink | Comments (0)

Law Professor Position - Belmont University

Belmont
Belmont University's School of Law in Nashville, TN has posted a tenure-track assistant professor opening here.

(Disclosure: I am a professor at Belmont University's business school and am teaching Business Associations in the law school this fall.)

Belmont1

September 29, 2014 in Haskell Murray, Jobs, Law School | Permalink | Comments (0)

More on LLCs as Non-Signatories of Operating Agreements . . .

In recent blog posts, two of my favorite bloggers, Keith Paul Bishop and Steve Bainbridge, have highlighted for our attention Delaware and California statutes providing (differently in each case) that an LLC and, at least in Delaware, its managers and members, are bound by the LLC's operating agreement even if they do not sign that agreement.  Bishop notes in his post that the California "RULLCA creates an odd situation in which LLCs are bound by contracts that they did not execute and to which they seemingly are not parties."  In his post Bainbridge cites to the Bishop post and another post by Francis Pileggi.  Certainly, they all have a point.  For students of contract law, the conclusion that a non-party is bound by a contract does not seem to be an obvious result . . . .

The flap in the blogosphere has its genesis in a recent Delaware Chancery Court decision, Seaport Village Ltd. v. Seaport Village Operating Company, LLC, et al. C.A. No. 8841-VCL.  The limited liability company defendant in that case raised as its only defense that it was not a party to the limited liability company agreement and therefore was not bound.  Unsurprisingly in light of applicable Delaware law, Chancellor Laster found the defense wanting as a matter of law.

This issue has more history than my brother bloggers point out, some of which is included in the brief Seaport Village opinion.  I probably don't have all the details, but set forth below is some additional background information that may be useful in thinking about the binding nature of LLC operating agreements.  Others may care to fill in any missing information by leaving comments to this post.

Continue reading

September 29, 2014 in Business Associations, Current Affairs, Delaware, Joan Heminway, LLCs, Unincorporated Entities | Permalink | Comments (2)

Fair Price/Unfair Process: The New Delaware Chancery Court Case

The Delaware Supreme Court has held that fairness review in duty of loyalty cases has two elements: fair dealing and fair price. Weinberger v. UOP, Inc., 457 A.2d 701 (1983). Fair dealing focuses on process: questions such as “when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained.” 457 A.2d at 711. Fair price focuses on the consideration paid or received in the transaction.

Weinberger says that the two elements of fairness must be considered together, that “the test for fairness is not a bifurcated one between fair dealing and fair price.” Id. But, of course, damages will be measured against a fair price. If that’s the case, I ask my students, does fair dealing really make any difference as long as the price is fair?

A Delaware Court of Chancery opinion, In Re Nine Systems Corporation Shareholders Litigation,  (Del. Ch. Sept. 4, 2014), recently dealt with that issue.  Vice Chancellor Noble concluded that the procedure followed by the company was unfair, so the element of fair dealing was not met. He decided that the price was fair but, considering the two elements together, decided that the burden of proving fairness had not been met.

Because of his finding that the price was fair, the Vice Chancellor rejected the plaintiffs’ claim for damages. However, he concluded that the court could require the defendants to pay certain of the plaintiffs' attorneys' fees and costs.

I now have an answer for my students. Even if the price is fair, fair dealing can still make a difference. Of course, I’m not sure anyone other than the plaintiffs’ attorneys will be terribly happy with the result.

September 29, 2014 in Business Associations, C. Steven Bradford, Corporations, Delaware | Permalink | Comments (1)

Sunday, September 28, 2014

ICYMI: Tweets From the Week (Sept. 28, 2014)

September 28, 2014 in Stefan J. Padfield | Permalink | Comments (0)

Saturday, September 27, 2014

Fee shifting, again

I previously posted about Delaware's approval of fee-shifting bylaws, and a legislative attempt to ban them.  That attempt was tabled until next year. 

In the meantime, several companies have adopted such bylaws, although some early challenges to the bylaws ended up being settled before courts could rule on their validity.   J Robert Brown at Race-to-the-Bottom blog reports that a company just went public with a fee shifting charter provision in place (the provision purports to cover securities claims as well as governance claims, but, as I previously posted, I don't think that's possible).

Most interestingly, Oklahoma recently passed a law requiring "loser pays" rules for all derivative litigation.  Which certainly creates an opportunity for a natural experiment in the idea of the market for corporate charters - will companies flock to Oklahoma?  Will investors pressure managers to stay out of Oklahoma (or to go to Oklahoma, if they doubt the value of derivative litigation)?

Stephen Bainbridge reports that the SEC's Investor Advisory Committee will be considering fee-shifting bylaws at its next meeting, and asks (via approving linkage to Keith Paul Bishop) why should the Investor Advisory Committee be conferring with the SEC on a state law contract question?

Well, my answer would be, because the corporate form - by definition - includes judicial oversight as part of the corporate "contract" (if you call it a contract).  Judicial construction of "terms" (if you call them terms) is inherent in its nature, and an important part of ensuring that corporate managers do not exploit shareholders.  Fee-shifting undermines that bargain, especially if applied to representative litigation (where the shareholder has only a small upside but a very large potential downside).  For that reason, the Investor Advisory Committee and the SEC have an interest in making sure that investors "get" what they expect to get - a corporation, which includes judicial oversight as inherent in the organizational form.

And it's not like the SEC hasn't - under the guise of investor protection - policed matters of internal corporate governance before.  For example, the NYSE (which acts under the SEC's direction) requires shareholder votes for certain large new stock issuances in terms of equity or voting power.  The NYSE also forbids disparate reduction in common stock voting power.  One could easily imagine that, even if the SEC doesn't act directly, the NYSE could adopt a rule requiring that listed companies not adopt fee-shifting bylaws.

Oklahoma, however, adds a new wrinkle - I imagine it's not home to many publicly traded corporations, but it's difficult to imagine the SEC relishing the idea of preempting Oklahoma law on this subject, or the NYSE categorically refusing to list Oklahoma corporations.

September 27, 2014 in Ann Lipton | Permalink | Comments (1)

Friday, September 26, 2014

Yockey on The Compliance Case for Social Enterprise

Joseph Yockey (Iowa) has posted a new paper on social enterprise.  I have not read this one yet, but enjoyed his first article on the subject and have added this second one to my long "want to read" list.  The abstract is below.

Social enterprises generate revenue to solve social, humanitarian, and ecological problems. Their products are not a means to the end of profits, but rather profits are a means to the end of their production. This dynamic presents many of the same corporate governance issues facing other for-profit firms, including legal compliance. I contend, however, that traditional strategies for corporate compliance are incongruent to the social enterprise’s unique normative framework. Specifically, traditional compliance theory, with its prioritization of shareholder interests, stands at odds with the social enterprise’s mission-driven purpose. Attention to this distinction is essential for developing effective compliance and enforcement policies in the future. Indeed, arguably the greatest feature of the social enterprise is its potential to harness organizational characteristics that inspire the values and culture most closely linked with ethical behavior — without resort to more costly or intrusive measures.

 

September 26, 2014 in Business Associations, Corporate Governance, Haskell Murray, Social Enterprise | Permalink | Comments (0)

Impact Investing Legal Symposium

The below is from an e-mail I received earlier this week about an impact investment legal symposium on October 2, 2014 from 8:30 a.m. to noon (eastern):

Bingham, in conjunction with the International Transactions Clinic of the University of Michigan Law School, Aspen Network of Development Entrepreneurs (ANDE) Legal Working Group and Impact Investing Legal Working Group, is proud to present a legal symposium on Building a Legal Community of Practice to Add Still More Value to Impact Investments.

The symposium will be held at Bingham McCutchen LLP's New York offices at 339 Park Avenue or you can attend virtually by registering here.

The panelists include Deborah Burand (Michigan), Jonathan Ng (Ashoka), Keren Raz (Paul Weiss), and many others.   

September 26, 2014 in Business Associations, Conferences, Corporate Governance, Entrepreneurship, Haskell Murray, Social Enterprise | Permalink | Comments (0)